When a Foreign Business Partner Needs a US Taxpayer Identification

When a Foreign Business Partner Needs a US Taxpayer Identification

Question: Can a partnership return be filed before an ITIN is secured by the foreign partner?

Answer: ITIN is very important when filing partnership returns, especially in cases where you have a foreign partner. It is always advisable for the foreign partner to have an ITIN before working on partnership returns.

According to the 2014 Instructions for Forms 8804, 8805, and 8813, every partnership (other than a publicly traded partnership) that has effectively connected gross income allocable to a foreign partner must file a Form 8804, regardless of whether it had ECTI allocable to a foreign partner.

The partnership must also file a Form 8805 for each partner on whose behalf it paid section 1446 tax, regardless of whether the partnership made any distributions during its tax year. The partnership may designate a person to file the forms. The partnership, or person it designates, must file these forms even if the partnership has no withholding tax liability under section 1446.

To ensure proper crediting of the withholding tax when reporting to the IRS, a partnership must provide a U.S. taxpayer identifying number (TIN) for each foreign partner. The partnership should notify any of its foreign partners without such a number of the necessity of obtaining a U.S. identifying number.

An individual’s identifying number is the Individual’s social security number (SSN) or individual taxpayer identification number (ITIN). Foreign Partners can apply for ITIN using one of the IRS exceptions even before the annual partnership returns are filed.

In general, ITIN applications are supposed to be accompanied by a tax return; however there are exceptions to the requirement to include a U.S. tax return. If you claim the (1a) exception, you must submit the documentation required , instead of a tax return.

According to this IRS exception table, individuals who are partners of a U.S. or foreign partnership that invests in the United States and  owns assets that generate income subject to IRS information reporting and federal tax withholding requirements should submit the following:

  • A copy of the portion of the partnership or  LLC agreement displaying the partnership’s employer identification number and showing that you are a partner in the partnership that is conducting business in the United States.
  • Include identification with the Form W-7. A passport is the best identification available, because it proves both identity and foreign status in one single document. Other types of ID are accepted. But only a passport satisfies both requirements.

If you use other types of ID, then you have to submit two pieces of ID. The requirements are very specific. They’re in the instructions for Form W-7. Photocopies generally will not be accepted. They either have to be certified copies or original documents.  You can send the original documents, and the IRS will send them back after processing the W-7. That takes about six weeks.

References/Related Topics

Starting a business partnership with a foreign national living outside the United States

***Disclaimer: This communication is not intended as tax advice, and no tax accountant -client relationship results**

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