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Introduction to US Taxation Fermilab 2012 January 31, 2012.

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1 Introduction to US Taxation Fermilab 2012 January 31, 2012

2 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Disclaimer ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (I) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (II) PROMOTING, MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. 2

3 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Purpose To introduce you to the US Individual Income Tax System. To help you recognize when you may be responsible for US Individual Income Tax filing. To help you understand that you may have to file an income tax return. To help you understand the forms and processes needed in order to fulfill the US Individual Income Tax filing. To help you understand the reporting of Foreign Bank Accounts to the US Treasury Department (Report of Foreign Bank Accounts) and reporting of Foreign Financial Assets to the Internal Revenue Service (Form 8938). 3

4 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Agenda Overview of US Taxation of Foreign Citizens Your tax obligations while you are present in the United States US Federal Individual Income Tax State Individual Income Tax Withholding US Tax Residency US Individual Income Taxation based on US visa status Effectively Connected Income Consequences of Not Complying with Tax Obligations Tax Treaty Benefits Social Security Number Individual Tax Identification Number Submitting Your Tax Return to the Federal/State Tax Authorities Foreign Bank Account Obligations to the US Treasury Department Foreign Financial Asset Obligation to the Internal Department of Revenue 4

5 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Overview of US taxation of foreign citizens Under United States income tax law, a foreign citizen or national is subject to US tax in different ways depending on whether he or she is a resident or a non-resident. In the United States, individuals generally prepare their own tax returns and compute their own taxes. The federal tax authority is the Internal Revenue Service (IRS), a part of the US Treasury Department. Most states and some counties and municipalities also impose income taxes, which are separately administered (generally by the tax authorities in that state or local jurisdiction). 5

6 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Your obligations during your stay in the US Three obligations 1. US Individual Income Tax: – Complete and send certain tax forms to the Internal Revenue Service that will provide them more information about your federal tax obligation due to your income. – Pay taxes to the Internal Revenue Service if owed by deadline. 2. State Individual Income Tax: – Complete and send certain tax forms to the state tax authorities that will provide them with information about your tax obligation due to your income. – Pay taxes to the state authorities if owed by deadline. 3. Notification about foreign funds – You may have to inform the US Treasury Department of your foreign bank accounts. – You may have to inform the Internal Revenue Service of your foreign financial assets. These are separate obligations. 6

7 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. US tax filing – Federal The federal US government agency responsible for collecting taxes and enforcing the US Revenue Code is the Internal Revenue Service (IRS). home page 1/6/2012 7

8 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. US tax filing – State Each state has its own taxing authority. Illinois Department of Revenue is the agency that collects tax forms for Illinois. Depending on circumstances, an individual might have to also file with two or even more states. page 1/6/2012 8

9 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Federal 1040 individual resident return 9

10 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Withholding Organizations are required by a variety of laws to take a certain portion of the funds that they have agreed to pay to an individual, and instead send those funds to the taxing authorities. This is called “withholding”. You can think about this as the organization pre-paying the taxes the individual might eventually owe to the taxing authority. If the individual owes taxes at the end of the year, he/she needs to make a payment to the tax authority for the difference between the tax liability and the amount withheld (which the tax authorities already have). If the individual does not owe taxes, or owes less tax than what was “withheld” by the organization, the individual might be entitled to a refund to some of the money the taxing authority received from the organization. 10

11 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Where does Keren file a state tax return? Keren completed her Bachelor’s degree at the Really Rural College of Florida (in F-1 status) in July 2011; she began her studies in August She began her graduate studies at the Well-Funded University of Michigan – also in F-1 status – in August She received a research assistant’s stipend from the Well-Funded University of Michigan. In October 2011, her WFU Michigan advisor sent Keren to Fermilab in Illinois to do her thesis research. She has rented an apartment and bought a car in Illinois. Where does Keren need to file state tax returns in 2011? 11

