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Free Income Tax HelpDownload Irs Form 1040 2010File 2011 Taxes FreeState Taxes OnlyCan I File My 2011 TaxesWhere To Find 2011 Tax Forms1040x Calculator2012 1040ezDo State Taxes Online Free2011 Tax 1040 FormCan I Still File My 2012 TaxesIrs Form 1040ez 2011Www Myfreetaxes ComIrs Gov Irs Forms1040xformHow To Make A Tax AmendmentMypay Military PayLate Tax PenaltyFree 2012 Taxes2007 Federal Tax FormsVita Tax Program 2012 LocationsFiling State Taxes Online For FreeIrs Free EfileH&rblockonline1040 Ez Form 2011Does Military Pay TaxesTaxact 2010 Free VersionSelf Employment Tax FilingFederal Tax Amendment FormCan I File My 2012 Taxes OnlineEz 1040 E-file1040ez 2010 Tax FormSearch Freetaxusa1040 Ez FilingTax Form 1040 EzCan You File An Amended Tax Return OnlineHow Do I Amend My 2012 TaxesFree Tax Returns1040ez 2012 FormPrintable 1040ez Forms

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Vita free tax preparation Publication 527 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionSale of main home used as rental property. Vita free tax preparation Tax-free exchange of rental property occasionally used for personal purposes. Vita free tax preparation Ordering forms and publications. Vita free tax preparation Tax questions. Vita free tax preparation Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 527, such as legislation enacted after it was published, go to www. Vita free tax preparation irs. Vita free tax preparation gov/pub527. Vita free tax preparation What's New Net Investment Income Tax (NIIT). Vita free tax preparation  Beginning in 2013, you may be subject to the Net Investment Income Tax (NIIT). Vita free tax preparation NIIT is a 3. Vita free tax preparation 8% tax on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over the threshold amount. Vita free tax preparation Net investment income may include rental income and other income from passive activities. Vita free tax preparation Use Form 8960, Net Investment Income Tax, to figure this tax. Vita free tax preparation For more information on NIIT, go to IRS. Vita free tax preparation gov and enter “Net Investment Income Tax” in the search box. Vita free tax preparation Reminders Photographs of missing children. Vita free tax preparation  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Vita free tax preparation Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Vita free tax preparation You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Vita free tax preparation Introduction Do you own a second house that you rent out all the time? Do you own a vacation home that you rent out when you or your family isn't using it? These are two common types of residential rental activities discussed in this publication. Vita free tax preparation In most cases, all rental income must be reported on your tax return, but there are differences in the expenses you are allowed to deduct and in the way the rental activity is reported on your return. Vita free tax preparation First, this publication will look at the rental-for-profit activity in which there is no personal use of the property. Vita free tax preparation We will look at types of income and when each is reported, and at types of expenses and which are deductible. Vita free tax preparation Chapter 2 discusses depreciation as it applies to your rental real estate activity—what property can be depreciated and how to figure it. Vita free tax preparation Chapter 3 covers the actual reporting of your rental income and deductions, including casualties and thefts, limitations on losses, and claiming the correct amount of depreciation. Vita free tax preparation Special rental situations are grouped together in chapter 4. Vita free tax preparation These include condominiums, cooperatives, property changed to rental use, renting only part of your property, and a not-for-profit rental activity. Vita free tax preparation Finally, in chapter 5, we will look at the rules for rental income and expenses when there is also personal use of the dwelling unit, such as a vacation home. Vita free tax preparation Sale or exchange of rental property. Vita free tax preparation   For information on how to figure and report any gain or loss from the sale, exchange or other disposition of your rental property, see Publication 544, Sales and Other Dispositions of Assets. Vita free tax preparation Sale of main home used as rental property. Vita free tax preparation   For information on how to figure and report any gain or loss from the sale or other disposition of your main home that you also used as rental property, see Publication 523, Selling Your Home. Vita free tax preparation Tax-free exchange of rental property occasionally used for personal purposes. Vita free tax preparation   If you meet certain qualifying use standards, you may qualify for a tax-free exchange (a like-kind or section 1031 exchange) of one piece of rental property you own for a similar piece of rental property, even if you have used the rental property for personal purposes. Vita free tax preparation   For information on the qualifying use standards, see Rev. Vita free tax preparation Proc. Vita free tax preparation 2008–16, 2008 IRB 547, at http://www. Vita free tax preparation irs. Vita free tax preparation gov/irb/2008-10_IRB/ar12. Vita free tax preparation html . Vita free tax preparation For more information on like-kind exchanges, see chapter 1 of Publication 544. Vita free tax preparation Comments and suggestions. Vita free tax preparation   We welcome your comments about this publication and your suggestions for future editions. Vita free tax preparation   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Vita free tax preparation NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Vita free tax preparation Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Vita free tax preparation   You can send your comments from www. Vita free tax preparation irs. Vita free tax preparation gov/formspubs/. Vita free tax preparation Click on “More Information” and then on “Comment on Tax Forms and Publications”. Vita free tax preparation   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Vita free tax preparation Ordering forms and publications. Vita free tax preparation   Visit www. Vita free tax preparation irs. Vita free tax preparation gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Vita free tax preparation Internal Revenue Service 1201 N. Vita free tax preparation Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Vita free tax preparation   If you have a tax question, check the information available on IRS. Vita free tax preparation gov or call 1-800-829-1040. Vita free tax preparation We cannot answer tax questions sent to either of the above addresses. Vita free tax preparation Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 523 Selling Your Home 534 Depreciating Property Placed in Service Before 1987 535 Business Expenses 544 Sales and Other Dispositions of Assets 547 Casualties, Disasters, and Thefts 551 Basis of Assets 925 Passive Activity and At-Risk Rules 946 How To Depreciate Property Form (and Instructions) 4562 Depreciation and Amortization 5213 Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit 8582 Passive Activity Loss Limitations Schedule E (Form 1040) Supplemental Income and Loss   See chapter 6, How To Get Tax Help for information about getting these publications and forms. Vita free tax preparation Prev  Up  Next   Home   More Online Publications
