New Visa Regulations: Problems For Webmasters Without A Presence In The United States – Part Two

[Part 1]

Visa Clarification… Maybe Not

After noting the vague nature of the regulations issued by Visa, I attempted to contact Visa USA by both email and telephone. Telephone calls were not returned, but Visa was kind enough to respond to written questions by sending the following email response on October 15, 2002:

“Thank you for your message. For inquiries regarding implementation of new regulations, please have your clients contact the Visa member bank that services their company. A representative at their financial institution can directly address inquiries as they specifically relate to their individual business situation.”

This response hardly clarifies the issues confronting Webmasters. Based on events transpiring in the last seven days, following are additional concerns and options that Webmasters need to consider.

Incorporation

The most popular location for creating a “presence” in the United States is Nevada. The Webmaster can easily form a corporation in Nevada on a rush basis. The formation requires the retention of a Resident Agent located in the state. Once retained, the Resident Agent will act as the party designated for contact with the IRS and the State of Nevada. Depending on the requirements of the particular Resident Agent, the Webmaster may also be able to use the location of the Resident Agent as the business address for the corporation.

Rumors have circulated that Visa will also require that the “U.S. presence” be an actual office instead of a simple address. A few Resident Agents will provide their clients with a staffed office that answers phones, etc. Prices for this service differ between the various providers, but Webmasters should anticipate spending roughly $1,500 for the service on a yearly basis.

EIN – Tax Identification Number: Potential Problem Area

A key element to creating a corporation is the assignment of a tax identification number by the IRS. This number, better known as an EIN, is obtained through the filing of a SS-4 form. The information that must be supplied on this form, however, includes the name of the principal officer and the Social Security Number, Individual Taxpayer Identification Number or EIN for a separate company. Most Webmasters do not have any such identification numbers. Instead, they are required to complete form W-7 to obtain an Individual Taxpayer Identification Number. The problem with filing the W-7, however, is that it can take up to six weeks to receive the number. Such a delay is catastrophic in light of the time available for complying with the Visa Regulations.

Can I Use A Passport Instead of Filing a W-7?

Webmasters might be able to get the IRS to accept the application for an EIN by submitting the application with a copy of their passport. A number of Webmasters have had success using a passport while others have been rejected. The IRS was contacted in an effort to find out the reason for differing results. One IRS Agent said a passport was acceptable while another said it was not! It is our strong opinion that Webmasters should complete the SS-4 form and contact the IRS by telephone to apply for the EIN. If the IRS Agent then indicates that the passport will be sufficient, the Webmaster should fax in the form and a copy of the passport while on the phone with the Agent. The Agent should immediately issue the EIN over the phone. The telephone number for the appropriate IRS Service Center is 215-516-6999 and must be used during regular business hours in the Eastern United States. Webmasters should NOT send in an application and simply hope it will come back with an EIN number. There is no guarantee that the IRS will respond before the time period for complying with the Visa regulations expires.

Avoiding IRS Filing Issues

The available time for complying with the Visa regulations is growing very short. For Webmasters that still have not acted or do not wish to take a chance with the IRS, AdultInternetLaw.com has made arrangements for you to obtain a Nevada Corporation with tax identification number and bank account. Webmasters will not be required to file anything with the IRS to obtain the corporation, but may be required to file a W-7 at a later time. The timeframe for arranging the above is three business days. The bank account takes a bit longer as the Webmaster must sign documents and make a W-8 filing with the IRS.

The primary advantage in using the above-referenced service is to create a valid US Corporation in the short time remaining before the Visa regulations go into effect. To learn more, contact Richard@adultinternetlaw.com.

Tax Issues

As mentioned in the article last week, business entities in the United States that make payments to foreign entities may be required to withhold thirty percent of the payment in question. This thirty percent is in addition to any taxes due in the Webmaster’s country. Relief from this double taxation is found primarily in tax treaties between the US and other countries. Each treaty, however, is different and needs to be reviewed by an accountant. The tax treaty between Canada and the United States definitely provides relief from double taxation according to an accountant that has been researching the issue.

As time grows short for complying with the new Visa regulations, the non-US-based Webmaster must make some difficult decisions. If the Webmaster decides to create a US presence, he must make sure that he does so in a timely manner while avoiding the pitfalls of the IRS.

The above discussion is intended to be a general commentary on tax and banking issues. Each situation is different and this article is not intended as legal advice for your specific situation. Further, nothing in this article is intended to create an attorney-client relationship.

Richard Chapo is the lead attorney for AdultInternetLaw.com, based in San Diego, California. AdultInternetLaw.com provides legal services to adult businesses, focusing on business strategy, corporate and contract preparation and site reviews. He can be contacted at Richard@adultinternetlaw.com.