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FATCA Update for Forms 1099

Posted by William Byrnes on November 4, 2014


IRS logoFATCA filing requirements of certain foreign financial institutions (FFIs). If you are required to report an account that is a U.S. account under chapter 4 of the Code (chapter 4), you may be eligible to elect to report the account on Form(s) 1099 instead of on Form 8966, “FATCA Report.”

Caution: If the account is either a U.S. account held by a passive NFFE that is a U.S. owned foreign entity or an account held by an owner-documented FFI, do not file a Form 1099 with respect to such an account. Instead, you must file a Form 8966, “FATCA Report,” in accordance with its requirements and its accompanying instructions to report the account for chapter 4 purposes.

Election described in Regulations section 1.1471-4(d)(5)(i)(A). You are eligible to make this election to report an account on Form(s) 1099 if–

  1. You are a participating FFI (including a Reporting Model 2 FFI) (PFFI) or are a registered deemed-compliant FFI (RDC FFI) (other than a Reporting Model 1 FFI) required to report a U.S. account as a condition of your applicable RDC FFI status (see Regulations section 1.1471-5(f)(1)(i));
  2. You are required to report the account as a U.S. account for chapter 4 purposes; and
  3. The account is a U.S. account held by a specified U.S. person that you elect to report under Regulations section 1.1471-4(d)(5)(i)(A).

Election described in Regulations section 1.1471-4(d)(5)(i)(B) . You are eligible to make this election to report an account on Form(s) 1099 if–

  1. You are a PFFI or are a RDC FFI (other than a Reporting Model 1 FFI) required to report a U.S. account as a condition of your applicable RDC FFI status (see Regulations section 1.1471-5(f)(1)(i));
  2. You are required to report the account as a U.S. account for chapter 4 purposes; and
  3. The account is a U.S. account held by a specified U.S. person that is a cash value insurance contract or annuity contract that you elect to report under Regulations section 1.1471-4(d)(5)(i)(B) in a manner similar to section 6047(d).

You may make an election described in Regulations section 1.1471-4(d)(5)(i)(A) or (B) either with respect to all such U.S. accounts or, separately, with respect to any clearly identified group of such accounts (for example, by line of business or by the location where the account is maintained).

Special reporting by U.S. payer described in Regulations section 1.1471-4(d)(2)(iii)(A). If you are a U.S. payer that is a PFFI other than a U.S. branch, you also may satisfy your requirement to report with respect to a U.S. account for chapter 4 purposes by reporting on each appropriate Form 1099 in the manner described in Regulations section 1.1471-4(d)(2)(iii)(A).

Reporting procedures. If you are an FFI that is eligible to make an election described in Regulations section 1.1471-4(d)(5)(i)(A) or (B) or are a U.S. payer reporting as described in Regulations section 1.1471-4(d)(2)(iii)(A), you must do so by filing each appropriate Form 1099 with the IRS and reporting the payments required to be reported by a U.S. payer (as defined in Regulations section 1.6049-5(c)(5)) with respect to the account.

Tip: All Form 1099 filers must have an EIN. If you have not previously filed a Form 1099 or other return, you must obtain an EIN and include it on each Form 1099 that you file. See part K for more information, including how to obtain an EIN.

In addition to the information otherwise required to be reported on the appropriate Form 1099, you also must include the following information for each account you are reporting as described in Regulations section 1.1471-4(d)(2)(iii)(A) or (d)(5)(i)(A) or (B):

  1. The name, address, and TIN of the account holder;
  2. The account number; and
  3. If applicable, the jurisdiction of the branch that maintains the account being reported by adding the branch’s jurisdiction after the payer’s name, that is, “Payer’s Name (Jurisdiction X branch)”.

Caution: If you are an FFI making an election described in Regulations section 1.1471-4(d)(5)(i)(A) or (B) or are a U.S. payer reporting as described in Regulations section 1.1471-4(d)(2)(iii)(A), you are required to report the payee’s account number on each Form 1099 you file (regardless of the fact that the account number otherwise may be optional for purposes of reporting on the applicable Form 1099).