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Vita free tax preparation Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. Vita free tax preparation S. Vita free tax preparation Taxpayer Identification NumbersUnexpected payment. Vita free tax preparation Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. Vita free tax preparation Electronic reporting. Vita free tax preparation Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. Vita free tax preparation S. Vita free tax preparation Real Property InterestForeign corporations. Vita free tax preparation Domestic corporations. Vita free tax preparation U. Vita free tax preparation S. Vita free tax preparation real property holding corporations. Vita free tax preparation Partnerships. Vita free tax preparation Trusts and estates. Vita free tax preparation Domestically controlled QIE. Vita free tax preparation Late filing of certifications or notices. Vita free tax preparation Certifications. Vita free tax preparation Liability of agent or qualified substitute. Vita free tax preparation Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Vita free tax preparation Withholding of Tax In most cases, a foreign person is subject to U. Vita free tax preparation S. Vita free tax preparation tax on its U. Vita free tax preparation S. Vita free tax preparation source income. Vita free tax preparation Most types of U. Vita free tax preparation S. Vita free tax preparation source income received by a foreign person are subject to U. Vita free tax preparation S. Vita free tax preparation tax of 30%. Vita free tax preparation A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. Vita free tax preparation The tax is generally withheld (NRA withholding) from the payment made to the foreign person. Vita free tax preparation The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. Vita free tax preparation In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. Vita free tax preparation S. Vita free tax preparation source income. Vita free tax preparation Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. Vita free tax preparation NRA withholding does not include withholding under section 1445 of the Code (see U. Vita free tax preparation S. Vita free tax preparation Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). Vita free tax preparation A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. Vita free tax preparation However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. Vita free tax preparation S. Vita free tax preparation person is not required to withhold. Vita free tax preparation In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. Vita free tax preparation Withholding Agent You are a withholding agent if you are a U. Vita free tax preparation S. Vita free tax preparation or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. Vita free tax preparation A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. Vita free tax preparation S. Vita free tax preparation branch of certain foreign banks and insurance companies. Vita free tax preparation You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. Vita free tax preparation Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. Vita free tax preparation In most cases, the U. Vita free tax preparation S. Vita free tax preparation person who pays an amount subject to NRA withholding is the person responsible for withholding. Vita free tax preparation However, other persons may be required to withhold. Vita free tax preparation For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. Vita free tax preparation In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. Vita free tax preparation Liability for tax. Vita free tax preparation   As a withholding agent, you are personally liable for any tax required to be withheld. Vita free tax preparation This liability is independent of the tax liability of the foreign person to whom the payment is made. Vita free tax preparation If you fail to withhold and the foreign payee fails to satisfy its U. Vita free tax preparation S. Vita free tax preparation tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. Vita free tax preparation   The applicable tax will be collected only once. Vita free tax preparation If the foreign person satisfies its U. Vita free tax preparation S. Vita free tax preparation tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. Vita free tax preparation Determination of amount to withhold. Vita free tax preparation   You must withhold on the gross amount subject to NRA withholding. Vita free tax preparation You cannot reduce the gross amount by any deductions. Vita free tax preparation However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. Vita free tax preparation   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. Vita free tax preparation In no case, however, should you withhold more than 30% of the total amount paid. Vita free tax preparation Or, you may make a reasonable estimate of the amount from U. Vita free tax preparation S. Vita free tax preparation sources and put a corresponding part of the amount due in escrow until the amount from U. Vita free tax preparation S. Vita free tax preparation sources can be determined, at which time withholding becomes due. Vita free tax preparation When to withhold. Vita free tax preparation   Withholding is required at the time you make a payment of an amount subject to withholding. Vita free tax preparation A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. Vita free tax preparation A payment is considered made to a person if it is paid for that person's benefit. Vita free tax preparation For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. Vita free tax preparation A payment also is considered made to a person if it is made to that person's agent. Vita free tax preparation   A U. Vita free tax preparation S. Vita free tax preparation partnership should withhold when any distributions that include amounts subject to withholding are made. Vita free tax preparation However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. Vita free tax preparation S. Vita free tax preparation partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. Vita free tax preparation If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. Vita free tax preparation A U. Vita free tax preparation S. Vita free tax preparation trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. Vita free tax preparation To the extent a U. Vita free tax preparation S. Vita free tax preparation trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. Vita free tax preparation Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. Vita free tax preparation (See Returns Required , later. Vita free tax preparation ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. Vita free tax preparation Form 1099 reporting and backup withholding. Vita free tax preparation    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. Vita free tax preparation S. Vita free tax preparation person. Vita free tax preparation You must withhold 28% (backup withholding rate) from a reportable payment made to a U. Vita free tax preparation S. Vita free tax preparation person that is subject to Form 1099 reporting if any of the following apply. Vita free tax preparation The U. Vita free tax preparation S. Vita free tax preparation person has not provided its taxpayer identification number (TIN) in the manner required. Vita free tax preparation The IRS notifies you that the TIN furnished by the payee is incorrect. Vita free tax preparation There has been a notified payee underreporting. Vita free tax preparation There has been a payee certification failure. Vita free tax preparation In most cases, a TIN must be provided by a U. Vita free tax preparation S. Vita free tax preparation non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. Vita