@@JasonDKnott i Would really Apprecuate if you could answer me this. is there a way to avoid withilding 37% when you Know your final tax rate will be closer to 10%? I hate having to ask for a huge refund every time and being a non resident they can take 6 months or more to refund you.. i would prefer to make a more reasonable witholding with my llc .more similar to my real final tax
Great video! However, how could a foreign partner apply for ITIN if the LLC has more than 45 days of formation? Could he/she file 1040NR with K-1 and 8805 with "FOREIGNUS" and apply for ITIN the same time? Thank you.
The foreign partner can apply for an ITIN by filing a Form 1040-NR and attaching the Schedule K-1 and Form 8805 with the return. The IRS will process the ITIN, and if they don't recognize the credits because the Form 8805 shows a "FOREIGNUS" field, then it requires amending returns once the ITIN is assigned.
Hi Jason. Thank You for this video it is great!!!. I have a question. The LLC pay the 37% to the IRS from the LLC bank account, then the foreign partner later submit the 1040NR to recover the partial o total withholding. Does the foreign partner need to pay the LLC if receive the refund? How the LLC recover the withholding? Appreciate your comments.
Very good video. Two thumbs up. Just a follow-up question. If foreign partner had portfolio income such as interest income, capital gains. For 8805, do we add that to the Partnership ECTI?
Generally no, unless you are going to treat the portfolio income as ECI. Most portfolio income is treated as FDAP income, which means it's subject to withholding tax at 30%. FDAP amounts allocated to foreign partners would be reported on Form 1042-S & 1042, and not the Forms 8804 & 8805.
Thanks for the information. Great video. Can you clarify if a foreign partner is considered to have ECI if he is a passive investor that doesn't materially participate in the operation of the partnership? Thanks again!
It is a good question. If a foreign partner does not materially participate in the activity, the allocation of earnings is still ECI and the foreign partner is still subject to taxes on their allocation of earnings. Whether the foreign partner is an active vs. passive participant is largely irrelevant. Many foreign owners have been hit with a 10% withholding tax on their disposition of U.S. PTPs. Under Section 1446(f), if a foreign person sells their shares in a U.S. partnership, and the U.S. partnership determines that any portion of the gain could be ECI, a 10% withholding tax applies to the gross amount of the disposition. Not a good result for many non-U.S. taxpayers!!!!!
Thank you jason this video is helpful. What we should report if we have negative income or loss in our ordinary income section? Should we report loss and calculate tax on that or just report 0. Please help.
No, you would use zero. Do not report a negative number on the net ECTI line items. The Form 8804 instructions for Lines 4a, 4e, 4i, 4m, and 4q, ask that partnerships not report negative numbers.
Awesome video! For my scenario, the ECI is gain on the sale of real estate. 8805 is calculating a 20% withholding. However, the 8805 is still at 37%. Can I override the 8805?
Thank you for for the video. one of foreign partner is South Korean citizen and filled out W-8BEN indicating zero capital gain tax rate. Do I still need to withhold 37% on 8804? Also How do I actually make IRS withholding payment?
Yes, you can file Form 8813 with payment at the same time of filing Forms 8804 & 8805. You can also make payments electronically if your company enrolls in the IRS EFTPS system, which is generally the recommended approach.
Great video especially on the explanation of the partnership that has no taxable income, however, how will you report it on Form 8804? Just put 0 in all the sections? Do we need to add anything to the form?
Thank you so much for this informative Video. I have a question and would really appreciate it if you can answer me. If the partner has a loss, do I put the negative amount or 0?
If the amount of net ECI is a loss, then there is no withholding tax obligation on the allocation. The Form 8804 and 8805 must still be filed, but you put 0 as the amount of income subject to taxes.
Good question! Generally, only a non-U.S. person would have an ITIN. However, a foreign person with an ITIN could become a U.S. person during the tax year. This often happens when a foreign person is physically present in the U.S. enough days to meet the substantial presence test.
@@JasonDKnott Thanks for responding! I have a client that is a 3 person partnership. 1 is a us citizen and the other 2 are not. I will ask about the substantial presence test, so thank you so much for pointing that out. Do you know if the substantial presence test needs to be documented in some sort of way?
Great video, Jason! You mention the foreign corporation can obtain an EIN to reclaim some of the excess federal withholding and file form 1120F. Since the U.S. corporate rate is 21% and there is no lower rate, is there a situation to file form 1120F? It seems like there would be no excess federal withholding? Thanks for your input.