12 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Where does Keren file a state tax return? (continued) Each state in the United States has its own tax system and rules. There is no state tax obligation in Florida, so Keren does not have to complete a tax return in Florida. Keren will have to complete a 2011 Illinois Non-Resident Tax Return (Form IL-1040 and Schedule NR) and send it to the Illinois Department of Revenue in Springfield, IL. – She has to report income that she earned in Illinois while working at Fermilab on her 2011 Illinois Non-Resident Tax Return. Keren will have to complete a 2011 Michigan Resident Tax Return (Form MI-1040 and Schedule W) and send it to the Michigan Department of Treasury in Lansing, MI. – She has to report income that she earned in Michigan and Illinois on her 2011 Michigan Resident Tax Return. – Illinois has the first right to tax her income earned in Illinois while working at Fermilab. Therefore, she will need to claim a credit for the tax paid to Illinois on her Michigan tax return. – She will be required to pay quarterly estimates in future years. 12

13 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved Form IL

14 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved Schedule NR 14

15 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved Form MI

16 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved Schedule W 16

17 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. US Tax Residency Am I a resident or a non-resident for tax purposes? As a general rule, the US tax system divides individuals into two types: 1.US Citizens and lawful permanent residents (green card holders) and 2.Non-US citizens and individuals who do not have a green card US citizens and green card holders are considered to be residents of the US for tax purposes Non US-citizens and individuals who do not have a green card could be either resident or non- resident for tax purposes. Most tax rules determine US residency by evaluating whether the person has spent a lot of time in the US and benefitted from engaging in certain activities in the United States. The tax rules categorize an individual by evaluating the following: 1.Country of origin 2.Days spent in the United States 3.Visa status 4.Other aspects of the individual’s physical presence in the United States 17

18 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. US Tax Residency Am I a resident or a non-resident for tax purposes? (continued) So how does one become “resident for tax purposes”? – A “US tax resident” is defined as a foreign citizen or national who meets either of two tests: the lawful permanent resident test or the substantial presence test. This definition applies only for purposes of determining a foreign individual’s US income tax liability. – A foreign national who is a lawful permanent resident (green card holder) under the immigration laws is considered a resident for US income tax purposes. 18

19 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. US Tax Residency Am I a resident or a non-resident for tax purposes? (continued) Unlike the lawful permanent resident test, the substantial presence test focuses on physical presence in the United States. Under the substantial presence test, a foreign national will be considered a US resident for tax purposes if: – The individual is present in the United States for at least 31 days during the current calendar year; and – The sum of the number of days of US presence during the current calendar year, plus one-third of the US days during the first preceding calendar year, plus one-sixth of the US days during the second preceding calendar year, equals or exceeds 183 days. Exceptions to Substantial Presence There are two main exceptions to the substantial presence test: the exempt individual exception and the closer-connection-to-a-foreign-country exception. 19

20 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Important questions to ask in relation to substantial presence test Do you have 31 days of US presence in the current year? a)If no – not “resident for tax purposes”. b)If yes - “Look back test”— do you have183 days of US presence using the following formula: – Current year /1 = % PLUS – First preceding year /3 = 33.33% PLUS Second preceding year...1/6 = 16.67% Fractional days of presence count as full days. If = 183 days, you are “resident for tax purposes”. 20

21 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. How do I know if I meet substantial presence test? Definition of a Resident and Non-Resident Alien IRC Sec (b) (3) 21

22 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Calculating substantial presence days Aleksey is a Russian national visiting Fermilab in B-1 visa status. He wants to know if he will be a resident for tax purposes for the 2011 tax year. Aleksey was in the US as follows: 2011 – 120 days 2010 – 138 days 2009 – 102 days 22

23 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Calculating substantial presence days (continued) To calculate whether Aleksey meets the substantial presence test: 2011 days: days: = 138 days/3 =46 days (a partial day counts as a whole day) 2009 days = 102 days/6 =17 days Total Days: = 183 days Aleksey met the Substantial Presence Test. He could be “Resident for Tax Purposes” in the US, even though he has never received US income and only visited, in B-1 visa status, for fewer than 5 months each year. Answer: Substantial Presence Test Formula: All days in current year + 1/3 of last year’s days + 1/6 of days in the second preceding year 23