free tax preparation A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. Vita free tax preparation You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. Vita free tax preparation S. Vita free tax preparation person. Vita free tax preparation For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. Vita free tax preparation S. Vita free tax preparation person subject to Form 1099 reporting. Vita free tax preparation See Identifying the Payee , later, for more information. Vita free tax preparation Also see Section S. Vita free tax preparation Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. Vita free tax preparation Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. Vita free tax preparation Wages paid to employees. Vita free tax preparation   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. Vita free tax preparation See Pay for Personal Services Performed , later. Vita free tax preparation Effectively connected income by partnerships. Vita free tax preparation   A withholding agent that is a partnership (whether U. Vita free tax preparation S. Vita free tax preparation or foreign) is also responsible for withholding on its income effectively connected with a U. Vita free tax preparation S. Vita free tax preparation trade or business that is allocable to foreign partners. Vita free tax preparation See Partnership Withholding on Effectively Connected Income , later, for more information. Vita free tax preparation U. Vita free tax preparation S. Vita free tax preparation real property interest. Vita free tax preparation   A withholding agent also may be responsible for withholding if a foreign person transfers a U. Vita free tax preparation S. Vita free tax preparation real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. Vita free tax preparation S. Vita free tax preparation real property interest to a shareholder, partner, or beneficiary that is a foreign person. Vita free tax preparation See U. Vita free tax preparation S. Vita free tax preparation Real Property Interest , later. Vita free tax preparation Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. Vita free tax preparation It does not apply to payments made to U. Vita free tax preparation S. Vita free tax preparation persons. Vita free tax preparation Usually, you determine the payee's status as a U. Vita free tax preparation S. Vita free tax preparation or foreign person based on the documentation that person provides. Vita free tax preparation See Documentation , later. Vita free tax preparation However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. Vita free tax preparation Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. Vita free tax preparation However, there are situations in which the payee is a person other than the one to whom you actually make a payment. Vita free tax preparation U. Vita free tax preparation S. Vita free tax preparation agent of foreign person. Vita free tax preparation   If you make a payment to a U. Vita free tax preparation S. Vita free tax preparation person and you have actual knowledge that the U. Vita free tax preparation S. Vita free tax preparation person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. Vita free tax preparation However, if the U. Vita free tax preparation S. Vita free tax preparation person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. Vita free tax preparation   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. Vita free tax preparation S. Vita free tax preparation person and not as a payment to a foreign person. Vita free tax preparation You may be required to report the payment on Form 1099 and, if applicable, backup withhold. Vita free tax preparation Disregarded entities. Vita free tax preparation   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. Vita free tax preparation The payee of a payment made to a disregarded entity is the owner of the entity. Vita free tax preparation   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. Vita free tax preparation   If the owner is a U. Vita free tax preparation S. Vita free tax preparation person, you do not apply NRA withholding. Vita free tax preparation However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. Vita free tax preparation You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. Vita free tax preparation Flow-Through Entities The payees of payments (other than income effectively connected with a U. Vita free tax preparation S. Vita free tax preparation trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. Vita free tax preparation This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Vita free tax preparation Income that is, or is deemed to be, effectively connected with the conduct of a U. Vita free tax preparation S. Vita free tax preparation trade or business of a flow-through entity is treated as paid to the entity. Vita free tax preparation All of the following are flow-through entities. Vita free tax preparation A foreign partnership (other than a withholding foreign partnership). Vita free tax preparation A foreign simple or foreign grantor trust (other than a withholding foreign trust). Vita free tax preparation A fiscally transparent entity receiving income for which treaty benefits are claimed. Vita free tax preparation See Fiscally transparent entity , later. Vita free tax preparation In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. Vita free tax preparation You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. Vita free tax preparation You must determine whether the owners or beneficiaries of a flow-through entity are U. Vita free tax preparation S. Vita free tax preparation or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. Vita free tax preparation You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. Vita free tax preparation If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. Vita free tax preparation See Documentation and Presumption Rules , later. Vita free tax preparation Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. Vita free tax preparation Foreign partnerships. Vita free tax preparation    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. Vita free tax preparation If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. Vita free tax preparation However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Vita free tax preparation If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. Vita free tax preparation Example 1. Vita free tax preparation A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. Vita free tax preparation S. Vita free tax preparation citizen. Vita free tax preparation You make a payment of U. Vita free tax preparation S. Vita free tax preparation source interest to the partnership. Vita free tax preparation It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. Vita free tax preparation S. Vita free tax preparation citizen. Vita free tax preparation The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. Vita free tax preparation You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. Vita free tax preparation Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. Vita free tax preparation Report the payment to the U. Vita free tax preparation S. Vita free tax preparation citizen on Form 1099-INT. Vita free tax preparation Example 2. Vita free tax preparation A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. Vita free tax preparation The second partnership has two partners, both nonresident alien individuals. Vita free tax preparation You make a payment of U. Vita free tax preparation S. Vita free tax preparation source interest to the first partnership. Vita free tax preparation It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. Vita