This video is super helpful, thank you so much! So I didn’t hear anything about the Form 8813 and filing that quarterly- is that optional? Can you just pay the full amount at then end of the year using this form you explained instead? Thanks in advance
The Form 8813 is filed quarterly depending upon the amount of income subject to withholding tax. You can simply make one payment at year-end with a single Form 8813, but the IRS may charge you underpayment penalties and interest. It is the same principle with estimated taxes for individuals and corporations.
No, the Form 5472 is not included with a partnership Form 1065 filings. Form 5472 are included with a Form 1120 filing for a corporation with foreign owners.
@@JasonDKnott Thank you, My client just started LLC in US with one partner is US citizen 50% ownership and other one is Canadian Corporation 50%. The forms that are required to file - 8813, 8804, 8805,1065, 1120-F, & 5472. They have employees in many US states, so need to create K-1 for each state where the employees are located (due to nexus). Is this correct? Am I missing any forms that is required to file?
Hi Jason. Very clear and explanatory. Thank you! In my case the only income is the rental real estate income (K1, part III, line 2). Is this income subject to 8805? Thanks again.
Depends upon whether the rental real estate income is treated as ECI. If it is U.S. situs real property, then it is likely ECI. If this is a partnership that owns non-U.S. rental property and is managed outside of the U.S., then likely no ECI.
Hello! Your videos are excellent. What happens if I did not send the payment for the withholding, on the contrary I pay the taxes totally due en the 1040 NR? Thankfull in advance!
Technically the withholding is still required by the partnership, even if the partner is going to file a Form 1040-NR and pay the taxes. If a partner qualifies for reduced withholding, a partner can provide a Form 8804-C to the partnership to reduce or eliminate the taxes the completely.
Hi Jason hope you are doing well. how can we claim refund once we pay the withholding tax. In my case, in 2020 my client had paid withholding tax up to 2k but for 2021 there was no withholding tax and now he wants to claim a refund. Could you please help me on this?
Hi Jason. If all the income is not ECTI, the 8804 would be 0, right? You know if there is anywhere in the 1065 it should be informed that the net income is not ECTI? Thank you!
If the partnership has no gross effectively connected income, then the Form 8804 & 8805 isn't required, but you can still file a zero. The partnership should indicate on the Schedule K-2 & K-3 that the earnings are non ECI.
Hi Jason, what if an LLC has two foreign members and the US ECI comes exclusively from the investment of the two members. For example, a real estate investment. The partnership would still have to file forms 8804 and 8805 and withhold taxes?
Yes! Good question. The standard requires that all partnerships that have gross income effectively connected with a U.S. trade or business need to file Forms 8804 & 8805. The bottom line net income or loss of the partnership is irrelevant. If, for example, a partnership is engaged in U.S. trade or business and has gross effectively connected income of $50,000, and expenses of $60,000, the net loss would be $10,000. However, the partnership still needs to file the 8804 & 8805 because it has gross income of $50,000.
Mr. Knott: I have sent 1065 from foreign owners, who do not do business within the US. Income is generated outside of the US. I have received letters from the IRS requesting 8804 & 8805. Why is this happening?
Hi Jason, thank you for the informative video! Question: Line 1 ordinary business income = 50,000 AND partner rec'd a guaranteed payment in line 4C 10,0000. Is ECTI 50k or 60k for the partner?
Did you find this out yet? It appears guaranteed payments to individual foreign partner will be NONECI as long as the services are performed by the individual foreign partner outside US. Guaranteed payments wont be taxable on US income tax return(1040NR) of foreign partner.
Very unformative! Do you have a resource/software you recommend for calculating penalties associated with the failure to pay estimated tax payments as well as interest owed?
selam benim şirketim daha yeni ve henüz beyan edecek hiç bir şeyimiz yok 2 ortaklı llc ve abd dışında ikamet ediyoruz nasıl doldurmamız gerekir bu formları acaba
Has anyone ever been penalized for not filing Form 8805? I received a notice that my form 8805 was not received however it was sent with the 8804, it is impossible that they only received the 8804. Anyway the ECI is 0. The letter says that I must send it within 30 days, however, the mail takes 10 days from outside the US, so it will arrive after the date. I am afraid of being penalized. What I can do? Is there a way to avoid penalty?
