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Federal 1040x

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Federal 1040x

Federal 1040x 1. Federal 1040x   Organizations Subject to the Tax Table of Contents The tax on unrelated business income applies to most organizations exempt from tax under section 501(a). Federal 1040x These organizations include charitable, religious, scientific, and other organizations described in section 501(c), as well as employees' trusts forming part of pension, profit-sharing, and stock bonus plans described in section 401(a). Federal 1040x In addition, the following are subject to the tax on unrelated business income. Federal 1040x Individual retirement arrangements (IRAs), including traditional IRAs, Roth IRAs, Coverdell IRAs, simplified employee pensions (SEP-IRAs), and savings incentive match plans for employees (SIMPLE IRAs). Federal 1040x State and municipal colleges and universities. Federal 1040x Qualified state tuition programs. Federal 1040x Medical savings accounts (MSAs) described in section 220(d). Federal 1040x Coverdell savings accounts described in section 530. Federal 1040x U. Federal 1040x S. Federal 1040x instrumentalities. Federal 1040x   A corporation that is a U. Federal 1040x S. Federal 1040x instrumentality described in section 501(c)(1) is not subject to the tax on unrelated business income if the corporation is organized under an Act of Congress and, under the Act, is exempt from federal income taxes. Federal 1040x Colleges and universities. Federal 1040x   Colleges and universities that are agencies or instrumentalities of any government or any political subdivision of a government, or that are owned or operated by a government or political subdivision of a government, are subject to the tax on unrelated business income. Federal 1040x As used here, the word government includes any foreign government (to the extent not contrary to a treaty) and all domestic governments (the United States and any of its possessions, any state, and the District of Columbia). Federal 1040x   The tax is on the unrelated business income of both the universities and colleges themselves and on their wholly owned tax exempt subsidiary organizations. Federal 1040x It is immaterial whether the business is conducted by the university or by a separately incorporated wholly owned subsidiary. Federal 1040x If the business activity is unrelated, the income in both instances will be subject to the tax. Federal 1040x If the primary purpose of a wholly owned subsidiary is to operate or conduct any unrelated trade or business (other than holding title to property and collecting income from it), the subsidiary is not an exempt organization, and this rule does not apply. Federal 1040x Title-holding corporations. Federal 1040x   When an exempt title-holding corporation, described in section 501(c)(2), pays any of its net income to an organization that itself is exempt from tax under section 501(a) (or would pay such an amount except that the expenses of collecting its income exceed the amount collected) and files a consolidated return with that organization, the title-holding corporation is treated, for unrelated business income tax purposes, as organized and operated for the same purposes as the exempt payee organization. Federal 1040x   Thus, a title-holding corporation whose source of income is related to the exempt purposes of the payee organization is not subject to the unrelated business income tax if the holding corporation and the payee organization file a consolidated return. Federal 1040x However, if the source of the income is not so related, the title-holding corporation is subject to unrelated business income tax. Federal 1040x Example. Federal 1040x X, a title-holding corporation, is required to distribute its net income to A, an exempt organization. Federal 1040x During the tax year, X realizes net income of $900,000 from source M, which is related to A's exempt function. Federal 1040x X also receives $100,000 from source N, which is not related to A's exempt function. Federal 1040x X and A file a consolidated return for the tax year. Federal 1040x X has unrelated business income of $100,000. Federal 1040x Prev  Up  Next   Home   More Online Publications
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The Federal 1040x

Federal 1040x 4. Federal 1040x   How Income of Aliens Is Taxed Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident Aliens Nonresident AliensTrade or Business in the United States Effectively Connected Income The 30% Tax Income From Real Property Transportation Tax Interrupted Period of Residence Expatriation TaxExpatriation Before June 4, 2004 Expatriation After June 3, 2004, and Before June 17, 2008 Expatriation After June 16, 2008 Introduction Resident and nonresident aliens are taxed in different ways. Federal 1040x Resident aliens are generally taxed in the same way as U. Federal 1040x S. Federal 1040x citizens. Federal 1040x Nonresident aliens are taxed based on the source of their income and whether or not their income is effectively connected with a U. Federal 1040x S. Federal 1040x trade or business. Federal 1040x The following discussions will help you determine if income you receive during the tax year is effectively connected with a U. Federal 1040x S. Federal 1040x trade or business and how it is taxed. Federal 1040x Topics - This chapter discusses: Income that is effectively connected with a U. Federal 1040x S. Federal 1040x trade or business. Federal 1040x Income that is not effectively connected with a U. Federal 1040x S. Federal 1040x trade or business. Federal 1040x Interrupted period of residence. Federal 1040x Expatriation tax. Federal 1040x Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 1212 List of Original Issue Discount Instruments Form (and Instructions) 6251 Alternative Minimum Tax—Individuals Schedule D (Form 1040) Capital Gains and Losses See chapter 12 for information about getting these publications and forms. Federal 1040x Resident Aliens Resident aliens are generally taxed in the same way as U. Federal 1040x S. Federal 1040x citizens. Federal 1040x This means that their worldwide income is subject to U. Federal 1040x S. Federal 1040x tax and must be reported on their U. Federal 1040x S. Federal 1040x tax return. Federal 1040x Income of resident aliens is subject to the graduated tax rates that apply to U. Federal 1040x S. Federal 1040x citizens. Federal 1040x Resident aliens use the Tax Table or Tax Computation Worksheets located in the Form 1040 instructions, which apply to U. Federal 1040x S. Federal 1040x citizens. Federal 1040x Nonresident Aliens A nonresident alien's income that is subject to U. Federal 1040x S. Federal 1040x income tax must be divided into two categories: Income that is effectively connected with a trade or business in the United States, and Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax, later). Federal 1040x The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. Federal 1040x These are the same rates that apply to U. Federal 1040x S. Federal 1040x citizens and residents. Federal 1040x Income that is not effectively connected is taxed at a flat 30% (or lower treaty) rate. Federal 1040x If you were formerly a U. Federal 1040x S. Federal 1040x citizen or resident alien, these rules may not apply. Federal 1040x See Expatriation Tax, later, in this chapter. Federal 1040x Trade or Business in the United States Generally, you must be engaged in a trade or business during the tax year to be able to treat income received in that year as effectively connected with that trade or business. Federal 1040x Whether you are engaged in a trade or business in the United States depends on the nature of your activities. Federal 1040x The discussions that follow will help you determine whether you are engaged in a trade or business in the United States. Federal 1040x Personal Services If you perform personal services in the United States at any time during the tax year, you usually are considered engaged in a trade or business in the United States. Federal 1040x Certain compensation paid to a nonresident alien by a foreign employer is not included in gross income. Federal 1040x For more information, see Services Performed for Foreign Employer in chapter 3. Federal 1040x Other Trade or Business Activities Other examples of being engaged in a trade or business in the United States follow. Federal 1040x Students and trainees. Federal 1040x   You are considered engaged in a trade or business in the United States if you are temporarily present in the United States as a nonimmigrant under an “F,” “J,” “M,” or “Q” visa. Federal 1040x A nonresident alien