free tax preparation In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. Vita free tax preparation The Forms W-8IMY from the partnerships have complete withholding statements associated with them. Vita free tax preparation Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. Vita free tax preparation Example 3. Vita free tax preparation You make a payment of U. Vita free tax preparation S. Vita free tax preparation source dividends to a withholding foreign partnership. Vita free tax preparation The partnership has two partners, both foreign corporations. Vita free tax preparation You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. Vita free tax preparation You must treat the partnership as the payee of the dividends. Vita free tax preparation Foreign simple and grantor trust. Vita free tax preparation   A trust is foreign unless it meets both of the following tests. Vita free tax preparation A court within the United States is able to exercise primary supervision over the administration of the trust. Vita free tax preparation One or more U. Vita free tax preparation S. Vita free tax preparation persons have the authority to control all substantial decisions of the trust. Vita free tax preparation   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. Vita free tax preparation A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. Vita free tax preparation   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. Vita free tax preparation The payees of a payment made to a foreign grantor trust are the owners of the trust. Vita free tax preparation However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. Vita free tax preparation If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. Vita free tax preparation Example. Vita free tax preparation A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. Vita free tax preparation S. Vita free tax preparation citizen. Vita free tax preparation You make a payment of interest to the foreign trust. Vita free tax preparation It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. Vita free tax preparation S. Vita free tax preparation citizen. Vita free tax preparation The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. Vita free tax preparation You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. Vita free tax preparation Report the payment to the nonresident aliens on Forms 1042-S. Vita free tax preparation Report the payment to the U. Vita free tax preparation S. Vita free tax preparation citizen on Form 1099-INT. Vita free tax preparation Fiscally transparent entity. Vita free tax preparation   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. Vita free tax preparation The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. Vita free tax preparation ). Vita free tax preparation The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. Vita free tax preparation An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. Vita free tax preparation Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. Vita free tax preparation   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. Vita free tax preparation Example. Vita free tax preparation Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. Vita free tax preparation A has two interest holders, B and C. Vita free tax preparation B is a corporation organized under the laws of country Y. Vita free tax preparation C is a corporation organized under the laws of country Z. Vita free tax preparation Both countries Y and Z have an income tax treaty in force with the United States. Vita free tax preparation A receives royalty income from U. Vita free tax preparation S. Vita free tax preparation sources that is not effectively connected with the conduct of a trade or business in the United States. Vita free tax preparation For U. Vita free tax preparation S. Vita free tax preparation income tax purposes, A is treated as a partnership. Vita free tax preparation Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. Vita free tax preparation The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. Vita free tax preparation Accordingly, A is fiscally transparent in its jurisdiction, country X. Vita free tax preparation B and C are not fiscally transparent under the laws of their respective countries of incorporation. Vita free tax preparation Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. Vita free tax preparation Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. Vita free tax preparation S. Vita free tax preparation source royalty income for purposes of the U. Vita free tax preparation S. Vita free tax preparation -Y income tax treaty. Vita free tax preparation Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. Vita free tax preparation Therefore, A is not treated as fiscally transparent under the laws of country Z. Vita free tax preparation Accordingly, C is not treated as deriving its share of the U. Vita free tax preparation S. Vita free tax preparation source royalty income for purposes of the U. Vita free tax preparation S. Vita free tax preparation -Z income tax treaty. Vita free tax preparation Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. Vita free tax preparation This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. Vita free tax preparation You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. Vita free tax preparation An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. Vita free tax preparation A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. Vita free tax preparation In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. Vita free tax preparation You must determine whether the customers or account holders of a foreign intermediary are U. Vita free tax preparation S. Vita free tax preparation or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. Vita free tax preparation You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. Vita free tax preparation If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. Vita free tax preparation See Documentation and Presumption Rules , later. Vita free tax preparation Nonqualified intermediary. Vita free tax preparation   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. Vita free tax preparation The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. Vita free tax preparation Example. Vita free tax preparation You make a payment of interest to a foreign bank that is a nonqualified intermediary. Vita free tax preparation The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. Vita free tax preparation S. Vita free tax preparation person for whom the bank is collecting the payments. Vita free tax preparation The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. Vita free tax preparation The account holders are the payees of the interest payment. Vita free tax preparation You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. Vita free tax preparation S. Vita free tax preparation person on Form 1099-INT. Vita free tax preparation Qualified intermediary. Vita free tax preparation   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. Vita free tax preparation S. Vita free tax preparation intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. Vita free tax preparation You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. Vita free tax preparation In this situation, the QI is required to withhold the tax. Vita free tax preparation You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. Vita free tax preparation   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. Vita free tax preparation If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. Vita free tax preparation S. Vita free tax preparation person. Vita