Payments to foreign vendors can be determined through a detailed analysis of the accounts payable or similar systems. Here are the steps to identify such payments:
- Computer Analysis of All Payments: Conduct a comprehensive computer analysis of all payments made to vendors. This analysis should flag any records that might indicate a foreign vendor.
- Review Address Fields:
- Country: Check if the country field is not "USA" or is blank.
- State: Ensure the state field is not a U.S. state or is blank.
- City: Identify if the city field contains a foreign city.
- Zip Code: Verify if the zip code does not follow the U.S. pattern (xxxxx-xxxx).
- Foreign Identification Numbers:
- Foreign EIN: Foreign entities usually have EINs starting with "98" (98-xxxxxxx).
- Foreign ITIN: Foreign individuals typically have ITINs starting with "999" and the fourth digit being a 7 or 8 (999-7/8x-xxxx).
- Foreign Vendor Number: Utilize any internal accounting system identifiers that distinguish foreign vendors from U.S. vendors.
- Other Indicators: Use any other indicators your system may have incorporated to identify foreign vendors.
By following these steps, you can systematically identify payments made to foreign vendors, ensuring compliance with reporting and withholding requirements.
Sources:
Publication 515 (2024)
Publication 519 (2023)
IRS FAQ
IRS FAQ
Rev. Proc. 2017-15
Rev. Proc. 2014-47
T.D. 8734