temporarily present in the United States under a “J” visa includes a nonresident alien individual admitted to the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. Federal 1040x The taxable part of any scholarship or fellowship grant that is U. Federal 1040x S. Federal 1040x source income is treated as effectively connected with a trade or business in the United States. Federal 1040x Business operations. Federal 1040x   If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions, engaged in a trade or business in the United States. Federal 1040x Partnerships. Federal 1040x   If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States. Federal 1040x Beneficiary of an estate or trust. Federal 1040x   If you are the beneficiary of an estate or trust that is engaged in a trade or business in the United States, you are treated as being engaged in the same trade or business. Federal 1040x Trading in stocks, securities, and commodities. Federal 1040x   If your only U. Federal 1040x S. Federal 1040x business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U. Federal 1040x S. Federal 1040x resident broker or other agent, you are not engaged in a trade or business in the United States. Federal 1040x   For transactions in stocks or securities, this applies to any nonresident alien, including a dealer or broker in stocks and securities. Federal 1040x   For transactions in commodities, this applies to commodities that are usually traded on an organized commodity exchange and to transactions that are usually carried out at such an exchange. Federal 1040x   This discussion does not apply if you have a U. Federal 1040x S. Federal 1040x office or other fixed place of business at any time during the tax year through which, or by the direction of which, you carry out your transactions in stocks, securities, or commodities. Federal 1040x Trading for a nonresident alien's own account. Federal 1040x   You are not engaged in a trade or business in the United States if trading for your own account in stocks, securities, or commodities is your only U. Federal 1040x S. Federal 1040x business activity. Federal 1040x This applies even if the trading takes place while you are present in the United States or is done by your employee or your broker or other agent. Federal 1040x   This does not apply to trading for your own account if you are a dealer in stocks, securities, or commodities. Federal 1040x This does not necessarily mean, however, that as a dealer you are considered to be engaged in a trade or business in the United States. Federal 1040x Determine that based on the facts and circumstances in each case or under the rules given above in Trading in stocks, securities, and commodities . Federal 1040x Effectively Connected Income If you are engaged in a U. Federal 1040x S. Federal 1040x trade or business, all income, gain, or loss for the tax year that you get from sources within the United States (other than certain investment income) is treated as effectively connected income. Federal 1040x This applies whether or not there is any connection between the income and the trade or business being carried on in the United States during the tax year. Federal 1040x Two tests, described next under Investment Income, determine whether certain items of investment income (such as interest, dividends, and royalties) are treated as effectively connected with that business. Federal 1040x In limited circumstances, some kinds of foreign source income may be treated as effectively connected with a trade or business in the United States. Federal 1040x For a discussion of these rules, see Foreign Income , later. Federal 1040x Investment Income Investment income from U. Federal 1040x S. Federal 1040x sources that may or may not be treated as effectively connected with a U. Federal 1040x S. Federal 1040x trade or business generally falls into the following three categories. Federal 1040x Fixed or determinable income (interest, dividends, rents, royalties, premiums, annuities, etc. Federal 1040x ). Federal 1040x Gains (some of which are considered capital gains) from the sale or exchange of the following types of property. Federal 1040x Timber, coal, or domestic iron ore with a retained economic interest. Federal 1040x Patents, copyrights, and similar property on which you receive contingent payments after October 4, 1966. Federal 1040x Patents transferred before October 5, 1966. Federal 1040x Original issue discount obligations. Federal 1040x Capital gains (and losses). Federal 1040x Use the two tests, described next, to determine whether an item of U. Federal 1040x S. Federal 1040x source income falling in one of the three categories above and received during the tax year is effectively connected with your U. Federal 1040x S. Federal 1040x trade or business. Federal 1040x If the tests indicate that the item of income is effectively connected, you must include it with your other effectively connected income. Federal 1040x If the item of income is not effectively connected, include it with all other income discussed under The 30% Tax later, in this chapter. Federal 1040x Asset-use test. Federal 1040x   This test usually applies to income that is not directly produced by trade or business activities. Federal 1040x Under this test, if an item of income is from assets (property) used in, or held for use in, the trade or business in the United States, it is considered effectively connected. Federal 1040x   An asset is used in, or held for use in, the trade or business in the United States if the asset is: Held for the principal purpose of promoting the conduct of a trade or business in the United States, Acquired and held in the ordinary course of the trade or business conducted in the United States (for example, an account receivable or note receivable arising from that trade or business), or Otherwise held to meet the present needs of the trade or business in the United States and not its anticipated future needs. Federal 1040x Generally, stock of a corporation is not treated as an asset used in, or held for use in, a trade or business in the United States. Federal 1040x Business-activities test. Federal 1040x   This test usually applies when income, gain, or loss comes directly from the active conduct of the trade or business. Federal 1040x The business-activities test is most important when: Dividends or interest are received by a dealer in stocks or securities, Royalties are received in the trade or business of licensing patents or similar property, or Service fees are earned by a servicing business. Federal 1040x Under this test, if the conduct of the U. Federal 1040x S. Federal 1040x trade or business was a material factor in producing the income, the income is considered effectively connected. Federal 1040x Personal Service Income You usually are engaged in a U. Federal 1040x S. Federal 1040x trade or business when you perform personal services in the United States. Federal 1040x Personal service income you receive in a tax year in which you are engaged in a U. Federal 1040x S. Federal 1040x trade or business is effectively connected with a U. Federal 1040x S. Federal 1040x trade or business. Federal 1040x Income received in a year other than the year you performed the services is also effectively connected if it would have been effectively connected if received in the year you performed the services. Federal 1040x Personal service income includes wages, salaries, commissions, fees, per diem allowances, and employee allowances and bonuses. Federal 1040x The income may be paid to you in the form of cash, services, or property. Federal 1040x If you are engaged in a U. Federal 1040x S. Federal 1040x trade or business only because you perform personal services in the United States during the tax year, income and gains from assets, and gains and losses from the sale or exchange of capital assets are generally not effectively connected with your trade or business. Federal 1040x However, if there is a direct economic relationship between your holding of the asset and your trade or business of performing personal services, the income, gain, or loss is effectively connected. Federal 1040x Pensions. Federal 1040x   If you were a nonresident alien engaged in a U. Federal 1040x S. Federal 1040x trade or business after 1986 because you performed personal services in the United States, and you later receive a pension or retirement pay attributable to these services, such payments are effectively connected income in each year you receive them. Federal 1040x This is true whether or not you are engaged in a U. Federal 1040x S. Federal 1040x trade or business in the year you receive the retirement pay. Federal 1040x