free tax preparation Branches of financial institutions. Vita free tax preparation   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. Vita free tax preparation The countries with approved KYC rules are listed on IRS. Vita free tax preparation gov. Vita free tax preparation QI withholding agreement. Vita free tax preparation   Foreign financial institutions and foreign branches of U. Vita free tax preparation S. Vita free tax preparation financial institutions can enter into an agreement with the IRS to be a qualified intermediary. Vita free tax preparation   A QI is entitled to certain simplified withholding and reporting rules. Vita free tax preparation In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. Vita free tax preparation   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. Vita free tax preparation These forms, and the procedures required to obtain a QI withholding agreement are available at www. Vita free tax preparation irs. Vita free tax preparation gov/Businesses/Corporations/Qualified-Intermediaries-(QI). Vita free tax preparation Documentation. Vita free tax preparation   A QI is not required to forward documentation obtained from foreign account holders to the U. Vita free tax preparation S. Vita free tax preparation withholding agent from whom the QI receives a payment of U. Vita free tax preparation S. Vita free tax preparation source income. Vita free tax preparation The QI maintains such documentation at its location and provides the U. Vita free tax preparation S. Vita free tax preparation withholding agent with withholding rate pools. Vita free tax preparation A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. Vita free tax preparation   A QI is required to provide the U. Vita free tax preparation S. Vita free tax preparation withholding agent with information regarding U. Vita free tax preparation S. Vita free tax preparation persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. Vita free tax preparation   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. Vita free tax preparation This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. Vita free tax preparation Form 1042-S reporting. Vita free tax preparation   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. Vita free tax preparation Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). Vita free tax preparation Collective refund procedures. Vita free tax preparation   A QI may seek a refund on behalf of its direct account holders. Vita free tax preparation The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. Vita free tax preparation U. Vita free tax preparation S. Vita free tax preparation branches of foreign banks and foreign insurance companies. Vita free tax preparation   Special rules apply to a U. Vita free tax preparation S. Vita free tax preparation branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. Vita free tax preparation If you agree to treat the branch as a U. Vita free tax preparation S. Vita free tax preparation person, you may treat the branch as a U. Vita free tax preparation S. Vita free tax preparation payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. Vita free tax preparation S. Vita free tax preparation branch on which the agreement is evidenced. Vita free tax preparation If you treat the branch as a U. Vita free tax preparation S. Vita free tax preparation payee, you are not required to withhold. Vita free tax preparation Even though you agree to treat the branch as a U. Vita free tax preparation S. Vita free tax preparation person, you must report the payment on Form 1042-S. Vita free tax preparation   A financial institution organized in a U. Vita free tax preparation S. Vita free tax preparation possession is treated as a U. Vita free tax preparation S. Vita free tax preparation branch. Vita free tax preparation The special rules discussed in this section apply to a possessions financial institution. Vita free tax preparation   If you are paying a U. Vita free tax preparation S. Vita free tax preparation branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. Vita free tax preparation S. Vita free tax preparation person for amounts subject to NRA withholding. Vita free tax preparation Consequently, amounts not subject to NRA withholding that are paid to a U. Vita free tax preparation S. Vita free tax preparation branch are not subject to Form 1099 reporting or backup withholding. Vita free tax preparation   Alternatively, a U. Vita free tax preparation S. Vita free tax preparation branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. Vita free tax preparation In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. Vita free tax preparation See Nonqualified Intermediaries under  Documentation, later. Vita free tax preparation   If the U. Vita free tax preparation S. Vita free tax preparation branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. Vita free tax preparation Withholding foreign partnership and foreign trust. Vita free tax preparation   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. Vita free tax preparation A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. Vita free tax preparation   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. Vita free tax preparation A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. Vita free tax preparation You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. Vita free tax preparation WP and WT withholding agreements. Vita free tax preparation   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. Vita free tax preparation Also see the following items. Vita free tax preparation Revenue Procedure 2004-21. Vita free tax preparation Revenue Procedure 2005-77. Vita free tax preparation Employer identification number (EIN). Vita free tax preparation   A completed Form SS-4 must be submitted with the application for being a WP or WT. Vita free tax preparation The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. Vita free tax preparation Documentation. Vita free tax preparation   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. Vita free tax preparation The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. Vita free tax preparation The Form W-8IMY must contain the WP-EIN or WT-EIN. Vita free tax preparation Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. Vita free tax preparation A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. Vita free tax preparation S. Vita free tax preparation person. Vita free tax preparation It also includes a foreign branch of a U. Vita free tax preparation S. Vita free tax preparation financial institution if the foreign branch is a qualified intermediary. Vita free tax preparation In most cases, the U. Vita free tax preparation S. Vita free tax preparation branch of a foreign corporation or partnership is treated as a foreign person. Vita free tax preparation Nonresident alien. Vita free tax preparation   A nonresident alien is an individual who is not a U. Vita free tax preparation S. Vita free tax preparation citizen or a resident alien. Vita free tax preparation A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. Vita free tax preparation Married to U. Vita free tax preparation S. Vita free tax preparation citizen or resident alien. Vita free tax preparation   Nonresident alien individuals married to U. Vita free tax preparation S. Vita free tax preparation citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. Vita free tax preparation However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. Vita free tax preparation Wages paid to these individuals are subject to graduated withholding. Vita free tax preparation See Wages Paid to Employees—Graduated Withholding . Vita