Sponsored FFIs.  If you are a sponsoring entity that is reporting a U.S. account on behalf of a sponsored FFI, report on the appropriate Form(s) 1099 the following information in the payer boxes (if filing on paper) or in the appropriate fields of the payer record (if filing electronically):

  1. For the name, enter the sponsored FFI’s name on the first line and the sponsoring entity’s name on the second line.
  2. For the address, enter the sponsoring entity’s address.
  3. For the federal (or taxpayer) identification number, enter the sponsored FFI’s EIN.

In addition, if you are filing electronically, enter numeric code “1” in the “Transfer Agent Indicator” field. See Publication 1220 for electronic filing of forms. If you are filing on paper, enter your GIIN in the lower right hand portion of the title area on the top of Form 1096, Annual Summary and Transmittal of U.S. Information Returns.  For transmittal of paper forms, see Form 1096 and its accompanying instructions.

Transitional rule. Calendar year 2014 is a transitional year for FFIs to report their U.S. accounts. If you make the election for 2014, you are required to report the account, but you are not required to report any payments pursuant to the election. Even though reporting of payments to an account is not required for 2014, FFIs making the election described in Regulations section 1.1471-4(d)(5)(i)(A) or (B) for 2014 are required to report accounts to which no payments are made on Form 1099-MISC and enter “$1” in Box 3.  Remember to include the name (including the jurisdiction of the branch, if applicable), address, and TIN of the account holder, along with the account number on the Form 1099.

Caution: If you made payments to the account that you are otherwise required to report on Form(s) 1099 for purposes of chapter 61 (for example, because you are a U.S. payer), making an election described in Regulations section 1.1471-4(d)(5)(i)(A) or (B) does not affect your obligation to report such payments on the applicable Form 1099 in accordance with the requirements under chapter 61. See the separate specific instructions for each Form 1099 to determine which Form(s) 1099 to file.

Definitions

For detailed information about definitions that apply for purposes of chapter 4 generally, see Regulations section 1.1471-1(b). A Reporting FI under a Model 2 IGA should also refer to definitions that may apply under that IGA or apply pursuant to any applicable domestic law pertaining to its FATCA obligations.  Solely for purposes of filing Forms 1099, the following definitions are provided to help guide filers through the process.

Account. An account means a financial account described in Regulations section 1.1471-5(b), including a cash value insurance contract and annuity contract.

Account holder. An account holder is the person who holds a financial account, as determined under Regulations section 1.1471-5(a)(3).

Foreign financial institution (FFI).  Except as otherwise provided for certain foreign branches of a U.S. financial institution, a foreign financial institution means a financial institution that is a foreign entity. The term foreign financial institution also includes a foreign branch of a U.S. financial institution with a QI Agreement in effect.

Owner-documented FFI.  An owner-documented FFI is an FFI described in Regulations section 1.1471-5(f)(3).

Participating FFI (PFFI).  A PFFI is an FFI, or branch of an FFI, that has in effect an FFI agreement with the IRS, and includes a Reporting Model 2 FFI.

Registered deemed-compliant FFI (RDC FFI).  A registered deemed-compliant FFI is an FFI described in Regulations section 1.1471-5(f)(1), and includes a Reporting Model 1 FFI, a QI branch of a U.S. financial institution that is a Reporting Model 1 FFI, and a nonreporting FI treated as a registered deemed-compliant FFI under a Model 2 IGA.

Reporting Model 1 FFI.  A Reporting Model 1 FFI is an FI, including a foreign branch of a U.S. financial institution, treated as a reporting financial institution under a Model 1 IGA.

Reporting Model 2 FFI.  A Reporting Model 2 FFI is an FI or branch of an FI treated as a reporting financial institution under a Model 2 IGA.

Specified U.S. person. A specified U.S. person is any U.S. person described in Regulations section 1.1473-1(c).

Sponsored FFI. A Sponsored FFI is an investment entity or an FFI that is a controlled foreign corporation having a Sponsoring Entity that performs certain due diligence, withholding, and reporting obligations on behalf of the Sponsored FFI.

Sponsoring Entity. A Sponsoring Entity is an entity that has registered with the IRS to perform the due diligence, withholding, and reporting obligations of one or more Sponsored FFIs or Sponsored Direct Reporting NFFEs.