Transportation Income Transportation income (defined in chapter 2) is effectively connected if you meet both of the following conditions. Federal 1040x You had a fixed place of business in the United States involved in earning the income. Federal 1040x At least 90% of your U. Federal 1040x S. Federal 1040x source transportation income is attributable to regularly scheduled transportation. Federal 1040x “Fixed place of business” generally means a place, site, structure, or other similar facility through which you engage in a trade or business. Federal 1040x “Regularly scheduled transportation” means that a ship or aircraft follows a published schedule with repeated sailings or flights at regular intervals between the same points for voyages or flights that begin or end in the United States. Federal 1040x This definition applies to both scheduled and chartered air transportation. Federal 1040x If you do not meet the two conditions above, the income is not effectively connected and is taxed at a 4% rate. Federal 1040x See Transportation Tax, later, in this chapter. Federal 1040x Business Profits and Losses and Sales Transactions All profits or losses from U. Federal 1040x S. Federal 1040x sources that are from the operation of a business in the United States are effectively connected with a trade or business in the United States. Federal 1040x For example, profit from the sale in the United States of inventory property purchased either in this country or in a foreign country is effectively connected trade or business income. Federal 1040x A share of U. Federal 1040x S. Federal 1040x source profits or losses of a partnership that is engaged in a trade or business in the United States is also effectively connected with a trade or business in the United States. Federal 1040x Real Property Gain or Loss Gains and losses from the sale or exchange of U. Federal 1040x S. Federal 1040x real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. Federal 1040x You must treat the gain or loss as effectively connected with that trade or business. Federal 1040x U. Federal 1040x S. Federal 1040x real property interest. Federal 1040x   This is any interest in real property located in the United States or the U. Federal 1040x S. Federal 1040x Virgin Islands or any interest (other than as a creditor) in a domestic corporation that is a U. Federal 1040x S. Federal 1040x real property holding corporation. Federal 1040x Real property includes the following. Federal 1040x Land and unsevered natural products of the land, such as growing crops and timber, and mines, wells, and other natural deposits. Federal 1040x Improvements on land, including buildings, other permanent structures, and their structural components. Federal 1040x Personal property associated with the use of real property, such as equipment used in farming, mining, forestry, or construction or property used in lodging facilities or rented office space, unless the personal property is: Disposed of more than one year before or after the disposition of the real property, or Separately sold to persons unrelated either to the seller or to the buyer of the real property. Federal 1040x U. Federal 1040x S. Federal 1040x real property holding corporation. Federal 1040x   A corporation is a U. Federal 1040x S. Federal 1040x real property holding corporation if the fair market value of the corporation's U. Federal 1040x S. Federal 1040x real property interests are at least 50% of the total fair market value of: The corporation's U. Federal 1040x S. Federal 1040x real property interests, plus The corporation's interests in real property located outside the United States, plus The corporation's other assets that are used in, or held for use in, a trade or business. Federal 1040x   Gain or loss on the sale of the stock in any domestic corporation is taxed as if you are engaged in a U. Federal 1040x S. Federal 1040x trade or business unless you establish that the corporation is not a U. Federal 1040x S. Federal 1040x real property holding corporation. Federal 1040x   A U. Federal 1040x S. Federal 1040x real property interest does not include a class of stock of a corporation that is regularly traded on an established securities market, unless you hold more than 5% of the fair market value of that class of stock. Federal 1040x An interest in a foreign corporation owning U. Federal 1040x S. Federal 1040x real property generally is not a U. Federal 1040x S. Federal 1040x real property interest unless the corporation chooses to be treated as a domestic corporation. Federal 1040x Qualified investment entities. Federal 1040x   Special rules apply to qualified investment entities (QIEs). Federal 1040x A QIE is any real estate investment trust (REIT) or any regulated investment company (RIC) that is a U. Federal 1040x S. Federal 1040x real property holding corporation. Federal 1040x    Generally, any distribution from a QIE to a shareholder that is attributable to gain from the sale or exchange of a U. Federal 1040x S. Federal 1040x real property interest is treated as a U. Federal 1040x S. Federal 1040x real property gain by the shareholder receiving the distribution. Federal 1040x A distribution by a QIE on stock regularly traded on an established securities market in the United States is not treated as gain from the sale or exchange of a U. Federal 1040x S. Federal 1040x real property interest if you did not own more than 5% of that stock at any time during the 1-year period ending on the date of the distribution. Federal 1040x A distribution that you do not treat as gain from the sale or exchange of a U. Federal 1040x S. Federal 1040x real property interest is included in your gross income as a regular dividend. Federal 1040x Note. Federal 1040x Beginning January 1, 2014 (unless extended by legislation), a RIC that is a U. Federal 1040x S. Federal 1040x real property holding corporation will only be treated as a QIE for certain distributions from the RIC that are directly or indirectly attributable to distributions received by the RIC from a REIT. Federal 1040x Domestically controlled QIE. Federal 1040x   The sale of an interest in a domestically controlled QIE is not the sale of a U. Federal 1040x S. Federal 1040x real property interest. Federal 1040x The entity is domestically controlled if at all times during the testing period less than 50% in value of its stock was held, directly or indirectly, by foreign persons. Federal 1040x The testing period is the shorter of (a) the 5-year period ending on the date of disposition, or (b) the period during which the entity was in existence. Federal 1040x Wash sale. Federal 1040x    If you dispose of an interest in a domestically controlled QIE in an applicable wash sale transaction, special rules apply. Federal 1040x An applicable wash sale transaction is one in which you: Dispose of an interest in the domestically controlled QIE during the 30-day period before the ex-dividend date of a distribution that you would (but for the disposition) have treated as gain from the sale or exchange of a U. Federal 1040x S. Federal 1040x real property interest, and Acquire, or enter into a contract or option to acquire, a substantially identical interest in that entity during the 61-day period that began on the first day of the 30-day period. Federal 1040x If this occurs, you are treated as having gain from the sale or exchange of a U. Federal 1040x S. Federal 1040x real property interest in an amount equal to the distribution made after June 15, 2006, that would have been treated as such gain. Federal 1040x This also applies to any substitute dividend payment. Federal 1040x   A transaction is not treated as an applicable wash sale transaction if: You actually receive the distribution from the domestically controlled QIE related to the interest disposed of, or acquired, in the transaction, or You dispose of any class of stock in a QIE that is regularly traded on an established securities market in the United States but only if you did not own more than 5% of that class of stock at any time during the 1-year period ending on the date of the distribution. Federal 1040x Alternative minimum tax. Federal 1040x   There may be a minimum tax on your net gain from the disposition of U. Federal 1040x S. Federal 1040x real property interests. Federal 1040x Figure the amount of this tax, if any, on Form 6251. Federal 1040x Withholding of tax. Federal 1040x   If you dispose of a U. Federal 1040x S. Federal 1040x real property interest, the buyer may have to withhold tax. Federal 1040x See the discussion of Tax Withheld on Real Property Sales in chapter 8. Federal 1040x Foreign Income You must treat three kinds of foreign source income