free tax preparation Resident alien. Vita free tax preparation   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. Vita free tax preparation Green card test. Vita free tax preparation An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. Vita free tax preparation This is known as the green card test because these aliens hold immigrant visas (also known as green cards). Vita free tax preparation Substantial presence test. Vita free tax preparation An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. Vita free tax preparation Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. Vita free tax preparation   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. Vita free tax preparation This exception is for a limited period of time. Vita free tax preparation   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. Vita free tax preparation Note. Vita free tax preparation   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. Vita free tax preparation For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). Vita free tax preparation Resident of a U. Vita free tax preparation S. Vita free tax preparation possession. Vita free tax preparation   A bona fide resident of Puerto Rico, the U. Vita free tax preparation S. Vita free tax preparation Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. Vita free tax preparation S. Vita free tax preparation citizen or a U. Vita free tax preparation S. Vita free tax preparation national is treated as a nonresident alien for the withholding rules explained here. Vita free tax preparation A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. Vita free tax preparation   For more information, see Publication 570, Tax Guide for Individuals With Income From U. Vita free tax preparation S. Vita free tax preparation Possessions. Vita free tax preparation Foreign corporations. Vita free tax preparation   A foreign corporation is one that does not fit the definition of a domestic corporation. Vita free tax preparation A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. Vita free tax preparation Guam or Northern Mariana Islands corporations. Vita free tax preparation   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). Vita free tax preparation Note. Vita free tax preparation   The provisions discussed below under U. Vita free tax preparation S. Vita free tax preparation Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. Vita free tax preparation U. Vita free tax preparation S. Vita free tax preparation Virgin Islands and American Samoa corporations. Vita free tax preparation   A corporation created or organized in, or under the laws of, the U. Vita free tax preparation S. Vita free tax preparation Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. Vita free tax preparation S. Vita free tax preparation Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. Vita free tax preparation S. Vita free tax preparation Virgin Islands, American Samoa, Guam, the CNMI, or the United States. Vita free tax preparation Foreign private foundations. Vita free tax preparation   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. Vita free tax preparation Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. Vita free tax preparation Other foreign organizations, associations, and charitable institutions. Vita free tax preparation   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. Vita free tax preparation In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. Vita free tax preparation   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. Vita free tax preparation   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. Vita free tax preparation U. Vita free tax preparation S. Vita free tax preparation branches of foreign persons. Vita free tax preparation   In most cases, a payment to a U. Vita free tax preparation S. Vita free tax preparation branch of a foreign person is a payment made to the foreign person. Vita free tax preparation However, you may treat payments to U. Vita free tax preparation S. Vita free tax preparation branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. Vita free tax preparation S. Vita free tax preparation regulatory supervision as payments made to a U. Vita free tax preparation S. Vita free tax preparation person, if you and the U. Vita free tax preparation S. Vita free tax preparation branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. Vita free tax preparation For this purpose, a financial institution organized under the laws of a U. Vita free tax preparation S. Vita free tax preparation possession is treated as a U. Vita free tax preparation S. Vita free tax preparation branch. Vita free tax preparation Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. Vita free tax preparation The payee is a U. Vita free tax preparation S. Vita free tax preparation person. Vita free tax preparation The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. Vita free tax preparation In most cases, you must get the documentation before you make the payment. Vita free tax preparation The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. Vita free tax preparation See Standards of Knowledge , later. Vita free tax preparation If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. Vita free tax preparation For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. Vita free tax preparation The specific types of documentation are discussed in this section. Vita free tax preparation However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. Vita free tax preparation As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. Vita free tax preparation Section 1446 withholding. Vita free tax preparation   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. Vita free tax preparation In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. Vita free tax preparation This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. Vita free tax preparation Joint owners. Vita free tax preparation    If you make a payment to joint owners, you need to get documentation from each owner. Vita free tax preparation Form W-9. Vita free tax preparation   In most cases, you can treat the payee as a U. Vita free tax preparation S. Vita free tax preparation person if the payee gives you a Form W-9. Vita free tax preparation The Form W-9 can be used only by a U. Vita free tax preparation S. Vita free tax preparation person and must contain the payee's taxpayer identification number (TIN). Vita free tax preparation If there is more than one owner, you may treat the total amount as paid to a U. Vita free tax preparation S. Vita free tax preparation person if any one of the owners gives you a Form W-9. Vita free tax preparation See U. Vita free tax preparation S. Vita free tax preparation Taxpayer Identification Numbers , later. Vita free tax preparation U. Vita free tax preparation S. Vita free tax preparation persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. Vita free tax preparation Form W-8. Vita free tax preparation   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. Vita free tax preparation Until further notice, you can rely upon Forms W-8 that contain a P. Vita free tax preparation O. Vita free tax preparation box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. Vita free tax preparation S. Vita free tax preparation person and that a street address is available. Vita free tax preparation You may rely on Forms W-8 for which there is a U. Vita free tax preparation S. Vita free tax preparation mailing address provided you received the form prior to December 31, 2001. Vita free tax preparation   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. Vita free tax preparation