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Welcome to the Wiesenberg & Co. Certified Public Accountants foreign property owner tax update.

How does the Internal Revenue Service track foreign investors' financial information? How do recent changes in the law affect this process?

The IRS tracks non-residents in almost the same way it tracks US citizens. Citizens are issued a nine-digit number called a Social Security number. This number must be utilized by the US citizen for all of his or her tax returns and for many other financial purposes. This number is used throughout the citizen's life to track compliance with the persons tax obligations. Beginning in 1996, the IRS instituted a complex tracking system for individuals with US tax obligations who do not have Social Security numbers. These numbers called Individual Taxpayer Identification Numbers (ITINs) are also nine digits long and work in much the same way that Social Security numbers do.

This ITIN number gives the IRS an efficient way to track the non-resident's tax status. The tracking number also allows the IRS to automatically apply the specific laws relating to non-citizens. Obtaining and using an ITIN number is mandatory for any non-resident who needs to file a US tax return. When a non-resident sells a property the IRS can access information regarding the cost and basis of the property based on past tax returns with the same ITIN number (if prior returns were not filed this would also be immediately picked up - and the 10% withholding would not be released without filing the requisite tax returns). The ITIN is also used to check which credits and deductions apply.

Prior to December 17, 2003, one could obtain an ITIN number simply by submitting the appropriate request form. Partly in response to security concerns in a post 911 atmosphere, legislation was passed at the end of 2003 making this process a little more complicated. Currently to obtain the ITIN, the non-resident needs to submit form W-7 with the completed tax return. Specific items of identification are also required to substantiate information provided on the W-7. Officially original documents need to be sent, but notarized copies are also excepted.

Reminder: If someone has missed the June 15 deadline it is still beneficial to file as soon as possible

Tax tip of the day

If a Villa is used as a non-citizen's main home, an exclusion of up to $500,000 of gain on a sale can apply.

Please contact us with any comments or questions you may have.

(This newsletter is designed to be of general interest. The specific techniques and information discussed may not apply to you. Before acting on any matter contained herein, consult with your professional advisor.)