Client did not file W8-BEN and was subject to 24% Federal withholdings on proceeds from stock sales. Sales are from stock traded on established securities markets and are exempt from tax. (Publically traded exemption). Anyone have any thoughts on how to file a 1040-NR to get the withholding back? The client is not a US citizen and does not have a SS# of ITIN #. When the sales are entered into the 1040-NR - Schedule D, it is taxing him on ST Gains. Thanks all.
Good luck with this. I've been trying for over 3 years to get a very large sum of backup withholding from a forfeited (because no W-8 series form on file and individual did nothing about it) bank account.
Person needs an ITIN to file the 1040NR. You can submit the W-7 with the 1040NR.
If no SSN or ITIN, how was the 1099 issued? This has been my nightmare. IRS won't allow the withholding because ITIN not on the 1099. Individual had no ITIN at the time the 1099 was issued. Finally got payer to issue corrected 1099 with the ITIN. Then IRS says we need to prove payer sent the withholding to IRS. Etc., etc. I have become very friendly with two Taxpayer Advocates in Puerto Rico.
@sjrcpaDidn't realize you were also responding but agree that the brokerage or whoever issued the 1042S should issue a corrected 1042S with the ITIN once it becomes available. Until then, the withholding is sitting in a pool, waiting to be allocated and it'd be a nightmare trying to claim a credit for that.
Still an AllStar
It is not entirely correct that "[s]ales from stock traded on established securities markets" are exempt from tax. And there is no such thing in the tax code as "Publically traded exemption" (with or without the correct spelling).
Fundamental to your question is where your client's tax home is, assuming this is not US-ECI but FDAP. Just because an individual is classified as an NRA does not automatically translate to the individual not having a tax home in the US. Those are governed by two separate section of the IRC and the Code section that determines the sourcing of the gain is predicated on whether the individual has a tax home in the US. Taxpayers who is in the US for 183 days or more would have US-source capital gain subject to tax at 30%.
Page 4 of 1040-NR is only for US-source FDAP. If you enter that on this page, PS will treat that as US-source and apply the 30% tax mentioned above. If the gain is not US-source because your client was an NRA who did not have a tax home in the US (remember one does not always equate to the other), the gain is simply not reportable. You will need to notate that separately on the return but still claim a credit for the tax withholding.
To file a refund claim on a 2019 1040-NR, your client should apply for an ITIN and attach the 1042S with tax withholding to the return.
Your client should also file the W8-BEN asap to avoid this from recurring in 2020 (which is almost half-way through - believe it or not).
Still an AllStar