You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. Vita free tax preparation S. Vita free tax preparation possession. Vita free tax preparation Other documentation. Vita free tax preparation   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. Vita free tax preparation The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. Vita free tax preparation These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. Vita free tax preparation Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. Vita free tax preparation Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Vita free tax preparation   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. Vita free tax preparation   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. Vita free tax preparation For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. Vita free tax preparation Claiming treaty benefits. Vita free tax preparation   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. Vita free tax preparation S. Vita free tax preparation TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. Vita free tax preparation   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. Vita free tax preparation   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. Vita free tax preparation See Fiscally transparent entity discussed earlier under Flow-Through Entities. Vita free tax preparation   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. Vita free tax preparation For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. Vita free tax preparation   The exemptions from, or reduced rates of, U. Vita free tax preparation S. Vita free tax preparation tax vary under each treaty. Vita free tax preparation You must check the provisions of the tax treaty that apply. Vita free tax preparation Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. Vita free tax preparation   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. Vita free tax preparation You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. Vita free tax preparation Exceptions to TIN requirement. Vita free tax preparation   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. Vita free tax preparation Income from marketable securities (discussed next). Vita free tax preparation Unexpected payments to an individual (discussed under U. Vita free tax preparation S. Vita free tax preparation Taxpayer Identification Numbers ). Vita free tax preparation Marketable securities. Vita free tax preparation   A Form W-8BEN provided to claim treaty benefits does not need a U. Vita free tax preparation S. Vita free tax preparation TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. Vita free tax preparation For this purpose, income from a marketable security consists of the following items. Vita free tax preparation Dividends and interest from stocks and debt obligations that are actively traded. Vita free tax preparation Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). Vita free tax preparation Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. Vita free tax preparation Income related to loans of any of the above securities. Vita free tax preparation Offshore accounts. Vita free tax preparation   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. Vita free tax preparation   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. Vita free tax preparation However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. Vita free tax preparation An offshore account is an account maintained at an office or branch of a U. Vita free tax preparation S. Vita free tax preparation or foreign bank or other financial institution at any location outside the United States. Vita free tax preparation   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. Vita free tax preparation This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. Vita free tax preparation In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. Vita free tax preparation Documentary evidence. Vita free tax preparation   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. Vita free tax preparation To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. Vita free tax preparation Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. Vita free tax preparation Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. Vita free tax preparation In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. Vita free tax preparation 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. Vita free tax preparation   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. Vita free tax preparation (See Effectively Connected Income , later. Vita free tax preparation )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. Vita free tax preparation   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. Vita free tax preparation S. Vita free tax preparation trade or business is subject to withholding under section 1446. Vita free tax preparation If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. Vita free tax preparation    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. Vita free tax preparation Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. Vita free tax preparation   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. Vita free tax preparation S. Vita free tax preparation possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. Vita free tax preparation   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. Vita free tax preparation   See Foreign Governments and Certain Other Foreign Organizations , later. Vita free tax preparation Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. Vita free tax preparation The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. Vita free tax preparation The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. Vita free tax preparation Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. Vita free tax preparation S. Vita free tax preparation Branches for United States Tax Withholding. Vita free tax preparation   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. Vita free tax preparation S. Vita free tax preparation branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. Vita free tax preparation S. Vita free tax preparation branch of a foreign bank or insurance company and either is agreeing to be treated as a U. Vita free tax preparation S. Vita free tax preparation person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. Vita free tax preparation For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. Vita free tax preparation 1446-5. Vita free tax preparation Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. Vita free tax preparation A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. Vita free tax preparation The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. Vita free tax preparation The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. Vita free tax preparation Responsibilities. Vita free tax preparation   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. Vita free tax preparation However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. Vita free tax preparation Instead, it provides you with a withholding statement that contains withholding rate pool information. Vita free tax preparation A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. Vita free tax preparation A qualified intermediary is required to provide you with information regarding U. Vita free tax preparation S. Vita free tax preparation persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. Vita free tax preparation S. Vita free tax preparation person unless it has assumed Form 1099 reporting and backup withholding responsibility. Vita free tax preparation For the alternative procedure for providing rate pool information for