24 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. US individual income taxation based on US visa status Exceptions to substantial presence There are two main exceptions to the substantial presence test: the exempt individual exception and the closer-connection-to-a-foreign-country exception. This is not an exemption to eliminate your requirement to complete and submit a tax return. 1) First exception: Under the exempt-individual exception, an individual will not be treated as being present in the United States on any day in which the individual is considered an exempt individual. – Exempt individual is anyone temporarily present in the United States as a foreign government- related individual, or an individual holding a “J”, “Q”, “M”, or “F” visa. – A foreign government-related individual will remain a non-resident regardless of how long he or she resides in the United States. – The law, however, provides time limits for these individuals to be treated as exempt from this exception. 1.If for any of the last six calendar years, the individual was previously considered to be exempt. 2.In certain cases, this period is limited to four of the last six calendar years. 24

25 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. US individual income taxation based on US visa status Exceptions to substantial presence (continued) 2) The second exception is the closer-connection-to-a-foreign-country. To answer the questions necessary to determine whether this exception applies you must determine where your “Tax home” is located. – “Tax Home” is generally the area of your main place of employment or the place where you regularly live. In order to meet this exception, an individual must answer all of the following as “YES”: 1.I did not spend more than 183 days during the current calendar year in the United States; and 2.I did maintain a tax home in a foreign country during the calendar year; and 3.I have a closer connection in this current calendar year to the country in which I have my tax home, which is not the United States. If you answered, yes to all of these questions, you would be considered to meet the second exception and would not be considered resident under substantial presence. Again, this means only that you are not subject to tax as a resident for tax purposes. 25

26 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Am I an exempt individual? IRS Publication 4011 (Rev 2011) pgs

27 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Resident taxes versus non-resident taxes Tax Non-Resident (Does not meet the Substantial Presence Test, or is exempt via visa) Tax Resident (Meets the Substantial Presence Test) Income includedUS-Source Only*Worldwide (All Income) Deductions from taxable income State taxes, charity, misc.Medical expenses, state and property taxes, interest, charity, misc. Exemption amounts available Taxpayer OnlyTaxpayer, spouse, and family (Resident Dependents) Tax Rates (if you are married) Cannot use joint tax ratesCan use joint tax rates Credit for Non-US Tax Paid Not availableAvailable *US source income includes per-diems from US sources that are over the federal limit, and any personal income such as interest, dividends, and stock that are US based. 27

28 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Resident taxes versus non-resident taxes for scholarships and fellowship grants * Type of IncomeUS ResidentUS Non-Resident Scholarships Not-taxable if used for qualified expenses. "Qualified scholarship" not taxable; otherwise, reportable to the IRS if the source is from the United States. Fellowship grants for non-degree candidates Not-taxable if used for qualified expenses. Reportable to the IRS if the source is from the United States. 28

29 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Residency Francis is employed solely by Rich University of the United Kingdom, receiving roughly $100,000/year. He has never received funding from any US source. Between 2004 and 2007, he visits Fermilab intermittently in Visa Waiver status, remaining physically in the US for 7 months (210 days) each year. Beginning in 2007, Francis is sponsored for a J-1 visa by Fermilab, which is valid through 2012, while remaining employed by Rich University. He visits the US for more than 10 months each year while in J-1 status. UK taxes are deducted from his UK salary. 1. Is Francis “Resident for Tax Purposes” in the United States? – Francis is considered to be a resident for US individual income tax purposes in 2004, 2005 and – In 2007, 2008, 2009 and 2010, Francis is considered to be a non-resident for US individual income tax purposes due to J-1 visa status. – In 2011, he will be considered a resident for US individual income tax purposes as he had the J-1 visa for more than four years out of the last 6 years. 29