as effectively connected with a trade or business in the United States if: You have an office or other fixed place of business in the United States to which the income can be attributed, That office or place of business is a material factor in producing the income, and The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Federal 1040x An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Federal 1040x The three kinds of foreign source income are listed below. Federal 1040x Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the United States or from any interest in such property. Federal 1040x Included are rents or royalties for the use, or for the privilege of using, outside the United States, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the United States. Federal 1040x Dividends, interest, or amounts received for the provision of a guarantee of indebtedness issued after September 27, 2010, from the active conduct of a banking, financing, or similar business in the United States. Federal 1040x A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Federal 1040x Income, gain, or loss from the sale outside the United States, through the U. Federal 1040x S. Federal 1040x office or other fixed place of business, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Federal 1040x Item (3) will not apply if you sold the property for use, consumption, or disposition outside the United States and an office or other fixed place of business in a foreign country was a material factor in the sale. Federal 1040x Any foreign source income that is equivalent to any item of income described above is treated as effectively connected with a U. Federal 1040x S. Federal 1040x trade or business. Federal 1040x For example, foreign source interest and dividend equivalents are treated as U. Federal 1040x S. Federal 1040x effectively connected income if the income is derived by a foreign person in the active conduct of a banking, financing, or similar business within the United States. Federal 1040x Tax on Effectively Connected Income Income you receive during the tax year that is effectively connected with your trade or business in the United States is, after allowable deductions, taxed at the rates that apply to U. Federal 1040x S. Federal 1040x citizens and residents. Federal 1040x Generally, you can receive effectively connected income only if you are a nonresident alien engaged in trade or business in the United States during the tax year. Federal 1040x However, income you receive from the sale or exchange of property, the performance of services, or any other transaction in another tax year is treated as effectively connected in that year if it would have been effectively connected in the year the transaction took place or you performed the services. Federal 1040x Example. Federal 1040x Ted Richards, a nonresident alien, entered the United States in August 2012, to perform personal services in the U. Federal 1040x S. Federal 1040x office of his overseas employer. Federal 1040x He worked in the U. Federal 1040x S. Federal 1040x office until December 25, 2012, but did not leave this country until January 11, 2013. Federal 1040x On January 8, 2013, he received his final paycheck for services performed in the United States during 2012. Federal 1040x All of Ted's income during his stay here is U. Federal 1040x S. Federal 1040x source income. Federal 1040x During 2012, Ted was engaged in the trade or business of performing personal services in the United States. Federal 1040x Therefore, all amounts paid to him in 2012 for services performed in the United States during 2012 are effectively connected with that trade or business during 2012. Federal 1040x The salary payment Ted received in January 2013 is U. Federal 1040x S. Federal 1040x source income to him in 2013. Federal 1040x It is effectively connected with a trade or business in the United States because he was engaged in a trade or business in the United States during 2012 when he performed the services that earned the income. Federal 1040x Real property income. Federal 1040x   You may be able to choose to treat all income from real property as effectively connected. Federal 1040x See Income From Real Property , later, in this chapter. Federal 1040x The 30% Tax Tax at a 30% (or lower treaty) rate applies to certain items of income or gains from U. Federal 1040x S. Federal 1040x sources but only if the items are not effectively connected with your U. Federal 1040x S. Federal 1040x trade or business. Federal 1040x Fixed or Determinable Income The 30% (or lower treaty) rate applies to the gross amount of U. Federal 1040x S. Federal 1040x source fixed or determinable annual or periodic gains, profits, or income. Federal 1040x Income is fixed when it is paid in amounts known ahead of time. Federal 1040x Income is determinable whenever there is a basis for figuring the amount to be paid. Federal 1040x Income can be periodic if it is paid from time to time. Federal 1040x It does not have to be paid annually or at regular intervals. Federal 1040x Income can be determinable or periodic even if the length of time during which the payments are made is increased or decreased. Federal 1040x Items specifically included as fixed or determinable income are interest (other than original issue discount), dividends, dividend equivalent payments (defined in chapter 2), rents, premiums, annuities, salaries, wages, and other compensation. Federal 1040x A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Federal 1040x Other items of income, such as royalties, also may be subject to the 30% tax. Federal 1040x Some fixed or determinable income may be exempt from U. Federal 1040x S. Federal 1040x tax. Federal 1040x See chapter 3 if you are not sure whether the income is taxable. Federal 1040x Original issue discount (OID). Federal 1040x   If you sold, exchanged, or received a payment on a bond or other debt instrument that was issued at a discount after March 31, 1972, all or part of the original issue discount (OID) (other than portfolio interest) may be subject to the 30% tax. Federal 1040x The amount of OID is the difference between the stated redemption price at maturity and the issue price of the debt instrument. Federal 1040x The 30% tax applies in the following circumstances. Federal 1040x You received a payment on a debt instrument. Federal 1040x In this case, the amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the OID previously taken into account. Federal 1040x But the tax on the OID cannot be more than the payment minus the tax on the interest payment on the debt instrument. Federal 1040x You sold or exchanged the debt instrument. Federal 1040x The amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the amount already taxed in (1) above. Federal 1040x   Report on your return the amount of OID shown on Form 1042-S, Foreign Person's U. Federal 1040x S. Federal 1040x Source Income Subject to Withholding, if you bought the debt instrument at original issue. Federal 1040x However, you must recompute your proper share of OID shown on Form 1042-S if any of the following apply. Federal 1040x You bought the debt instrument at a premium or paid an acquisition premium. Federal 1040x The debt instrument is a stripped bond or a stripped coupon (including zero coupon instruments backed by U. Federal 1040x S. Federal 1040x Treasury securities). Federal 1040x The debt instrument is a contingent payment or inflation-indexed debt instrument. Federal 1040x For the definition of premium and acquisition premium and instructions on how to recompute OID, get Publication 1212. Federal 1040x   If you held a bond or other debt instrument that was issued at a discount before April 1, 1972, contact the IRS for further information. Federal 1040x See chapter 12. Federal 1040x Gambling Winnings In general, nonresident aliens are subject to the 30% tax on the gross proceeds from gambling won in the United States if that income is not effectively connected with a U. Federal 1040x S. Federal 1040x trade or business and is not exempted by treaty. Federal 1040x However, no tax is imposed on nonbusiness gambling income a nonresident alien wins playing blackjack, baccarat, craps, roulette, or big-6 wheel in the United States. Federal 1040x Nonresident aliens are taxed at graduated rates on net gambling income won in the United States that is effectively connected with a U. Federal 1040x S. Federal 1040x trade or business. Federal 1040x Social Security Benefits A nonresident alien must include 85% of any U. Federal 1040x S. Federal 1040x social security benefit (and the social security equivalent part of a tier 1 railroad retirement benefit) in U. Federal 1040x S. Federal 