U. Vita free tax preparation S. Vita free tax preparation non-exempt persons, see the Form W-8IMY instructions. Vita free tax preparation   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. Vita free tax preparation   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. Vita free tax preparation Primary responsibility not assumed. Vita free tax preparation   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. Vita free tax preparation Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. Vita free tax preparation S. Vita free tax preparation person subject to Form 1099 reporting and/or backup withholding. Vita free tax preparation The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Vita free tax preparation Primary NRA withholding responsibility assumed. Vita free tax preparation   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. Vita free tax preparation S. Vita free tax preparation person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. Vita free tax preparation The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. Vita free tax preparation Primary NRA and Form 1099 responsibility assumed. Vita free tax preparation   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. Vita free tax preparation It is not necessary to associate the payment with withholding rate pools. Vita free tax preparation Example. Vita free tax preparation You make a payment of dividends to a QI. Vita free tax preparation It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. Vita free tax preparation S. Vita free tax preparation individual who provides it with a Form W-9. Vita free tax preparation Each customer is entitled to 20% of the dividend payment. Vita free tax preparation The QI does not assume any primary withholding responsibility. Vita free tax preparation The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. Vita free tax preparation S. Vita free tax preparation individual. Vita free tax preparation You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. Vita free tax preparation The part of the payment allocable to the U. Vita free tax preparation S. Vita free tax preparation individual (20%) is reportable on Form 1099-DIV. Vita free tax preparation Smaller partnerships and trusts. Vita free tax preparation   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. Vita free tax preparation It is a foreign partnership or foreign simple or grantor trust. Vita free tax preparation It is a direct account holder of the QI. Vita free tax preparation It does not have any partner, beneficiary, or owner that is a U. Vita free tax preparation S. Vita free tax preparation person or a pass- through partner, beneficiary, or owner. Vita free tax preparation   For information on these rules, see section 4A. Vita free tax preparation 01 of the QI agreement. Vita free tax preparation This is found in Appendix 3 of Revenue Procedure 2003-64. Vita free tax preparation Also see Revenue Procedure 2004-21. Vita free tax preparation Related partnerships and trusts. Vita free tax preparation    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. Vita free tax preparation It is a foreign partnership or foreign simple or grantor trust. Vita free tax preparation It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. Vita free tax preparation For information on these rules, see section 4A. Vita free tax preparation 02 of the QI agreement. Vita free tax preparation This is found in Appendix 3 of Revenue Procedure 2003-64. Vita free tax preparation Also see Revenue Procedure 2005-77. Vita free tax preparation Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. Vita free tax preparation S. Vita free tax preparation branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. Vita free tax preparation S. Vita free tax preparation branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. Vita free tax preparation The NQI, flow-through entity, or U. Vita free tax preparation S. Vita free tax preparation branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. Vita free tax preparation A withholding statement must be updated to keep the information accurate prior to each payment. Vita free tax preparation Withholding statement. Vita free tax preparation   In most cases, a withholding statement must contain the following information. Vita free tax preparation The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. Vita free tax preparation The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. Vita free tax preparation The status of the person for whom the documentation has been provided, such as whether the person is a U. Vita free tax preparation S. Vita free tax preparation exempt recipient (U. Vita free tax preparation S. Vita free tax preparation person exempt from Form 1099 reporting), U. Vita free tax preparation S. Vita free tax preparation non-exempt recipient (U. Vita free tax preparation S. Vita free tax preparation person subject to Form 1099 reporting), or a foreign person. Vita free tax preparation For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. Vita free tax preparation S. Vita free tax preparation branch. Vita free tax preparation The type of recipient the person is, based on the recipient codes used on Form 1042-S. Vita free tax preparation Information allocating each payment, by income type, to each payee (including U. Vita free tax preparation S. Vita free tax preparation exempt and U. Vita free tax preparation S. Vita free tax preparation non-exempt recipients) for whom documentation has been provided. Vita free tax preparation The rate of withholding that applies to each foreign person to whom a payment is allocated. Vita free tax preparation A foreign payee's country of residence. Vita free tax preparation If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. Vita free tax preparation ). Vita free tax preparation In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. Vita free tax preparation The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. Vita free tax preparation S. Vita free tax preparation branch from which the payee will directly receive a payment. Vita free tax preparation Any other information a withholding agent requests to fulfill its reporting and withholding obligations. Vita free tax preparation Alternative procedure. Vita free tax preparation   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. Vita free tax preparation S. Vita free tax preparation exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. Vita free tax preparation To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. Vita free tax preparation You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. Vita free tax preparation    This alternative procedure cannot be used for payments to U. Vita free tax preparation S. Vita free tax preparation non-exempt recipients. Vita free tax preparation Therefore, an NQI must always provide you with allocation information for all U. Vita free tax preparation S. Vita free tax preparation non-exempt recipients prior to a payment being made. Vita free tax preparation Pooled withholding information. Vita free tax preparation   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. Vita free tax preparation A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. Vita free tax preparation For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). Vita free tax preparation The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. Vita free tax preparation Failure to provide allocation information. Vita free tax preparation   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. Vita free tax preparation You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . Vita free tax preparation An NQI is deemed to have f