30 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Residency (continued) Francis is engaged to a US citizen. In 2011, he wants to pursue US permanent residence. He has just discovered that he has to include his last year’s tax return with his immigration petition – but he does not have one, because he has never filed taxes in the United States. 2. What can he do, if anything? – If Francis becomes a permanent resident of the US, he will no longer be treated as an exempt individual and will be treated as a resident for US individual income tax purposes. – Francis needs to complete his tax returns for prior years. The tax authorities will consider these to be late tax returns. Interest and penalties could arise if taxes are owed. Francis should consult a tax professional to determine requirements to file these late returns. 30

31 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Visa impact on residency Tatiana completed her master’s level research at Fermilab while holding a J-1 internship visa from May through July She was paid a per-diem from Fermilab of $51/day. She returned to Fermilab in October 2007 to do her PhD research, completing it in May She returned briefly to Russia for the issuance of her PhD, and then returned to Fermilab as a Post Doc in September She has resided continuously since then. She held J-1 Research Scholar visa since October Tatiana was paid wages of $25,000 a year as a PhD student. As a Post Doc, she receives wages of $55,000/year. Hypothetical #1 – The wages were paid by Moscow University the entire time, and Tatiana received no wages from a US source (only per diem in 2007). Hypothetical #2 – The wages were always been paid by Fermilab. What is Tatiana’s Tax Residency Status? 31

32 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Visa impact on residency (continued) Visa Hypothetical #1 – All wages paid by foreign source (Moscow University) Hypothetical #2 – All wages paid by FermilabTax Residency May – July 2007J-1 Internn/a (received per diem from Fermilab) Non-Resident for Tax Purposes Oct – Dec 2007J-1 Research ScholarExempt – 1 st year of 4 yr exemption Exempt – 1 st year of 2 yr exemption 2008J-1 Research ScholarExempt – 2 nd year of 4 yr exemption Exempt – 2 nd year of 2 yr exemption 2009J-1 Research ScholarExempt – 3 rd year of 4 yr exemption No Exemption Non-Resident for Tax Purposes if paid from MU. Resident for Tax Purposes if paid by Fermilab 2010J-1 Research ScholarExempt – 4th year of 4 yr exemption No Exemption 2011J-1 Research ScholarNo Exemption AND meets substantial presence. No ExemptionResident for Tax Purposes! Visa Type Length of Exemption if paid by a US Employer Length of Exemption if paid by a Non-US EmployerOther Considerations J2 out of the last 6 years4 out of the last 6 yearsHighly recommended to keep track of days even during “exempt” years 32

33 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Tax resident versus tax non-resident Javier is an Argentinean citizen who is a J-1 research scholar in the US, and part of the astrophysics collaboration. He first arrived in the US in 2004 on a F-1 student visa, graduating in 2006 and has remained in the US ever since on his J-1. He has received a $20,000 grant from his Argentina institution since working for Fermilab, pays $2,000 in taxes on his home in Argentina, and also has a bank account back home, receiving $1,000 of interest annually. Javier had been living in Illinois since In April 2011, Javier went to Wisconsin to work on a temporary project for two months. Javier came back to Illinois in June Describe Javier’s tax situation in the US from What state returns does Javier need to complete in 2011? 33

34 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Tax resident versus tax non-resident (continued) = F-1 student visa Javier’s days are exempt, Argentinean interest is exempt, and his Argentinean taxes are not deductible = J-1 research visa (4 years) Javier becomes a US tax resident for income tax purposes and is taxed on worldwide income. His property taxes may be Are exempt from substantial presence, therefore, Javier is non-resident for income tax purposes. Foreign interest income is exempt from US taxation during that time. Grant income from Argentina may be exempt depending on the type of grant. Grants usually may be either of the following: scholarship/fellowship income, or compensation for personal services, which is usually considered wages. For tax purposes, a scholarship/fellowship may be defined as an amount given to an individual which has the following characteristics: It is paid to aid the individual's pursuit of study, training, or research; it does not constitute compensation for personal services - past, present, or future; and it is paid more for the benefit of the grantee than the grantor = J-1 research visa (5 th year) Is not an exempt year. Javier becomes a US tax resident for income tax purposes and is taxed on worldwide income. His property taxes may be deductible. 34

