 FINANCIAL STATEMENTSCOMPILATION
A compilation engagement is merely putting the information supplied by
the client in proper financial statement form without attempting to express any assurance
on those statements. Capturing and summarizing reliable financial information is often the
most important service that an accountant can provide. In order to manage effectively,
companies need vital information about sales, expenses, receivables, and payables. In a
compilation, we are not required to make inquiries of management or perform other
procedures to verify, corroborate, or review information supplied by the client.
REVIEW
A review engagement goes beyond putting client information together. We
also make certain inquires of management and perform analytical procedures. However, in a
review, we are not required to understand the company's internal control, test the
accounting records, observe inventory, confirm receivables, or obtain other corroborating
evidence, as is required during an audit.
AUDIT
An audit engagement goes beyond a review, and, on a test basis,
examines evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation.
FOREIGN
INVESTMENT IN US REAL PROPERTY
The professionals in our office can help the foreign investor understand the tax
consequence and responsibilities of reporting income from U.S. Real Property. You may find
the following definitions and information helpful:
U.S. REAL PROPERTY INTEREST means an interest, other than as a creditor,
in real property located in the United States or the Virgin Islands.
A FOREIGN PERSON is a nonresident alien individual, foreign corporation
that has not elected to be treated as a domestic corporation, foreign partnership, foreign
trust, or foreign estate. It does not include a resident alien individual.
TRANSFEROR means any foreign person that disposes of a U.S. real property
interest by sale, exchange, gift, or any other transfer. A transfer includes distributions
to shareholders of a corporation, partners of a partnership, and beneficiaries of a trust
or estate.
TRANSFEREE means any person, foreign or domestic, that acquires a U.S.
real property interest by purchase, exchange, gift, or any other transfer.
TAX WITHHELD ON REAL PROPERTY SALES:
The disposition of a U.S. real property interest by a foreign person (the transferor) is
subject to income tax withholding. The transferee is the withholding agent. As the
transferee, you must deduct and withhold a tax equal to 10% (or other amount) of the total
amount realized on the disposition (i.e. 10% of the purchase price). There are several
exceptions to this rule, including but not limited to the receipt of a withholding
certificate from the Internal Revenue Service that excuses or reduces the amount of
withholding.
WITHHOLDING CERTIFICATES
The amount that must be withheld from the disposition of a U.S. real property interest can
be adjusted pursuant to a withholding certificate issued by the IRS. The IRS will
generally act on these requests within 90 days after receipt of a complete application.
FAILURE TO TIMELY FILE U.S INCOME TAX RETURN BY A FOREIGN PERSON CAN BE COSTLY:
It is important that certain foreign persons timely file U.S. income tax returns to
preserve deductions and credits to reduce U.S. income tax liability. Generally, a foreign
person is entitled to those deductions and credits which are effectively connected with a
U.S. trade or business.
In two 1996 cases, the courts have upheld the IRS 's argument that no deductions nor
credits would be available to reduce the U.S. income tax liability of foreign persons who
did not file timely U.S. income tax returns with respect to their U.S. trade or business
activity, or, with respect to passive rental U.S. real estate activity.
Please contact us for help with your U.S. income tax filing.
INDIVIDUAL TAXPAYER IDENTIFICATION NUMBERS (ITINs) REQUIRED FOR CERTAIN NON-U.S.
CITIZENS:
For returns filed after December 31, 1996, nonresident aliens who do not possess valid
social security numbers must obtain ITINs in order to file a U.S. income tax return. An
ITIN is obtained by filing Form W-7 and certain documents with the IRS. A nonresident
alien will not be able to claim a income tax refund if he or she files a tax return
without a valid social security number or ITIN.
One of the biggest reasons for IRS rejection of Form W-7 is failure to submit proper
documentation. Generally, an applicant needs to submit at least two identity documents in
order to validate both identity and foreign status. One of the documents must include a
recent photograph.
All documents must be originals or certified by the issuing agency or custodian of the
original document. A notary public cannot make this certification.
The process of obtaining an ITIN can delay the filing of a U.S. income tax return or
receiving a tax refund. Therefore, it is helpful to apply early for a number, or obtain
help from a "CERTIFYING ACCEPTANCE AGENT." A certifying
acceptance agent is a person or entity that is authorized by the IRS to submit Form W-7 to
the IRS on behalf of a taxpayer without having to furnish supporting documentary evidence.
Instead, the acceptance agent certifies to the IRS that he/she has reviewed the
appropriate documentation evidencing the taxpayer's identity and alien status, among other
requirements.
VARDY & COMPANY CPA'S, P.A. has been authorized by the IRS to act as
a CERTIFYING ACCEPTANCE AGENT. Please contact us for any assistance or
question. |