U.S. Income Taxation of Nonresident Alien Individuals analyzes the U.S. income tax laws applicable to non-U.S. citizens (i.e., “aliens”) who are classified as “nonresident aliens” rather than as “resident aliens” under the Internal Revenue Code.
Written by Thomas St.G. Bissell, Esq., this Portfolio discusses the rules of §7701(b) that govern the determination of whether an alien is a resident alien or a nonresident alien and the federal income tax rules that determine how an individual who is classified as a nonresident alien is taxed by the United States.
This Portfolio provides an in-depth analysis of the key issues including:
Where this Portfolio touches upon issues that are discussed in detail in other Portfolios, the reader's attention is directed to those Portfolios.
U.S. Income Taxation of Nonresident Alien Individuals allows you to benefit from:
This Portfolio is part of the Foreign Income Portfolios Library, a comprehensive series containing more than 90 Portfolios, which covers critical transactions and issues in international taxation. This highly-regarded resource service offers commentary on a wide range of foreign income topics including: Foreign Tax Credit, Business Operations in more than 40 foreign countries, Branch ProfitsTax, Source of Income Rules, Subpart F (Controlled Foreign Corporations), Foreign Partnerships and Partners, Transfer Pricing, and more.
Detailed Analysis
I. Introduction
II. Historical Background
III. Determination of Resident Alien Status
A. "Resident Alien" Status Prior to TRA 1984
B. Resident Alien Status under § 7701(b) - An Overview
1. General Definitional Rules
2. Expansiveness of the Regulations
3. Tax Treaty Overrides
4. Non-Immigrant Visa Categories
5. Scope of § 7701(b)
C. The Permanent Residence (Green Card) Test
1. General Rule
2. Revocation of Green Card Status
3. Abandonment of Green Card Status
D. The Substantial Presence Test
1. General Rules
2. The Daycount Rules
3. Meaning of the Term "United States"
4. No-ruling Area
E. Special Exceptions to the Substantial Presence Test
1. Overview of the Exceptions
2. Less Than 183 Days in U.S. in the Current Year
a. General Rule
b. "Tax Home" Test
(1) No Tax Home, or Multiple Business Locations
(2) Alien Who Moves from One Foreign Country to Another
c. "Closer Connection" Test
d. Disclosure Requirement - IRS Form 8840
3. Foreign Government-Related Individuals
a. Employees of Foreign Governments
b. Employees of International Organizations
c. Immediate Family Members
4. Teachers and Trainees (J-Visa and Q-Visa Holders)
a. General Rules
b. Time Limits
c. Disclosure Statement
5. Students
b. 5-Year Time Limit
6. Professional Athletes in Charitable Sporting Events
7. Aliens with a Medical Condition
b. Disclosure Statement
8. Regular Commuters from Canada and Mexico
9. Aliens in Transit Through the United States
10. Foreign Vessel Crew Members
F. Resident Alien Election
IV. Resident Alien Starting Date and Termination Date
Introductory Material
A. Residency Starting Date Rules
1. Starting Date under the Permanent Residence (Green Card) Test
2. Starting Date under the Substantial Presence Test
3. Starting Date If a Resident Alien Election Is Made
B. Residency Termination Date Rules
1. Termination Date under the Permanent Residence (Green Card) Test
b. Former Long-term Residents
2. Termination Date under the Substantial Presence Test
C. The "No Lapse" Rule
D. Joint Return Election under § 6013(g) and (h)
2. Combining a § 7701(b)(4) Election and a § 6013(g) or (h) Election
V. Interplay of Income Tax Treaties with § 7701(b)
A. Treaty Tie-Breaker Rules
B. The IRS Regulations
1. Nonresident Alien for Most Purposes
2. Disclosure of Status to IRS
C. Categories of Aliens Affected by the Tie-Breaker Rules
1. Non-Immigrant Aliens with a U.S. Presence
2. Green Card Holders Living Abroad
D. Effect of Tie-Breaker Status on Residency Time Periods
E. Treaty Rules and § 6013(g) and (h) Elections
F. Special Rules for S Corporations
G. "Saving Clause" in Tax Treaties
VI. Income Taxation of Nonresident Aliens - General Rules
A. "Business" vs. "Non-Business" Income
B. "Effectively Connected Income" (ECI)
2. Whether the Alien Is "Engaged in Trade or Business within the United States" (ETBUS)
a. Employees
b. Self-Employed Personal Service Providers
c. Investors
3. "Deemed" ETBUS Status
a. FIRPTA Rules on Gains from U.S. Real Property
b. Payments Deferred into a Non-ETBUS Year
c. Sale of ETBUS Assets in a Later Year
d. Real Property Net Election under § 871(d)
4. Determining Whether Gross Income Is ECI
5. Deductions Allowed in Determining Net ECI
a. Expenses Connected with ECI
b. Allowable Deductions Not Connected with ECI