35 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Tax resident versus tax non-resident (continued) As a resident of IL, Javier must file a Resident Income Tax (Form IL ) and send it to the Illinois Tax Authorities in Springfield, IL. Javier is considered a non-resident of Wisconsin since he worked in Wisconsin on a temporary basis and did not intend to permanently move there. However, any income he earned that is derived from Wisconsin sources is subject to tax by Wisconsin. Therefore he needs to complete a Wisconsin non-resident tax return (2011 Wisconsin Form 1NPR). 35

36 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. J vs. B visa Carmine is an Italian scientist who anticipates visiting Fermilab for at least 6 months per year over the next 5 years starting He receives wages from his University in Italy that are equivalent to $75,000/year. While at Fermilab, he will receive a per diem, which for this year would be $46/day. His University also pays him a housing allowance for his time at Fermilab, equivalent to $600/month. 36

37 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. J vs. B visa (continued) J visasB visa or Visa Waiver 2012Exempt – 1 st year of 4 yr exemption Non- resident for tax purposes Non-resident for tax purposes 2013Exempt – 2 nd year of 4 yr exemption Non- resident for tax purposes Generally, Fermilab is required to make withholding on per diem payments at 30% rate unless there is a treaty rate. Resident for Tax Purposes – subject to US taxes on worldwide income, including his Italian wages and housing allowance. 2014Exempt – 3rd year of 4 yr exemption Non-resident for tax purposes 2015Exempt – 4 th and final year of 4 yr exemption Non-resident for tax purposes 2016If Carmine meets the substantial presence test in 2016, by spending more than 183 days in the US in 2016, he will be considered resident for income tax purposes in 2016 and subject to US taxation on his worldwide income. 37

38 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What is effectively connected income? In general, a non-resident individual is taxable on effectively connected income only from US sources. However, certain income from sources outside the United States will be treated as effectively connected with the conduct of a US trade or business. Non-residents for tax purposes are taxed on US-sourced income and income that is “effectively connected” to the US when the non-resident individual has an office or other fixed place of business in the United States to which the income is attributable. The types of income are: – Rents and royalties for the use of intangible property derived from the conduct of a licensing or similar business; – Dividends, interest, or gains from stocks, bonds, or debt obligations derived in the active conduct of a banking, financing, or similar business with the United States; and Income from the sale of inventory property outside of the United States, unless the property is sold for use, consumption, or disposition outside of the United States and a foreign office of the taxpayer materially participates in the sale. All other foreign source income is not taxable to a non-resident individual. 38

39 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Visa waiver and research scholar (J-1) visa In October 2006, Silvia began visiting Fermilab under the Visa Waiver program, remaining here for 3 months each time, with 1-month return trips home. She averaged 9 months at Fermilab each year after that. She received per diem of $25/day from Fermilab for each day she was here. In addition, in 2008 she began receiving a wage from her home institution of $35,000. In 2011, she asked the Visa Office for J-1 Research Scholar visa paperwork, after being hassled at the airport during admission about the length of time she had spent in the United States. Silvia has never filed US tax return. 39

40 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Visa waiver and research scholar (J-1) visa (continued) Time spent in the USFundingVisa StatusTax Situation months (90 days)Per diem onlyVisa Waiver (WB) Non-resident for Tax Purposes No US-Sourced Income months (270 days)Per diem onlyVisa Waiver (WB) Resident for Tax Purposes (exceed 183 days) – taxed on worldwide income (which = zero) Withholding on Per Diem begins on 1-year anniversary (October 2007) Potential for refund of withholding depending on circumstances months (270 days)Per diem + foreign wages Visa Waiver (WB) Resident for Tax Purposes – taxed on worldwide income (including foreign wages) Withholding on Per Diem months (270 days)Per diem + foreign wages Visa Waiver (WB) Resident for Tax Purposes – taxed on worldwide income (including foreign wages) Withholding on Per Diem months (270 days)Per diem + foreign wages Visa Waiver (WB) Resident for Tax Purposes – taxed on worldwide income (including foreign wages) Withholding on Per Diem months (270 days)Per diem + foreign wages J-1 Research Scholar Non-resident for Tax purposes (1 st year of 4 year exemption) months (270 days)Per diem + foreign wages J-1 Research Scholar Non-resident for Tax purposes (2 nd year of 4 year exemption) 40