U.S. account.  A U.S. account is any account held by one or more specified U.S. persons. A U.S. account also includes any account held by a passive NFFE that has one or more substantial U.S. owners, or in the case of a Reporting Model 2 FFI, any account held by a passive NFFE that has one or more controlling persons that are specified U.S. persons. See Regulations section 1.1471-5(a) and an applicable Model 2 IGA.

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FATCA Supplement to the 2014 General Instructions for Certain Information Returns Reporting on Forms 1099

Posted by William Byrnes on September 29, 2014


International Financial Law Prof BlogInternational Financial Law Prof Blog.

FATCA filing requirements of certain foreign financial institutions (FFIs). If you are required to report an account that is a U.S. account under chapter 4 of the Code (chapter 4), you may be eligible to elect to report the account on Form(s) 1099 instead of on Form 8966, “FATCA Report.”

Caution: If the account is either a U.S. account held by a passive NFFE that is a U.S. owned foreign entity or an account held by an owner-documented FFI, do not file a Form 1099 with respect to such an account. Instead, you must file a Form 8966, “FATCA Report,” in accordance with its requirements and its accompanying instructions to report the account for chapter 4 purposes. …

download for free –> LexisNexis® Guide to FATCA Compliance

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6 Tax Facts for Self-Employed Taxpayers

Posted by William Byrnes on April 23, 2014


In Tax Tip 2014-34, the IRS provided 6 tax tips for self employed taxpayers.

  1. Self-employment income includes income received for part-time work.  This is in addition to income from a regular job.
  2. A self employed taxpayer must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040.
  3. A self employed taxpayer may have to pay self-employment tax as well as income tax if a profit was earned.  Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to calculate whether any self employment tax is due.
  4. A self employed taxpayer may need to make estimated tax payments. Taxpayers typically make these payments on income that is not subject to withholding.  A taxpayer may be charged a penalty if not paying enough estimated taxes throughout the entire year.
  5. A self employed taxpayer can deduct some expenses paid to run your trade or business. A self employed taxpayer can deduct most business expenses in full, but some must be ’capitalized.’  Capitalization means that the deduction will be limited to just a portion of the expense each year over a period of years.  By example, only the first $5,000 of the “start-up” expenses for a new business of the taxpayer is potentially deductible, and not until the year in which the active trade or business begins.  All other start up expenses must be amortized over a 180-month period, beginning with the month the business starts.  Thus, start up expenses in general are only deductible over this 180 month period, and not in the year actually incurred.
  6. A self employed taxpayer can deduct business expenses only if the expenses are both ordinary and necessary.  An ordinary expense is one that is common and accepted in an industry.  A necessary expense is one that is helpful and proper for the trade or business.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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Employees and Independent Contactors

Posted by William Byrnes on August 9, 2013


Why is this Topic Important to Financial Professionals? Many small business owners are faced with issues surrounding Form 1099 and how the rules apply to their businesses.  

What are some distinctions of the employees versus independent contractors?

An independent contractor, in general, has a majority of control over the details of his job function and only the end result is dictated by the company or individual who hires.  This is what is commonly known as “the degree of behavioral control.”  Another category used by the IRS and the courts to determine the status of an individual as either an employee or independent contractor is “financial control”.  Financial control involves examining the financial relationship between the parties such as reimbursement, and/or if any materials or space has been provided to accomplish the job.  Other relationship factors such as having a contract or agreement between the parties, as well as the terms of any contract, must also be examined in determining the employment status of the individual.

One of the issues that is often overlooked in the area of an employee relationship instead of an independent contractor relationship is that employees have X number of hours to dedicate to employment each week, whether that number is 40, 50, or anything else that an employment agreement might state.  Independent contracts are often not required to expend a set number of hours to accomplish a task, but instead enough hours to accomplish the task.

Another relevant issue to be considered in determining which of the two employment relations exist is that of termination.  An “At-Will” employee can normally be terminated and generally has no cause for a breach of contract and cannot sue for damages.  An independent contractor cannot usually be terminated without a breach of contract.

