Thomas C. Roberge & Company

YEAR-END HOUSEKEEPING REQUIREMENTS
FOR RENTAL AGENTS WITH
FOREIGN CLIENTS

October 14, 2005

Thomas C. Roberge & Company
St. Petersburg and Sarasota

Telephone: (727) 822-9393
Contact: TaxInfo@RobergeCo.com

With the end of another year rapidly approaching, now is the best time to get ready to review the documentation requirements you will be responsible for in dealing with your foreign landlord clients. Failure to comply with these rules could subject you to substantial monetary penalties by the Internal Revenue Service.

The first requirement is that you identify which foreign landlord clients need to furnish you a new Form W-8ECI, Certificate of Foreign Person’s Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States. This is the form you need to avoid the 30% withholding tax on the rental income you collect for your foreign clients. The foreign property owner must furnish you his or her U.S. tax identification number on Line 6 of the form for it to be effective.

A Form W-8ECI remains in effect from the date the form is signed until the last day of the third succeeding calendar year. For example, a Form W-8ECI signed on October 10, 2002, remains valid only through December 31, 2005. For the year beginning January 1, 2006 you will need a new, fully executed Form W-8ECI (including the tax identification number on Line 6). Otherwise, you are required to withhold and deposit with the IRS 30% of the gross rent you collect for that foreign client until you are furnished the executed form. You and your company can be held liable for not complying with these rules.

The next requirement rental agents should start thinking about with the end of the year approaching is the annual filing requirement for Forms 1099-MISC and Form 1042-S. Form 1099-MISC is to report to the IRS the rental income you collect for domestic landlords. Form 1042-S (and not Form 1099-MISC) is required to be used to report rental income you collect for foreign persons.

Don’t be intimidated or confused by the official name of Form 1042-S (Foreign Person’s U.S. Source Income Subject to Withholding) – it is nothing more than a glorified Form 1099-MISC with a few more “bells and whistles” on it.

The form can even be fun to prepare when you have to look up the country codes of the foreign owners. For example, this year our favorite exotic countries include British Indian Ocean Territory, Burkina Faso, Comoros, Jan Mayen, Niue, Mayotte, Tokelau, Tuvalu and Howie In The Hills, Florida.

Keep your questions coming!

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.