41 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Consequences of not complying with tax obligations Advantages Compliant with US law Avoid immigration problems Avoid significant interest and penalties Consult with a tax professional to determine the requirements to file late returns. Disadvantages Penalties Legal recourse (deportation, prison, etc) Lien on assets (homes, cars, bank accounts, etc) Wage garnishment Credit history affected (unable to obtain a loan) Special rules that might lower tax obligation rates can only be claimed for a limited time. A long delay in filing might mean that these special rules may no longer be available if you file late. 41

42 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Tax treaty benefits Non-resident individuals from countries with which the US has an income tax treaty may qualify for certain benefits if they meet the requirements of the treaty. – Most treaty provisions require that the individual be a resident of the treaty country in order to qualify. – Some treaty provisions require that the individual be a national or citizen of the treaty country. – Many treaties provide a lower rate of withholding tax on certain income, including dividends, interest, and royalties. Many tax treaties provide that a resident of a treaty country will not be taxed on compensation for services rendered in the United States if he or she meet all of the following: 1.Present in the United States for a short period of time (generally not more than 183 days during a taxable year or 12-month period); and is 2.Paid by and is rendering services for a foreign employer, provided that the employee’s remuneration is not borne by a US permanent establishment (for example, a US branch) of the foreign employer. 3.The treaties may also require that the compensation be less than a specified amount. 42

43 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Tax treaty countries Australia Austria Bangladesh Barbados Belgium Bulgaria Canada China Cyprus Czech Republic Denmark Egypt Estonia Finland France Germany Greece Hungary Iceland India Indonesia Ireland Israel Italy Jamaica Japan Kazakhstan Korea, South Latvia Lithuania Luxembourg Malta 43 Mexico Morocco Netherlands New Zealand Norway Pakistan Philippines Poland Portugal Romania Russia Slovak Republic Slovenia South Africa Spain Sri Lanka Sweden Switzerland Thailand Trinidad and Tobago Tunisia Turkey Ukraine United Kingdom Venezuela

44 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Tax treaty benefits (continued) Yvonne is employed by Windsor University as a Research Associate. She is assigned to Fermilab in 2011 to participate in an experiment here, and visits frequently using the Visa Waiver program. She receives $35,000 from Windsor University in wages. Yvonne’s wages from Windsor University may be considered to be “effectively connected” to the US and thus subject to US tax. She may need to file a resident or non-resident tax return depending on the days spent in the United States. 1. What if Yvonne is from United Kingdom, a treaty country, and she stays within the treaty guidelines? – In this case, Yvonne’s income earned while working in the US will not be taxable in the United States. However, she still has to file US income tax return to report the taken treaty position. 44

45 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Social security number Social Security Number (SSN) – If you receive US sourced funds such as salary or per-diem from a US source, you generally need to have a Social Security Number. If your family members do not work in the US, they do not require a Social Security Number. The number is obtained from the US Social Security Administration Office. For more information, place access their website Fermilab’s Visa Office can provide guidance on Social Security numbers. 45

46 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Individual taxpayer identification number Individual Taxpayer Identification Number (ITIN) is used to report family members on your federal and/or state tax returns. ITINs are obtained from the IRS. Members who may be claimed as dependents under applicable tax rules are eligible for the ITINs. Who needs an Individual Taxpayer Identification Number (ITIN)? Internal Revenue Service issues ITINs to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for Social Security Number (SSN). A non-resident individual needs an ITIN if s/he (1) is not eligible for a SSN and (2) is required to file a US tax return only to claim a refund of tax under the provisions of a US tax treaty,. Other examples of individuals who need ITINs include:  A non-resident individual required to file a US tax return  A US resident individual (based on days present in the United States) filing a US tax return  A dependent or spouse of a US citizen/resident individual  A dependent or spouse of a non-resident individual visa holder The number is obtained from the Internal Revenue Service. For more information, place access their website at 46