1040x source fixed or determinable annual or periodic income. Federal 1040x Social security benefits include monthly retirement, survivor, and disability benefits. Federal 1040x This income is exempt under some tax treaties. Federal 1040x See Table 1 in Publication 901, U. Federal 1040x S. Federal 1040x Tax Treaties, for a list of tax treaties that exempt U. Federal 1040x S. Federal 1040x social security benefits from U. Federal 1040x S. Federal 1040x tax. Federal 1040x Sales or Exchanges of Capital Assets These rules apply only to those capital gains and losses from sources in the United States that are not effectively connected with a trade or business in the United States. Federal 1040x They apply even if you are engaged in a trade or business in the United States. Federal 1040x These rules do not apply to the sale or exchange of a U. Federal 1040x S. Federal 1040x real property interest or to the sale of any property that is effectively connected with a trade or business in the United States. Federal 1040x See Real Property Gain or Loss , earlier, under Effectively Connected Income. Federal 1040x A capital asset is everything you own except: Inventory. Federal 1040x Business accounts or notes receivable. Federal 1040x Depreciable property used in a trade or business. Federal 1040x Real property used in a trade or business. Federal 1040x Supplies regularly used in a trade or business. Federal 1040x Certain copyrights, literary or musical or artistic compositions, letters or memoranda, or similar property. Federal 1040x Certain U. Federal 1040x S. Federal 1040x government publications. Federal 1040x Certain commodities derivative financial instruments held by a commodities derivatives dealer. Federal 1040x Hedging transactions. Federal 1040x A capital gain is a gain on the sale or exchange of a capital asset. Federal 1040x A capital loss is a loss on the sale or exchange of a capital asset. Federal 1040x If the sale is in foreign currency, for the purpose of determining gain, the cost and selling price of the property should be expressed in U. Federal 1040x S. Federal 1040x currency at the rate of exchange prevailing as of the date of the purchase and date of the sale, respectively. Federal 1040x You may want to read Publication 544. Federal 1040x However, use Publication 544 only to determine what is a sale or exchange of a capital asset, or what is treated as such. Federal 1040x Specific tax treatment that applies to U. Federal 1040x S. Federal 1040x citizens or residents generally does not apply to you. Federal 1040x The following gains are subject to the 30% (or lower treaty) rate without regard to the 183-day rule, discussed later. Federal 1040x Gains on the disposal of timber, coal, or domestic iron ore with a retained economic interest. Federal 1040x Gains on contingent payments received from the sale or exchange of patents, copyrights, and similar property after October 4, 1966. Federal 1040x Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966. Federal 1040x Gains on the sale or exchange of original issue discount obligations. Federal 1040x Gains in (1) are not subject to the 30% (or lower treaty) rate if you choose to treat the gains as effectively connected with a U. Federal 1040x S. Federal 1040x trade or business. Federal 1040x See Income From Real Property , later. Federal 1040x 183-day rule. Federal 1040x   If you were in the United States for 183 days or more during the tax year, your net gain from sales or exchanges of capital assets is taxed at a 30% (or lower treaty) rate. Federal 1040x For purposes of the 30% (or lower treaty) rate, net gain is the excess of your capital gains from U. Federal 1040x S. Federal 1040x sources over your capital losses from U. Federal 1040x S. Federal 1040x sources. Federal 1040x This rule applies even if any of the transactions occurred while you were not in the United States. Federal 1040x   To determine your net gain, consider the amount of your gains and losses that would be recognized and taken into account only if, and to the extent that, they would be recognized and taken into account if you were in a U. Federal 1040x S. Federal 1040x trade or business during the year and the gains and losses were effectively connected with that trade or business during the tax year. Federal 1040x   In arriving at your net gain, do not take the following into consideration. Federal 1040x The four types of gains listed earlier. Federal 1040x The deduction for a capital loss carryover. Federal 1040x Capital losses in excess of capital gains. Federal 1040x Exclusion for gain from the sale or exchange of qualified small business stock (section 1202 exclusion). Federal 1040x Losses from the sale or exchange of property held for personal use. Federal 1040x However, losses resulting from casualties or thefts may be deductible on Schedule A (Form 1040NR). Federal 1040x See Itemized Deductions in chapter 5. Federal 1040x   If you are not engaged in a trade or business in the United States and have not established a tax year for a prior period, your tax year will be the calendar year for purposes of the 183-day rule. Federal 1040x Also, you must file your tax return on a calendar-year basis. Federal 1040x   If you were in the United States for less than 183 days during the tax year, capital gains (other than gains listed earlier) are tax exempt unless they are effectively connected with a trade or business in the United States during your tax year. Federal 1040x Reporting. Federal 1040x   Report your gains and losses from the sales or exchanges of capital assets that are not effectively connected with a trade or business in the United States on page 4 of Form 1040NR. Federal 1040x Report gains and losses from sales or exchanges of capital assets (including real property) that are effectively connected with a trade or business in the United States on a separate Schedule D (Form 1040), Form 4797, or both. Federal 1040x Attach them to Form 1040NR. Federal 1040x Income From Real Property If you have income from real property located in the United States that you own or have an interest in and hold for the production of income, you can choose to treat all income from that property as income effectively connected with a trade or business in the United States. Federal 1040x The choice applies to all income from real property located in the United States and held for the production of income and to all income from any interest in such property. Federal 1040x This includes income from rents, royalties from mines, oil or gas wells, or other natural resources. Federal 1040x It also includes gains from the sale or exchange of timber, coal, or domestic iron ore with a retained economic interest. Federal 1040x You can make this choice only for real property income that is not otherwise effectively connected with your U. Federal 1040x S. Federal 1040x trade or business. Federal 1040x If you make the choice, you can claim deductions attributable to the real property income and only your net income from real property is taxed. Federal 1040x This choice does not treat a nonresident alien, who is not otherwise engaged in a U. Federal 1040x S. Federal 1040x trade or business, as being engaged in a trade or business in the United States during the year. Federal 1040x Example. Federal 1040x You are a nonresident alien and are not engaged in a U. Federal 1040x S. Federal 1040x trade or business. Federal 1040x You own a single-family house in the United States that you rent out. Federal 1040x Your rental income for the year is $10,000. Federal 1040x This is your only U. Federal 1040x S. Federal 1040x source income. Federal 1040x As discussed earlier under The 30% Tax, the rental income is subject to a tax at a 30% (or lower treaty) rate. Federal 1040x You received a Form 1042-S showing that your tenants properly withheld this tax from the rental income. Federal 1040x You do not have to file a U. Federal 1040x S. Federal 1040x tax return (Form 1040NR) because your U. Federal 1040x S. Federal 1040x tax liability is satisfied by the withholding of tax. Federal 1040x If you make the choice discussed earlier, you can offset the $10,000 income by certain rental expenses. Federal 1040x (See Publication 527, Residential Rental Property, for information on rental expenses. Federal 1040x ) Any resulting net income is taxed at graduated rates. Federal 1040x If you make this choice, report the rental income and expenses on Schedule E (Form 1040) and attach the schedule to Form 1040NR. Federal 1040x For the first year you make the choice, also attach the statement discussed next. Federal 1040x Making the choice. Federal 1040x   Make the initial choice by attaching a statement