c. No Standard Deduction
6. "No Deduction" Rule If Timely Return Is Not Filed
b. Tax Treaty Implications
7. Withholding at Source on ECI
C. Non-Effectively Connected Income
1. Tax on "FDAP" under § 871(a)(1)
b. Tax Treaty Overrides of § 871(a)(1)
c. Withholding to Enforce Collection of Tax on FDAP
d. Additional Special Categories of Income
2. Tax on U.S.-Source Capital Gains under § 871(a)(2)
b. Treatment of Losses
c. Tax Treaty Overrides of § 871(a)(2)
d. Withholding and Information Reporting under § 871(a)(2)
e. Dual-Status Aliens
D. Treaty-Based Return Position Disclosure
VII. Calculation of Taxable ECI
A. Introduction
B. Gross Income
1. Only U.S.-Source Compensation Is Taxable
2. Employees - Elements of an Alien's Compensation Package
a. Moving Expense Reimbursements
b. Reimbursement of U.S. Housing Costs
c. Other Temporary U.S. Living Expenses
d. Company Car
e. Tuition Reimbursements
f. Home Leave Reimbursements
g. Tax Reimbursements
h. Home Country Pension Plan Contributions
i. Coverage under Group Insurance Plans
3. Self-Employed Aliens
C. Adjustments to Gross Income
D. Itemized Deductions
VIII. Tax Return Filing Procedures
B. Requirement to File
1. Alien Is ETBUS
2. Tax Is Owed for the Year
3. Treaty Tie-Breaker Aliens
C. Structure of Form 1040NR
D. Reporting of FDAP on Which Withholding Was Sufficient
E. Taxable Year of a Nonresident Alien
F. Filing Status
G. Calculation of Tax
1. Tax Credits
2. Alternative Minimum Tax (AMT)
H. Questions on Page 5 of Form 1040NR
I. Taxpayer Identification Number
J. When to File
2. Extensions of Time
K. Where to File
L. Filing Through an Agent
M. Additional Forms That May Need to Be Attached to Form 1040NR
N. Dual-Status Aliens
1. Dual-Status Tax Return
2. Prorating Income for the Year
O. Estimated Tax Requirements
P. Civil Penalties for Late Filing or for Underpayment of Tax
1. Late Filing Penalties
2. Accuracy-Related Penalty
3. Other Penalties Related to Underpayments
4. Statutory Interest
5. Penalty for Failure to Disclose Treaty Return Position
Q. Form 1040NR-EZ
R. Enforcement and Collection
2. IRS Access to Foreign Information
3. Collection of Tax Judgments in Foreign Countries
S. Erroneous Filing of Form 1040 Instead of Form 1040NR
IX. Special Categories of Aliens
B. Alien Partners in Partnerships That Are ETBUS
C. Entertainers and Athletes
D. Students, Trainees and Teachers
1. Students
a. Scholarships and Awards
b. Business Expense Deduction
c. Compensation for Part-Time Work
d. Election to Be a Resident Alien
2. Trainees
3. Teachers
E. Employees of Foreign Governments and International Organizations
F. Directors Attending U.S. Board Meetings
G. Aliens Involved with International Shipping and Aircraft
1. Crew Members of Foreign Vessels and Aircraft
2. Aliens Who Operate an Unincorporated Shipping or Aircraft Business
H. Beneficiaries of Non-Grantor Trusts
1. Beneficiaries of Domestic Trusts
2. Beneficiaries of Foreign Trusts
I. Aliens from Community Property Countries
J. Former U.S. Citizens and Resident Aliens
1. Former Citizens and Long-Term Green Card Holders under § § 877 and 877A
2. Special § 7701(b)(10) Rule
K. Aliens Resident in U.S. Possessions
L. Nonresident Alien Gamblers
M. Illegal Aliens
N. Incarcerated Aliens
X. Deferred Compensation and Pensions
B. IRS Rules on Sourcing of International Compensation
2. Single-Year vs. Multi-Year Arrangements
C. Deferred Compensation Plans
1. Voluntary Salary Deferral Arrangement
2. Incentive Plans
D. Distributions from a Tax-Qualified Retirement Plan
1. General Principles
2. Taxation of Non-Treaty Aliens
3. Taxation of Treaty Country Aliens
E. Payments from an Unfunded "Top-Up" Retirement Plan
F. Equity-based Compensation
1. Exercise of Rights under a U.S. Stock Option Plan
2. Restricted Stock Plans
XI. Tax Clearance for Departing Aliens
A. General Requirements
B. Exceptions to the Procedures
C. Procedures Applicable to Nonresident Aliens
1. Nonresident Alien with No Taxable Income
2. Nonresident Alien with Taxable Income Whose Taxable Period Is Not Terminated
a. Form 1040-C
b. Employer Letter of Guarantee
3. Nonresident Alien Whose Taxable Year Is Terminated
Working Papers
Table of Worksheets
Worksheet 1 Section 7701(b)(4) Election To Be Treated As U.S. Resident
Worksheet 2 Tax Reform Act of 1984, Excerpts from Joint Committee Explanation of Code Section 7701(b)
Worksheet 3 IRS Publication 519, Tax Guide for Aliens
Worksheet 4 Visa Symbols for Classifying Nonimmigrant Aliens
Bibliography
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Statutes:
Treasury Regulations:
Committee Reports:
IRS Notices:
IRS Procedures and Rulings:
Cases:
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