Thomas C. Roberge & Company

CONDOMINIUM ASSOCIATIONS RENTING UNITS

ON BEHALF OF THEIR FOREIGN OWNERS

ARE SUBJECT TO THE SAME RULES AND LIABILITIES

AS RENTAL AGENTS

February 14, 2007

Thomas C. Roberge & Company

St. Petersburg and Sarasota

Telephone: (727) 822-9393

Contact: Troberge@RobergeCo.com

There are many condominium associations in Florida that handle rentals on behalf of their owners. The owners are U.S. or foreign.

The condominium associations that handle these rentals are subject to the same reporting and compliance rules as rental agents. These rules include collecting and payment of state and county sales taxes, filing information reports (Forms 1099, 1096, 1042 and 1042-S) annually with the Internal Revenue Service and complying with the special rules that apply to foreign owners who rent their Florida condominiums through their associations.

This article discusses the rules that apply to condominium associations that handle rentals for their foreign owner/members. Failure to comply with these rules can subject the association membership to taxes, penalties and interest by the IRS. Also, associations (and their members) that do not comply with the state and local sales tax collecting and remittance rules are also subject to taxes, penalties and interest.

A rental agent (e.g. an association management office) who collects rents on behalf of a foreign unit owner is required to withhold 30% of the gross rents they collect, and remit the withholding to the Internal Revenue Service (“IRS”) unless the foreign owner furnishes the association management a fully executed IRS Form W-8ECI, Certificate of Foreign Person’s Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. If the rental agent does not receive a fully executed Form W-8ECI, then he or she, the association and its membership are liable for this 30% tax, plus penalties and interest. If the association is unable to recover this from the foreign property owner, then the association will have to pay these amounts from its assets. If the association has insufficient assets then it will have to levy a special assessment against it's members to pay the IRS. Otherwise, the IRS can file a tax lien to protect its interest.

A fully completed Form W-8ECI must include a valid U.S. social security or tax identification number for the foreign owner to be effective. If it does not receive this number, then the association rental agent must collect the 30% tax and remit it to the IRS.

Furthermore, the association is subject to annual information reporting to the IRS for rents they collect on behalf of their foreign owners. These forms include Forms 1042 and 1042-S.

Our firm specializes in U.S. international tax and compliance issues. Feel free to contact us at (727) 822-9393 or (941) 952-5848 if you have questions or need assistance.

Internal Revenue Service Circular 230 Disclosure – You are hereby advised that any tax advice contained in this newsletter is not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or to support the marketing of any tax transactions or matters addressed herein.