to your return, or amended return, for the year of the choice. Federal 1040x Include the following in your statement. Federal 1040x That you are making the choice. Federal 1040x Whether the choice is under Internal Revenue Code section 871(d) (explained earlier) or a tax treaty. Federal 1040x A complete list of all your real property, or any interest in real property, located in the United States. Federal 1040x Give the legal identification of U. Federal 1040x S. Federal 1040x timber, coal, or iron ore in which you have an interest. Federal 1040x The extent of your ownership in the property. Federal 1040x The location of the property. Federal 1040x A description of any major improvements to the property. Federal 1040x The dates you owned the property. Federal 1040x Your income from the property. Federal 1040x Details of any previous choices and revocations of the real property income choice. Federal 1040x   This choice stays in effect for all later tax years unless you revoke it. Federal 1040x Revoking the choice. Federal 1040x   You can revoke the choice without IRS approval by filing Form 1040X, Amended U. Federal 1040x S. Federal 1040x Individual Income Tax Return, for the year you made the choice and for later tax years. Federal 1040x You must file Form 1040X within 3 years from the date your return was filed or 2 years from the time the tax was paid, whichever is later. Federal 1040x If this time period has expired for the year of choice, you cannot revoke the choice for that year. Federal 1040x However, you may revoke the choice for later tax years only if you have IRS approval. Federal 1040x For information on how to get IRS approval, see Regulation section 1. Federal 1040x 871-10(d)(2). Federal 1040x Transportation Tax A 4% tax rate applies to transportation income that is not effectively connected because it does not meet the two conditions listed earlier under Transportation Income . Federal 1040x If you receive transportation income subject to the 4% tax, you should figure the tax and show it on line 57 of Form 1040NR. Federal 1040x Attach a statement to your return that includes the following information (if applicable). Federal 1040x Your name, taxpayer identification number, and tax year. Federal 1040x A description of the types of services performed (whether on or off board). Federal 1040x Names of vessels or registration numbers of aircraft on which you performed the services. Federal 1040x Amount of U. Federal 1040x S. Federal 1040x source transportation income derived from each type of service for each vessel or aircraft for the calendar year. Federal 1040x Total amount of U. Federal 1040x S. Federal 1040x source transportation income derived from all types of services for the calendar year. Federal 1040x This 4% tax applies to your U. Federal 1040x S. Federal 1040x source gross transportation income. Federal 1040x This only includes transportation income that is treated as derived from sources in the United States if the transportation begins or ends in the United States. Federal 1040x For transportation income from personal services, the transportation must be between the United States and a U. Federal 1040x S. Federal 1040x possession. Federal 1040x For personal services of a nonresident alien, this only applies to income derived from, or in connection with, an aircraft. Federal 1040x Interrupted Period of Residence You are subject to tax under a special rule if you interrupt your period of U. Federal 1040x S. Federal 1040x residence with a period of nonresidence. Federal 1040x The special rule applies if you meet all of the following conditions. Federal 1040x You were a U. Federal 1040x S. Federal 1040x resident for a period that includes at least 3 consecutive calendar years. Federal 1040x You were a U. Federal 1040x S. Federal 1040x resident for at least 183 days in each of those years. Federal 1040x You ceased to be treated as a U. Federal 1040x S. Federal 1040x resident. Federal 1040x You then again became a U. Federal 1040x S. Federal 1040x resident before the end of the third calendar year after the end of the period described in (1) above. Federal 1040x Under this special rule, you are subject to tax on your U. Federal 1040x S. Federal 1040x source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) for the period you were a nonresident alien, unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Federal 1040x S. Federal 1040x trade or business. Federal 1040x For information on how to figure the special tax, see How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) under Expatriation Tax , below. Federal 1040x Example. Federal 1040x John Willow, a citizen of New Zealand, entered the United States on April 1, 2008, as a lawful permanent resident. Federal 1040x On August 1, 2010, John ceased to be a lawful permanent resident and returned to New Zealand. Federal 1040x During his period of residence, he was present in the United States for at least 183 days in each of three consecutive years (2008, 2009, and 2010). Federal 1040x He returned to the United States on October 5, 2013, as a lawful permanent resident. Federal 1040x He became a resident before the close of the third calendar year (2013) beginning after the end of his first period of residence (August 1, 2010). Federal 1040x Therefore, he is subject to tax under the special rule for the period of nonresidence (August 2, 2010, through October 4, 2013) if it is more than the tax that would normally apply to him as a nonresident alien. Federal 1040x Reporting requirements. Federal 1040x   If you are subject to this tax for any year in the period you were a nonresident alien, you must file Form 1040NR for that year. Federal 1040x The return is due by the due date (including extensions) for filing your U. Federal 1040x S. Federal 1040x income tax return for the year that you again become a U. Federal 1040x S. Federal 1040x resident. Federal 1040x If you already filed returns for that period, you must file amended returns. Federal 1040x You must attach a statement to your return that identifies the source of all of your U. Federal 1040x S. Federal 1040x and foreign gross income and the items of income subject to this special rule. Federal 1040x Expatriation Tax The expatriation tax provisions apply to U. Federal 1040x S. Federal 1040x citizens who have renounced their citizenship and long-term residents who have ended their residency. Federal 1040x The rules that apply are based on the dates of expatriation, which are described in the following sections. Federal 1040x Expatriation Before June 4, 2004. Federal 1040x Expatriation After June 3, 2004, and Before June 17, 2008. Federal 1040x Expatriation After June 16, 2008. Federal 1040x Long-term resident defined. Federal 1040x   You are a long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends. Federal 1040x In determining if you meet the 8-year requirement, do not count any year that you are treated as a resident of a foreign country under a tax treaty and do not waive treaty benefits. Federal 1040x Expatriation Before June 4, 2004 If you expatriated before June 4, 2004, the expatriation rules apply if one of the principal purposes of the action is the avoidance of U. Federal 1040x S. Federal 1040x taxes. Federal 1040x Unless you received a ruling from the IRS that you did not expatriate to avoid U. Federal 1040x S. Federal 1040x taxes, you are presumed to have tax avoidance as a principal purpose if: Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship or terminate your residency was more than $100,000, or Your net worth on the date of your action was $500,000 or more. Federal 1040x The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1). Federal 1040x Table 4-1. Federal 1040x Inflation-Adjusted Amounts for Expatriation Actions Before June 4, 2004 IF you expatriated during . Federal 1040x . Federal 1040x . Federal 1040x   THEN the rules outlined on this page apply if . Federal 1040x . Federal 1040x . Federal 1040x     Your 5-year average annual net income tax was more than . Federal 1040x . Federal 1040x . Federal 1040x OR Your net worth equaled or exceeded . Federal 1040x . Federal 1040x . Federal 1040x 1999   110,000   552,000 2000   112,000   562,000 2001   116,000   580,000 2002   120,000   599,000 2003   122,000   608,000 2004 (before June 4)*   124,000   622,000 *If you expatriated after June 3, 2004, see Expatriation After June 3, 2004, and Before June 17, 2008 or Expatriation After June 16, 2008. Federal 1040x Reporting requirements. Federal 1040x   If you lost your U. Federal 1040x S. Federal 1040x citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. Federal 1040x If you ended your long-term residency, you