Thomas C. Roberge & Company

IRS SOUNDS “WARNING SHOT”

TO RENTAL AGENTS

WITH FOREIGN LANDLORD CLIENTS

April 19, 2007

Thomas C. Roberge & Company

St. Petersburg and Sarasota

Telephone: (727) 822-9393

In an unprecedented move by the IRS, they have announced for the first time ever that they have redirected their resources and will significantly increase their audits of Form 1042 filers. The IRS has trained more than 400 agents and is also adding international agents for technical assistance.

This may not sound like much to the lay person. However, translated this means that they are going after, amongst others such as financial institutions, rental agents with foreign landlord owner clients. Since Florida is heavily dependent on foreign investors in U.S. real estate, the IRS tentacles will attack realtors, rental agents, leasing agents, property managers and the like who handle rentals in any way involving foreign property owners.

A “1042 filer” includes any of the above. “1042” is IRS slang for IRS Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons”. A Form 1042 is the glorified equivalent for IRS Form 1099 which is used for U.S. landlords.

Rental agents should review their records and documentation for compliance with the tax rules in this area and perform as much “housekeeping” as possible so that you are prepared as best you can be in case your company is audited by the IRS.

Some of the “housekeeping” you should do includes:

· Ensuring that you have current, completely executed Forms W-8ECI in your files for your foreign landlord clients. Remember, Form W-8ECI is only valid until the last day of the third succeeding calendar year from the date the form is signed. For example, a Form W-8ECI signed on September 30, 2004 is valid only until December 31, 2007. Upon expiration of that three year period you must obtain a new Form W-8ECI from that foreign individual or collect 30% of gross rents you handle for that client from January 1, 2008 and timely remit it to the IRS.

· Reviewing Forms W-8ECI to see that you have valid U.S. social security or tax identification numbers for each one of your foreign clients you collect rents for. Home country tax identification numbers or pre-1997 tax identification numbers (those with the number “28” in the middle) are not acceptable and make the Form W-8ECI invalid.

· Reviewing your annual Forms 1042-S (the foreign equivalent of Form 1099) to see that you have valid tax ID numbers for each person you are reporting.

We expect that there will be problems for those who filed Forms 1042-S without valid U.S. social security or tax ID numbers for the foreign landlord. There is great potential in this situation that the IRS will assess 30% tax on the amount of rents handled, plus penalties and interest on the tax assessed. What could compound this problem further is that it could be very difficult (if not impossible) to try and recover this from your foreign property owner (especially if they are no longer in your rental program or have sold their Florida vacation property and have left the U.S. permanently).

The financial implications to those affected could be considerable and absolutely devastating. We suggest you start today to do as much corrective work as possible to be ready in case your company is audited by the IRS. Please contact us at (727) 822-9393 if you have questions or would like our assistance in reviewing your compliance with these rules. We have the necessary expertise and our staff is ready to help you.

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.