salesperson/middleperson... am i overthinking this?

Hi,

Client has started to help out his father's overseas business.

He engages with customers who pay him in USD.

The purchase price of the goods he sells is 80% of the sale price. He incurs expenses of about 5%, keeps 1% for himself as commission and sends the remainder to Dad.

At first I thought there might be foreign tax issues to consider. Now it seems to me that he is simply a self-employed salesperson, filing a Schedule C and ultimately showing the 1% as net profit.

Am I overthinking/underthinking this?

Thanks,
Deb

If this is the only business the son conducts, I think you need to be looking at employee vs IC issues.

Assuming son is operating in the US, I don't see any foreign exposure solely by this arrangement. You'll want to examine the "regular" triggers for the son, especially if he is an immigrant. FBAR, 8938, businesses (8858, 8865, 5471), beneficiary of foreign trust, etc.

You'll want to find out if son is an employee or independent contractor, taking into consideration fact and circumstance, to determine what his tax ramifications are.

Big problem might be on dad's side. He might have created a permanent establishment inside of the US for his business, by virtue of an agent inside of the US (his son). Dad's foreign tax professional will want to examine the relevant tax treaty. Maybe onboard a US professional as well to consult (you might be able to pick up dad as a client).

The PE would be created by son signing contracts on behalf of Dad's company. The issue is common, but the IRS seldom enforces it and its a conversation clients dont like to have. If that is the situation, review/modify the contract so that it Dad is involved in its signing but no need to get too concerned.

If it is not a treaty country, you have a lower threshold for foreign presence, so you may need to look into it further.