should have filed Form 8854 with the Internal Revenue Service when you filed your dual-status tax return for the year your residency ended. Federal 1040x   Your U. Federal 1040x S. Federal 1040x residency is considered to have ended when you ceased to be a lawful permanent resident or you began to be treated as a resident of another country under a tax treaty and do not waive treaty benefits. Federal 1040x Penalties. Federal 1040x   If you failed to file Form 8854, you may have to pay a penalty equal to the greater of 5% of the expatriation tax or $1,000. Federal 1040x The penalty will be assessed for each year of the 10-year period beginning on the date of expatriation during which your failure to file continues. Federal 1040x The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect. Federal 1040x Expatriation tax. Federal 1040x   The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. Federal 1040x It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. Federal 1040x See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section. Federal 1040x Expatriation After June 3, 2004, and Before June 17, 2008 If you expatriated after June 3, 2004, and before June 17, 2008, the expatriation rules apply to you if any of the following statements apply. Federal 1040x Your average annual net income tax for the 5 tax years ending before the date of expatriation or termination of residency is more than: $124,000 if you expatriated or terminated residency in 2004. Federal 1040x $127,000 if you expatriated or terminated residency in 2005. Federal 1040x $131,000 if you expatriated or terminated residency in 2006. Federal 1040x $136,000 if you expatriated or terminated residency in 2007. Federal 1040x $139,000 if you expatriated or terminated residency in 2008. Federal 1040x Your net worth is $2 million or more on the date of your expatriation or termination of residency. Federal 1040x You fail to certify on Form 8854 that you have complied with all U. Federal 1040x S. Federal 1040x federal tax obligations for the 5 tax years preceding the date of your expatriation or termination of residency. Federal 1040x Exception for dual-citizens and certain minors. Federal 1040x   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) earlier. Federal 1040x However, they still must provide the certification required in (3). Federal 1040x Certain dual-citizens. Federal 1040x   You may qualify for the exception described above if all of the following apply. Federal 1040x You became at birth a U. Federal 1040x S. Federal 1040x citizen and a citizen of another country and you continue to be a citizen of that other country. Federal 1040x You were never a resident alien of the United States (as defined in chapter 1). Federal 1040x You never held a U. Federal 1040x S. Federal 1040x passport. Federal 1040x You were present in the United States for no more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your loss of U. Federal 1040x S. Federal 1040x citizenship. Federal 1040x Certain minors. Federal 1040x   You may qualify for the exception described above if you meet all of the following requirements. Federal 1040x You became a U. Federal 1040x S. Federal 1040x citizen at birth. Federal 1040x Neither of your parents was a U. Federal 1040x S. Federal 1040x citizen at the time of your birth. Federal 1040x You expatriated before you were 18½. Federal 1040x You were present in the United States for not more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your expatriation. Federal 1040x Tax consequences of presence in the United States. Federal 1040x   The following rules apply if you do not meet the exception above for dual-citizens and certain minors and the expatriation rules would otherwise apply to you. Federal 1040x   The expatriation tax does not apply to any tax year during the 10-year period if you are physically present in the United States for more than 30 days during the calendar year ending in that year. Federal 1040x Instead, you are treated as a U. Federal 1040x S. Federal 1040x citizen or resident and taxed on your worldwide income for that tax year. Federal 1040x You must file Form 1040, 1040A, or 1040EZ and figure your tax as prescribed in the instructions for those forms. Federal 1040x   When counting the number of days of presence during a calendar year, count any day you were physically present in the United States at any time during the day. Federal 1040x However, do not count any days (up to a limit of 30 days) on which you performed personal services in the United States for an employer who is not related to you if either of the following apply. Federal 1040x You have ties with other countries. Federal 1040x You have ties with other countries if: You became (within a reasonable period after your expatriation or termination of residency) a citizen or resident of the country in which you, your spouse, or either of your parents were born, and You became fully liable for income tax in that country. Federal 1040x You were physically present in the United States for 30 days or less during each year in the 10-year period ending on the date of expatriation or termination of residency. Federal 1040x Do not count any day you were an exempt individual or were unable to leave the United States because of a medical condition that arose while you were in the United States. Federal 1040x See Exempt individual and Medical condition in chapter 1 under Substantial Presence Test, but disregard the information about Form 8843. Federal 1040x Related employer. Federal 1040x   If your employer in the United States is any of the following, then your employer is related to you. Federal 1040x You must count any days you performed services in the United States for that employer as days of presence in the United States. Federal 1040x Members of your family. Federal 1040x This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. Federal 1040x ), and lineal descendants (children, grandchildren, etc. Federal 1040x ). Federal 1040x A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. Federal 1040x A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. Federal 1040x (See Publication 550, chapter 4, Constructive ownership of stock, for how to determine whether you directly or indirectly own outstanding stock. Federal 1040x ) A tax-exempt charitable or educational organization that is directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. Federal 1040x Date of tax expatriation. Federal 1040x   For purposes of U. Federal 1040x S. Federal 1040x tax rules, the date of your expatriation or termination of residency is the later of the dates on which you perform the following actions. Federal 1040x You notify either the Department of State or the Department of Homeland Security (whichever is appropriate) of your expatriating act or termination of residency. Federal 1040x You file Form 8854 in accordance with the form instructions. Federal 1040x Annual return. Federal 1040x   If the expatriation tax applies to you, you must file Form 8854 each year during the 10-year period following the date of expatriation. Federal 1040x You must file this form even if you owe no U. Federal 1040x S. Federal 1040x tax. Federal 1040x Penalty. Federal 1040x   If you fail to file Form 8854 for any tax year, fail to include all information required to be shown on the form, or include incorrect information, you may have to pay a penalty of $10,000. Federal 1040x You will not have to pay a penalty if you show that the failure is due to reasonable cause and not to willful neglect. Federal 1040x How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) If the expatriation tax applies to you, you are generally subject to tax on your U. Federal 1040x S. Federal 1040x source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Federal 1040x S. Federal 1040x trade or business. Federal 1040x For this purpose, U. Federal 1040x S. Federal 1040x source gross income (defined in chapter 2) includes gains from the sale or exchange of: Property (other than stock or debt obligations) located in the United States, Stock issued by a U. Federal 1040x S. Federal 1040x domestic corporation, and Debt obligations of U. Federal 1040x S. Federal 1040x persons or of the United States, a state or political subdivision thereof, or the District of Columbia. Federal 1040x U. Federal 1040x S. Federal 1040x source income also includes any income or gain derived from stock in certain controlled foreign corporations if you owned, or were considered to own, at any time during the 2-year period ending on the date of expatriation, more than 50% of: The total combined voting power of all classes of that corporation's stock, or The total value of the stock. Federal 