47 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. How do I apply for an ITIN? To apply for a Individual Tax Identification Number (ITIN)  Form W-7  Certified documents that establish your identity and foreign status  Form W-7 can be mailed with the federal tax return or sent separately. Application instructions can be found on the IRS website 47

48 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. How do I apply, and why do I need an ITIN? 48

49 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Submitting your tax return to the federal/state tax authorities Although you may not have any income that is taxable in the US, you still have an obligation to file a tax return. States follow federal tax due dates. Type of US income Amount of US Source Income IRS Form Deadline *may change if 15th holiday or weekend day Extension Option Wage (Salary) only Less than $3,650Form 8843 onlyJune 15thYes Wage (Salary) Only $3,650 or more Form 1040NR & 8843, OR Form 1040 April 15th* (April 17, 2012)Yes Wages & taxable fellowship grant Amount Irrelevant Form 1040NR & 8843 OR Form 1040 April 15th* (April 17, 2012)Yes Taxable fellowship grant only Amount Irrelevant Form 1040NR & 8843 OR Form 1040 April 15th for Residents (April 17, 2012), June 15th for Non- Residents Yes 49

50 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Submitting an extension to the federal/state tax authorities Form 4868 is an automatic extension to submit, not pay. Form 4868 for 2011 US Federal Tax Return, needs to be submitted by April 17, Form 4868 pertains to federal tax returns. Most states follow the federal extension. Some states require a separate extension application. State of Illinois does not have a separate extension form. 50

51 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Submitting your return to the federal/state tax authorities regardless of where I am located (in or out of the United States) IMPORTANT: If you are filing a non-resident return you cannot electronically file your return. If you are eligible to electronically file your return: ■ You can submit directly to the Internal Revenue Service system (click on the I need to file link on the website or visit ) which will provide you with the link to the free efile system.www.irs.gov If you choose to mail your return or if you are filing a non-resident tax return: ■ Enclose all necessary forms, and send to the appropriate mailing address. The appropriate address can be found on the filing instructions of your return. *You will need to indicate “applied for Taxpayer Identification Number” if you have not yet received this. Fermilab users who are non-resident for tax purposes might be able to use the online tax software system being made available by the Fermilab Visa Office. Contact the Visa Office at for an appointment to discuss accessing the system, if you think you will qualify. home page 1/6/

52 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Submitting your tax return to the federal/state tax authorities Federal payment voucher 52 INCLUDE ON THE MEMO LINE OF THE CHECK: NAME TAX RETURN YEAR FORM NUMBER AND YOUR SOCIAL SECURITY NUMBER (OR ITIN)

53 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Submitting your tax return to the federal/state tax authorities What forms do I have to file? Generally, you will have to file one or a combination of the following: 1)Federal 8843 Return for Exempt Individuals ─ No income to report, or part/all your income is not reportable. ─ Mail the form to the authorities by June 15 (October 15 if completed an extension). 2)Federal 1040NR Non-Resident Return ─ Income to report, but do not meet the Substantial Presence Test or the Lawful Permanent Resident Test. ─ Mail the form to the authorities by April 15 or June 15 if you qualify (October 15 if completed an extension). 3)Federal 1040 Individual Resident Return and or Federal 1040NR Non-Resident Return ─ Meet the Substantial Presence Test or ─ Lawful Permanent Resident Test. ─ Mail the form to the authorities by April 15 (October 15 if completed an extension). *2011 US tax return deadline is April 17, 2012 due to a holiday. 53

