USA Taxation of Non resident Alien Business

[sean_miles]

I'm looking for clarification, or a professional opinion on a tax obligation and reporting requirement for the following scenario.

An NRA (Non resident alien, by nationality, the substantial presence test and no physical US presence) owns a US company (sole proprietorship) that provides software development services for a mixture of international and US companies.

The company has a US bank account for the business. The bulk of transactions are conducted online (eCommerce software as a service) and infrastructure and services are provided and performed outside the US.

The company has no physical US presence and no services are performed inside the US.

Based on existing advice from a CPA. We have been informed that the company has no US tax obligations on foreign clients or US clients.

Could anyone counter this position if its deemed incorrect?

If this position is indeed correct and there are no obligations what are filling requirements if there is no "taxable" income to report?

 

[kirby]

Situation is very complex. I think your best course is to get this opinion IN WRITING from the CPA so that he is responsible for it. I am constantly amazed at how businesses don't do this when the whole basis of the company depends on it.

 

[sean_miles]

Thank you for your response. I think it does make sense to get this in writing, do you believe this would offer some form of protection in any request for clarification on the issue?. I.E, does a letter from a CPA hold legal weight?.

My concern is the numerous contradictions and grey areas within the IRS guidelines in relation to NRA taxation and ECI. While im confident the position here has no "US Sourced income" as all services are performed outside the US and the technology infrastructure is also outside the US, what concerns me is that when presented with all the definitions in this case it can be interpreted in many different ways depending on which of the contradicting terms you take as having more weight than the other.

For this reason we have had mixed responses from 3 CPAs with none able to provide absolute clarification on the issue.

 

[kirby]

A written letter from a CPA will set forth his/her opinion on the tax matter but will not have "legal weight" to withstand an IRS challenge. The "in writing" part is intended to weed out those CPAs who try to garner your business with their "expertise" on your issues but won't put it in writing because they realize they do not truly know the answer. Problem is you could still have some incompetent CPA give you a written opinion that was incorrect. Your legal recourse then is generally limited to tax penalties and related interest (not to the additional tax itself) . A step above a local CPA would be a national CPA firm, but that is a more expensive opinion and - again- just an opinion. And a step above that is a tax attorney - again just an opinion. Best course is a "private letter ruling" direct from IRS but that takes time and money. Otherwise if you can't wait then you have to decide if you want to just roll the dice...