Form 8805 penalties do occur, but frankly they are rare. The real penalties occur when Form 8804 is filed late and the partnership fails to deposit the withholding within the prescribed timeline. If you are mailing something from a foreign country, as long as the postmark is dated on or before the due date, the IRS should accept it as a timely response. This is generally referred to as the "Mailbox Rule" in the U.S.
@@JasonDKnott Thank you very much Jason. The video is excellent and the visual summary, you have also taken the time to answer the comments, it is very nice.
Great video! One question....is it possible to partnership net ordinary losses with Unrecaptured section 1250 gains on line 4m and Adjusted net capital gain on line 4q. The instructions say "Don't enter a negative number on lines 4a, 4e, 4i, 4m, and 4q. See section 1(h) and Notice 97-59, 1997-45 I.R.B. 7, available at IRS.gov/pub/irs-irbs/irb97-45.pdf, for the rules for netting gains and losses." but it's not clear how the netting would work within the mechanics of the form 8804. I feel like an ordinary loss could be entered on line 4o and on form 8804-C but it's not very clear. FYI - all activity is ECI. Thanks!
EXCELENT video . Info like this is Hard to find because not many People talk about non resident tax payers. Thanks!!
You’re welcome!
@@JasonDKnott i Would really
Apprecuate if you could answer me this. is there a way to avoid withilding 37% when you Know your final tax rate will be closer to 10%? I hate having to ask for a huge refund every time and being a non resident they can take 6 months or more to refund you.. i would prefer to make a more reasonable witholding with my llc .more similar to my real final tax
@@JasonDKnott maybe the prior year safe harbor could help? Im not sure i understood that part correctly
best tutorial video. very informative. easy to follow.
Great video! However, how could a foreign partner apply for ITIN if the LLC has more than 45 days of formation? Could he/she file 1040NR with K-1 and 8805 with "FOREIGNUS" and apply for ITIN the same time? Thank you.
The foreign partner can apply for an ITIN by filing a Form 1040-NR and attaching the Schedule K-1 and Form 8805 with the return. The IRS will process the ITIN, and if they don't recognize the credits because the Form 8805 shows a "FOREIGNUS" field, then it requires amending returns once the ITIN is assigned.
Hi Jason. Thank You for this video it is great!!!. I have a question. The LLC pay the 37% to the IRS from the LLC bank account, then the foreign partner later submit the 1040NR to recover the partial o total withholding. Does the foreign partner need to pay the LLC if receive the refund? How the LLC recover the withholding? Appreciate your comments.
Great video, thank you.
Can the form 8804 be filled all in zero's when there was no revenue at all? Same as for form 8805?
Very good video. Two thumbs up. Just a follow-up question. If foreign partner had portfolio income such as interest income, capital gains. For 8805, do we add that to the Partnership ECTI?
Generally no, unless you are going to treat the portfolio income as ECI. Most portfolio income is treated as FDAP income, which means it's subject to withholding tax at 30%. FDAP amounts allocated to foreign partners would be reported on Form 1042-S & 1042, and not the Forms 8804 & 8805.
Super helpful ! Thank you !
Glad it was helpful!
Thanks for the information. Great video. Can you clarify if a foreign partner is considered to have ECI if he is a passive investor that doesn't materially participate in the operation of the partnership?
Thanks again!
It is a good question. If a foreign partner does not materially participate in the activity, the allocation of earnings is still ECI and the foreign partner is still subject to taxes on their allocation of earnings. Whether the foreign partner is an active vs. passive participant is largely irrelevant.
Many foreign owners have been hit with a 10% withholding tax on their disposition of U.S. PTPs. Under Section 1446(f), if a foreign person sells their shares in a U.S. partnership, and the U.S. partnership determines that any portion of the gain could be ECI, a 10% withholding tax applies to the gross amount of the disposition. Not a good result for many non-U.S. taxpayers!!!!!
@@JasonDKnott Thank you for the clarification. Great information content every time!
Thank you jason this video is helpful. What we should report if we have negative income or loss in our ordinary income section? Should we report loss and calculate tax on that or just report 0. Please help.
No, you would use zero. Do not report a negative number on the net ECTI line items. The Form 8804 instructions for Lines 4a, 4e, 4i, 4m, and 4q, ask that partnerships not report negative numbers.
Awesome video! For my scenario, the ECI is gain on the sale of real estate. 8805 is calculating a 20% withholding. However, the 8805 is still at 37%. Can I override the 8805?