Tax Distinctions

Taxation of the two dissimilar positions is significantly different.  Independent contractors essentially work for themselves, and the business that pays them is, in effect, a client.  Generally, and independent contractor will file a tax return as a sole proprietor or closely held corporation, such as a Subchapter S Corporation.  An employee is subject to federal income tax withholding and the employer is subject to payroll taxes, included in the general W-2 process.

Independent contractors, like other businesses, recognize revenue and expenses. The independent contractor usually receives a Form 1099 from the source that pays him.  The Code and Regulations state that when a trade or business pays an individual for certain “services” over $600 that a Form 1099 is required to be filed with the Secretary of the Treasury.[1] And just as other businesses realize “legislative graces of Congress,” such as Section 162 deductions, the sole proprietor too may have expenses that generally qualify as trade or business expenses.

For a detailed analysis regarding independent contractors, see Tax Facts Q 814. How are business expenses reported for income tax purposes?


[1] Internal Revenue Code Section (IRC) 6041, Treasury Regulations (TR) 1.6041-1(a)(1)(i), TR 1.6041-1(a)(2).  

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CAN I GET YOUR 1099 INFO WITH MY TO GO ORDER?

Posted by William Byrnes on October 14, 2010


By Associate Dean William H. Byrnes, IV and Professor Hannah Bible of the of the International Tax and Financial Services Graduate Program of Thomas Jefferson School of Law

I. CAN I GET A 1099 WITH THAT?

On January 1, 2012 Mr. Irk pulls up to his local McDonalds drive thru in his new hydro car, being the general public conscious man he is.

Id like a Big Mac, a small order of fries, and a signed 1099 Form on the side please. With speaker hiss overshadowing, a voice responds, OK thats a Big Mac, a small fry, and a fried small apple pie. No, Mr. Irk responds, a signed 1099 form. Again barely understandable over the hiss of the speaker, eh, so you want four fried small apple pies? Mr. Irk, living up to his namesake, responds no no, not four, form.

Sir, I aint got no idea what you talkin bout. Clearly the local McDonalds counsel did not advise his client on the most recent changes in tax law.

Unless the Treasury takes great prerogative and creativity in the writing of regulations applicable to the recent Amendments set out in I.R.C. 6041, throughout 2011 attorneys and consultants should be preparing clients on how to comply with the new reporting requirements.

Starting in 2012 all gross proceeds,  in addition to the previously required gains, profits, and income currently required to be reported, will need to be reported to the Internal Revenue Service (IRS) on Form 1099-MISC (or an applicable 1099 form within the 1099 series) from any amount received in consideration of …. Thus, starting January 1, sales of tangible goods will now require reporting by the purchaser.

Please read this 10 page detailed analysis of how to advise your clients and practice advice at Mertens Developments & Highlights via your Westlaw subscription (<– click there) or order via Thomson-West (<– click there).

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Independent Contractors Tax and Reporting Issues

Posted by William Byrnes on August 28, 2010


Why is this Topic Important to Financial Professionals:  A general understanding of classification of employees versus independent contractors will not only save your client aggravation, but could also avoid additional taxes and penalties.  In addition, the tax consequences of this determination can be far reaching, and an understanding of the concepts of income and types of allowable deductions can help enable more comprehensive planning for the Financial professional and clients.

Please read my blogticle at Advisor FYI Independent Contractors Tax and Reporting Issues

For a detailed analysis regarding independent contractors, see Tax Facts Q 814. How are business expenses reported for income tax purposes?

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Employees, Independent Contactors, 1099s and New Legislation That Your Clients Should Know About

Posted by William Byrnes on August 27, 2010


Why is this Topic Important to Financial Professionals? Many small business owners are faced with issues surrounding Form 1099 and how the rules apply to their businesses.  New regulations passed as part of Health Care Reform will change the past Form 1099 standard, requiring its applicability to many more situations and persons.

Please read my blogticle at Advisor FYI Employees, Independent Contactors, 1099s and New Legislation That Your Clients Should Know About

For a detailed analysis regarding independent contractors, see Tax Facts Q 814. How are business expenses reported for income tax purposes?

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