54 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Completing and submitting the US tax return Lido, an Italian graduate student, participated in an internship at Fermilab using two successive J-1 Intern visas, from January 2010 to June He received a $40 per diem from Fermilab, and returned home after his internship. What does he need to file and when? The per diem amount is assumed to be nontaxable and as such the $40 per day per diem is exempt and there is no income to report Tax Year – Form 8843 for Exempt Individuals (1040 or 1040NR is not required).  On or before June15 th, 2011 (Possible extension to file until October 17 th ) Tax Year – Form 8843 for Exempt Individuals (1040 or 1040NR is not required).  On or before June 15 th, 2012 (Possible extension to file until October 15 th ). Since Lido is filing only Form 8843, no balance due is expected; therefore no late filing penalties apply. 54

55 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Completing and submitting the US tax return (continued) What if Lido was paid a wage of $25,000 by Fermilab, and stayed until June 1st 2012? 2010 Tax Year – Form 1040NR and Form On or before April 18 th, 2011 (Possible extension to file until October 17 th) 2011 Tax Year – Form 1040NR and Form On or before April 17 th, 2012 (Possible extension to file until October 15 th ) 2012 Tax Year – Form 1040NR and Form On or before April 15 th, 2013 (Possible extension to file until October 15 th ) Note: Penalties and interest may apply even with extension if balance due is not paid by the filing due date (without extension). 55

56 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Submitting your tax return to the federal/state tax authorities Form 8843 – Exempt Individuals 56

57 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Submitting your tax return to the federal/state tax authorities Federal 1040NR non-resident return 57

58 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Submitting your tax return to the federal/state tax authorities Federal 1040 individual resident return 58

59 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. FBAR: Reporting requirement for non-US financial accounts The following only applies to US tax residents. Non-US Financial Accounts with aggregate balances exceeding $10,000 at any point during the calendar year must be disclosed to the US Treasury Department via Form TD F (FBAR). You must complete and mail the form to the US Treasury to ensure receipt by June 30th, 2012 (there are no extensions). Penalties for failure to file Form TD F – Willful failure = greater of $100,000 or 50% of account balance – Non-willful failure = up to $10,000 It is your responsibility to ensure you are compliant with this requirement. 59

60 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Foreign bank account form to the US treasury department 60

61 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. FATCA – NEW reporting of foreign financial assets Effective for 2011 tax year Form 8938, Statement of Foreign Financial Assets Filed with income tax return by certain US individuals that hold any interest in specified foreign financial assets if the value of those assets exceeds certain thresholds Form 8938 reporting is separate and in addition to FBAR reporting requirements Substantial penalties 61

62 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Who is a specified individual? US citizens Green card holders Green card holders claiming to be non-resident of the US pursuant to an income tax treaty Non-US citizens resident in the US for any part of the year Non-resident individual who makes an election to be treated as a resident individual for purposes of filing a joint tax return Non-resident individual who is a bona fide resident of American Samoa or Puerto Rico 62

63 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Common examples of reportable foreign financial assets Foreign bank accounts Investment vehicles such as foreign mutual funds, foreign hedge funds, and foreign private equity funds Interests in a foreign entity, foreign partnership, foreign trust, or foreign estate Bond, note payable, or any other form of indebtedness if payor is not a US person or entity Stock issued by a foreign corporation Deferred compensation payable by a foreign corporation Foreign pension Foreign life insurance policy if cash surrender value Principal residence held in foreign entity 63

64 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Reporting thresholds 64

65 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Action required regarding Form 8938 Consider all your foreign financial assets and determine the maximum value during the year – The exchange rate to be used is the US Treasury year-end exchange rate found at: 65

66 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Form 8938 – needs to be enclosed with the US federal tax return 66

67 Conclusion

68 © 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Questions 68 Your Feedback is Appreciated!!! Or go to Fermilab’s Users Office website at users.fnal.gov (http://wdrs.fnal.gov/visas/taxes.html)http://wdrs.fnal.gov/visas/taxes.html Click on “Tax for Non US-Citizens” under Quick Links (on the right), and then click on “Unexpected Tax Obligations Feedback Form” in the Quick Links (on the right). questions to


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