Discussion:Foreign Partner

In reviewing IRC Sec 1446 and the temp regs, the quarterly withholding requirements for a foreign partner seem harsh, particularly with the US partnership being an accrual basis taxpayer.

Does anyone have a suggestion for going about this another way? We might even be open to changing the organization's structure to make this work.

Thanks for any thoughts.

Greetings, Mike D.

I believe that a foreign partner of a US - based partnership is still subject to income tax withholding regardless of whether he/she has a taxpayer identification number in The United States of America. Also, I have a question. What does the fact that the US partnership is an accrual basis taxpayer have to do with the perceived harsh income tax withholding requirements of a foreign partner?

Instead of a regular partnership, you can form a publicly traded partnership. Apparently, a publicly traded partnership can make a special election to not withhold, and report, income tax from the partnership income allocable to the foreign partner.

Thank you.

Very Truly Yours,

Angelo Liberati CPA, CFE Managing Member Accurate Accountants, CPAs, LLC

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I am planning to start a partnership or LLC in the US, with a foreign partner(my cousin who's a Uk citizen) in the UK (50-50% partnership). The company would be divided equally between the foreign partner and me(US permanent resident) . I would be entitled to a salary, after which the profits would be divided equally. The UK office will receive 5% commission on all sales (this commission to be built into the price to be quoted to the customer. Capital to be introduced 50 - 50 by both the parties.

At present, UK office buys from US based resellers who in turn buy from US distributors. They would normally work on 7 to 10% margin. The UK office then add its margin and resells it to its customers. Normal margin that UK office puts on is between 5 to 10% depending on the product. It also costs for the goods to be shipped from US to UK, adding to the selling price. By getting an US office to buy from US distributors and ship it directly to the customerr, it would save on freight costs. This would be profit for the company. The price that the US office would Invoice to the customers would include 5-7% commission that would be paid to UK office. This would be inbuilt into the prices quoted to the customers. From the profits that US office would make (after paying the overheads, commission & expenses) there would be an allowance made to pay a salary to me (US Partner) Both parties concerned would fix this. Any surplus left over after this would be divided 50% for partner in US and 50% for partner in UK.

I wanted to know the following:

1) Whether to start up as Partnership or a Limited company - what are the the tax implication, liabilities involved and the ease of setting up. 2) Are there any problems associated with having a non resident as a partner or LLC member 3) What are legal requirements for sole propertier, partnership and an LLC?

Alternately, can I start it as a sole propertiership, then ask UK office bill me for its sales service. Can I pay them a sales commission and would this be part of my expense. How do I need to report this on my taxes?

Please advice.

Thanks

No problem with having an NR as an LLC member or a partner in the partnership.

If you are a valid US citizen (green card or permanent resident) you can have a sole prop. I would also suggest that you form an LLC to operate this under for the liability protection it offers. You can pay a UK company a commission for sales leads and if you don't own or control any part of that UK company, you should have no special reporting requirements for doing so in the US...

As far as legal requirements are concerned, this is something that an attorney would have to answer for you :)

I would never use a US LLC for a UK domiciliary, especially after the most recent Finance Bill published at the end of March 2008.

Thank you for sharing your response. So the only reason their application was rejected was because there was no Form 1040NR attached? Is it something new? I know someone else applied for ITIN with Form W-7 and the form was filed along with the required documents without any income tax return form attached, and the ITIN was issued. Also, if they take it to an authorized accepting agent, would the agent file the return for them at the same time? Thank you.