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About John Stancil, CPA
Expertise
I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I teach tax and accounting at a small church-related college. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a part time tax practice for over 30 years. I am a member of the AICPA, National Association of Tax Professionals, and the Institute of Management Accountants. Visit my website at www.johnstancilcpa.com. Also visit my blog, www.thetaxdocspot.com.

Experience
I hold a doctorate in Accounting, and four professional certifications: CPA, CMA, CFM, and CIA. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I write a monthly tax column for the local newspaper. I have prepared taxes for over 30 years.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill College

You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > Effectively connected income in USA

Tax Law (Questions About Taxes) - Effectively connected income in USA

Expert: John Stancil, CPA - 11/6/2009

Question
1. An Indian company realises it may have unreported taxable income in USA due to providing services to customers in USA. It wants to report such income for the past years (both federal and state).

(a) The Indian company has been generating income in USA for the past 7 years. How far back is it required to go (legally or practically) in reporting the income?

(b) If the reporting of income, payment of tax and filing of returns are voluntary, will the company suffer any penalty or fines?

(c) Will the company be allowed deduction for all allocable expenses?

(d) The company has routinely sent its employees from India to provide services to the Indian customers. These are not sales or marketing people but actual service providers. These employees are paid a per-diem for meals and lodging in line with the limits defined under US laws. The company does not require employees to submit proof of such expense except an undertaking that they have spent the full amount.

(d1) Will the per-diems be considered taxable wages in the hands of these employees?

(d2) Will the per-diems be fully deductible for corporate tax purposes?

Best regards

Answer
Amitabh,

Since the statute of limitations does not begin until the return is filed, they are required to file for all past years. Filing for the last three (for example) could trigger an investigation into prior years.

The delinquent tax will be subject to interest and penalties. However, you can request an abatement of the penalties. Coming forth voluntarily would likely get them reduced or eliminated. They cannot abate the interest.

They will be allowed legitimate deductions.

Since there is no accounting for the funds, this is a non-accountable plan and taxable income to the employees. The corporation may deduct the per diem amounts.

Hope this helps.

John Stancil, CPA

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