Thank you for for the video. one of foreign partner is South Korean citizen and filled out W-8BEN indicating zero capital gain tax rate. Do I still need to withhold 37% on 8804? Also How do I actually make IRS withholding payment?
Great video！ Do I need to attach Form 8813 when file the Form 8804 and Form 8805 with a check?
Yes, you can file Form 8813 with payment at the same time of filing Forms 8804 & 8805. You can also make payments electronically if your company enrolls in the IRS EFTPS system, which is generally the recommended approach.
Great video especially on the explanation of the partnership that has no taxable income, however, how will you report it on Form 8804? Just put 0 in all the sections? Do we need to add anything to the form?
That’s correct. If the partnership needs to file the Form 8804, but has no net positive income that is ECI, the Form 8804 reports 0 as it’s income.
Thank you so much for this informative Video. I have a question and would really appreciate it if you can answer me. If the partner has a loss, do I put the negative amount or 0?
and if there is 2 non US partners, do I combine the amounts on both partners in 4.e?
If the amount of net ECI is a loss, then there is no withholding tax obligation on the allocation. The Form 8804 and 8805 must still be filed, but you put 0 as the amount of income subject to taxes.
@@JasonDKnottvery nice demonstration, thank you! Do you need to file 8804-C in case of net loss to the partner? if yes, how to report the loss?
Very informative video. Does having an ITIN automatically make a partner a "Foreign Partner"?
Good question! Generally, only a non-U.S. person would have an ITIN. However, a foreign person with an ITIN could become a U.S. person during the tax year. This often happens when a foreign person is physically present in the U.S. enough days to meet the substantial presence test.
@@JasonDKnott Thanks for responding! I have a client that is a 3 person partnership. 1 is a us citizen and the other 2 are not. I will ask about the substantial presence test, so thank you so much for pointing that out. Do you know if the substantial presence test needs to be documented in some sort of way?
Great video, Jason! You mention the foreign corporation can obtain an EIN to reclaim some of the excess federal withholding and file form 1120F. Since the U.S. corporate rate is 21% and there is no lower rate, is there a situation to file form 1120F? It seems like there would be no excess federal withholding? Thanks for your input.
Hi Jason ,
Could u please be able to make a video on Schedule H . An in depth one .it will alot
Yes! Do you mean Schedule H for a Form 1120-F?
@@JasonDKnott Yes sir
This video is super helpful, thank you so much! So I didn’t hear anything about the Form 8813 and filing that quarterly- is that optional? Can you just pay the full amount at then end of the year using this form you explained instead? Thanks in advance
The Form 8813 is filed quarterly depending upon the amount of income subject to withholding tax. You can simply make one payment at year-end with a single Form 8813, but the IRS may charge you underpayment penalties and interest. It is the same principle with estimated taxes for individuals and corporations.
@@JasonDKnott so they may but it is rare If we have just a small bussiness?
Great video! Do we have to file 5472 form with 1065 return or no?
No, the Form 5472 is not included with a partnership Form 1065 filings. Form 5472 are included with a Form 1120 filing for a corporation with foreign owners.
@@JasonDKnott Thank you, My client just started LLC in US with one partner is US citizen 50% ownership and other one is Canadian Corporation 50%. The forms that are required to file - 8813, 8804, 8805,1065, 1120-F, & 5472. They have employees in many US states, so need to create K-1 for each state where the employees are located (due to nexus). Is this correct? Am I missing any forms that is required to file?
Hi Jason. Thank you for sharing this information. Would it be better for an LLC with a foreign owner, to be taxed as a corporation? Thanks!
Hi Jason. Very clear and explanatory. Thank you! In my case the only income is the rental real estate income (K1, part III, line 2). Is this income subject to 8805? Thanks again.
Depends upon whether the rental real estate income is treated as ECI. If it is U.S. situs real property, then it is likely ECI. If this is a partnership that owns non-U.S. rental property and is managed outside of the U.S., then likely no ECI.
Hello! Your videos are excellent. What happens if I did not send the payment for the withholding, on the contrary I pay the taxes totally due en the 1040 NR?
Thankfull in advance!
Technically the withholding is still required by the partnership, even if the partner is going to file a Form 1040-NR and pay the taxes. If a partner qualifies for reduced withholding, a partner can provide a Form 8804-C to the partnership to reduce or eliminate the taxes the completely.
@@JasonDKnott I really appreciate your answer!
Hi Jason hope you are doing well. how can we claim refund once we pay the withholding tax. In my case, in 2020 my client had paid withholding tax up to 2k but for 2021 there was no withholding tax and now he wants to claim a refund. Could you please help me on this?
The nonresident individual could file Form 1040-NR, or if it’s a foreign corporation it could file Form 1120-F.
Hi Jason. If all the income is not ECTI, the 8804 would be 0, right? You know if there is anywhere in the 1065 it should be informed that the net income is not ECTI? Thank you!
If the partnership has no gross effectively connected income, then the Form 8804 & 8805 isn't required, but you can still file a zero. The partnership should indicate on the Schedule K-2 & K-3 that the earnings are non ECI.
How does a partner, filing a 1040NR, claim part of the withheld tax? What schedule?
The partner claims a credit for the withholding tax on the Form 8805. The amount is reported on Form 1040-NR line 25e
Hi Jason, what if an LLC has two foreign members and the US ECI comes exclusively from the investment of the two members. For example, a real estate investment. The partnership would still have to file forms 8804 and 8805 and withhold taxes?
Should not Schedule K3 to be filed for Frank and the Box 16 marked?
DO WE NEED TO FILE FORM 8804 & 8805 IF THE COMPANY HAS TAXABLE LOSS?
Yes! Good question. The standard requires that all partnerships that have gross income effectively connected with a U.S. trade or business need to file Forms 8804 & 8805. The bottom line net income or loss of the partnership is irrelevant. If, for example, a partnership is engaged in U.S. trade or business and has gross effectively connected income of $50,000, and expenses of $60,000, the net loss would be $10,000. However, the partnership still needs to file the 8804 & 8805 because it has gross income of $50,000.
Mr. Knott: I have sent 1065 from foreign owners, who do not do business within the US. Income is generated outside of the US. I have received letters from the IRS requesting 8804 & 8805. Why is this happening?
Hi Jason, thank you for the informative video! Question: Line 1 ordinary business income = 50,000 AND partner rec'd a guaranteed payment in line 4C 10,0000. Is ECTI 50k or 60k for the partner?
Did you find this out yet? It appears guaranteed payments to individual foreign partner will be NONECI as long as the services are performed by the individual foreign partner outside US. Guaranteed payments wont be taxable on US income tax return(1040NR) of foreign partner.
Hi Jason,
can you please let me know the information that is available on 1:13 of the video, where can i find it?
Are you looking for the Form 1065 and Schedule K-1s? Those can be downloaded from the IRS website.
Hello Jason I have a Doubt about, If Partnership has a Net Loss then What i have to mention in the Form 8804 ECTI Line Either Loss Amount or 0?
Very unformative!
Do you have a resource/software you recommend for calculating penalties associated with the failure to pay estimated tax payments as well as interest owed?
selam benim şirketim daha yeni ve henüz beyan edecek hiç bir şeyimiz yok 2 ortaklı llc ve abd dışında ikamet ediyoruz nasıl doldurmamız gerekir bu formları acaba
Has anyone ever been penalized for not filing Form 8805?
I received a notice that my form 8805 was not received however it was sent with the 8804, it is impossible that they only received the 8804. Anyway the ECI is 0.
The letter says that I must send it within 30 days, however, the mail takes 10 days from outside the US, so it will arrive after the date. I am afraid of being penalized. What I can do? Is there a way to avoid penalty?
Form 8805 penalties do occur, but frankly they are rare. The real penalties occur when Form 8804 is filed late and the partnership fails to deposit the withholding within the prescribed timeline. If you are mailing something from a foreign country, as long as the postmark is dated on or before the due date, the IRS should accept it as a timely response. This is generally referred to as the "Mailbox Rule" in the U.S.
@@JasonDKnott Thank you very much Jason. The video is excellent and the visual summary, you have also taken the time to answer the comments, it is very nice.
Great video! One question....is it possible to partnership net ordinary losses with Unrecaptured section 1250 gains on line 4m and Adjusted net capital gain on line 4q. The instructions say "Don't enter a negative number on lines 4a, 4e, 4i, 4m, and 4q. See section 1(h) and Notice 97-59, 1997-45 I.R.B. 7, available at IRS.gov/pub/irs-irbs/irb97-45.pdf, for the rules for netting gains and losses." but it's not clear how the netting would work within the mechanics of the form 8804. I feel like an ordinary loss could be entered on line 4o and on form 8804-C but it's not very clear. FYI - all activity is ECI. Thanks!