1040x The income or gain is considered U. Federal 1040x S. Federal 1040x source income only to the extent of your share of earnings and profits earned or accumulated before the date of expatriation and during the periods you met the ownership requirements discussed above. Federal 1040x Any exchange of property is treated as a sale of the property at its fair market value on the date of the exchange and any gain is treated as U. Federal 1040x S. Federal 1040x source gross income in the tax year of the exchange unless you enter into a gain recognition agreement under Notice 97-19. Federal 1040x Other information. Federal 1040x   For more information on the expatriation tax provisions, including exceptions to the tax and special U. Federal 1040x S. Federal 1040x source rules, see section 877 of the Internal Revenue Code. Federal 1040x Expatriation Tax Return If you expatriated or terminated your U. Federal 1040x S. Federal 1040x residency, or you are subject to the expatriation tax, you must file Form 8854, Initial and Annual Expatriation Statement. Federal 1040x Attach it to Form 1040NR if you are required to file that form. Federal 1040x If you are present in the United States following your expatriation and are subject to tax as a U. Federal 1040x S. Federal 1040x citizen or resident, file Form 8854 with Form 1040. Federal 1040x Expatriation After June 16, 2008 If you expatriated after June 16, 2008, the expatriation rules apply to you if you meet any of the following conditions. Federal 1040x Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than: $139,000 if you expatriated or terminated residency in 2008. Federal 1040x $145,000 if you expatriated or terminated residency in 2009 or 2010. Federal 1040x $147,000 if you expatriated or terminated residency in 2011. Federal 1040x $151,000 if you expatriated or terminated residency in 2012. Federal 1040x $155,000 if you expatriated or terminated residency in 2013. Federal 1040x Your net worth is $2 million or more on the date of your expatriation or termination of residency. Federal 1040x You fail to certify on Form 8854 that you have complied with all U. Federal 1040x S. Federal 1040x federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency. Federal 1040x Exception for dual-citizens and certain minors. Federal 1040x   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) above. Federal 1040x However, they still must provide the certification required in (3) above. Federal 1040x Certain dual-citizens. Federal 1040x   You may qualify for the exception described above if both of the following apply. Federal 1040x You became at birth a U. Federal 1040x S. Federal 1040x citizen and a citizen of another country and you continue to be a citizen of, and are taxed as a resident of, that other country. Federal 1040x You have been a resident of the United States for not more than 10 years during the 15-year tax period ending with the tax year during which the expatriation occurs. Federal 1040x For the purpose of determining U. Federal 1040x S. Federal 1040x residency, use the substantial presence test described in chapter 1. Federal 1040x Certain minors. Federal 1040x   You may qualify for the exception described earlier if you meet both of the following requirements. Federal 1040x You expatriated before you were 18½. Federal 1040x You have been a resident of the United States for not more than 10 tax years before the expatriation occurs. Federal 1040x For the purpose of determining U. Federal 1040x S. Federal 1040x residency, use the substantial presence test described in chapter 1. Federal 1040x Expatriation date. Federal 1040x   Your expatriation date is the date you relinquish U. Federal 1040x S. Federal 1040x citizenship (in the case of a former citizen) or terminate your long-term residency (in the case of a former U. Federal 1040x S. Federal 1040x resident). Federal 1040x Former U. Federal 1040x S. Federal 1040x citizen. Federal 1040x   You are considered to have relinquished your U. Federal 1040x S. Federal 1040x citizenship on the earliest of the following dates. Federal 1040x The date you renounced U. Federal 1040x S. Federal 1040x citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a certificate of loss of nationality). Federal 1040x The date you furnished to the State Department a signed statement of voluntary relinquishment of U. Federal 1040x S. Federal 1040x nationality confirming the performance of an expatriating act (provided that the voluntary relinquishment was later confirmed by the issuance of a certificate of loss of nationality). Federal 1040x The date the State Department issued a certificate of loss of nationality. Federal 1040x The date that a U. Federal 1040x S. Federal 1040x court canceled your certificate of naturalization. Federal 1040x Former long-term resident. Federal 1040x   You are considered to have terminated your long-term residency on the earliest of the following dates. Federal 1040x The date you voluntarily relinquished your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U. Federal 1040x S. Federal 1040x consular or immigration officer, and the Department of Homeland Security determined that you have, in fact, abandoned your lawful permanent resident status. Federal 1040x The date you became subject to a final administrative order for your removal from the United States under the Immigration and Nationality Act and you actually left the United States as a result of that order. Federal 1040x If you were a dual resident of the United States and a country with which the United States has an income tax treaty, the date you began to be treated as a resident of that country and you determined that, for purposes of the treaty, you are a resident of the treaty country and notify the IRS of that treatment on Forms 8833 and 8854. Federal 1040x See Effect of Tax Treaties in chapter 1 for more information about dual residents. Federal 1040x How To Figure the Expatriation Tax (If You Expatriate After June 16, 2008) In the year you expatriate, you are subject to income tax on the net unrealized gain (or loss) in your property as if the property had been sold for its fair market value on the day before your expatriation date (“mark-to-market tax”). Federal 1040x This applies to most types of property interests you held on the date of relinquishment of citizenship or termination of residency. Federal 1040x But see Exceptions , later. Federal 1040x Gains arising from deemed sales must be taken into account for the tax year of the deemed sale without regard to other U. Federal 1040x S. Federal 1040x internal revenue laws. Federal 1040x Losses from deemed sales must be taken into account to the extent otherwise provided under U. Federal 1040x S. Federal 1040x internal revenue laws. Federal 1040x However, Internal Revenue Code section 1091 (relating to the disallowance of losses on wash sales of stock and securities) does not apply. Federal 1040x The net gain that you otherwise must include in your income is reduced (but not below zero) by: $600,000 if you expatriated or terminated residency before January 1, 2009. Federal 1040x $626,000 if you expatriated or terminated residency in 2009. Federal 1040x $627,000 if you expatriated or terminated residency in 2010. Federal 1040x $636,000 if you expatriated or terminated residency in 2011. Federal 1040x $651,000 if you expatriated or terminated residency in 2012. Federal 1040x $668,000 if you expatriated or terminated residency in 2013. Federal 1040x Exceptions. Federal 1040x   The mark-to-market tax does not apply to the following. Federal 1040x Eligible deferred compensation items. Federal 1040x Ineligible deferred compensation items. Federal 1040x Interests in nongrantor trusts. Federal 1040x Specified tax deferred accounts. Federal 1040x Instead, items (1) and (3) may be subject to withholding at source. Federal 1040x In the case of item (2), you are treated as receiving the present value of your accrued benefit as of the day before the expatriation date. Federal 1040x In the case of item (4), you are treated as receiving a distribution of your entire interest in the account on the day before your expatriation date. Federal 1040x See paragraphs (d), (e), and (f) of section 877A for more information. Federal 1040x Expatriation Tax Return If you expatriated or terminated your U. Federal 1040x S. Federal 1040x residency, or you are subject to the expatriation rules (as discussed earlier in the first paragraph under Expatriation After June 16, 2008), you must file Form 8854. Federal 1040x Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms. Federal 1040x Deferral of payment of mark-to-market tax. Federal 1040x   You can make an irrevocable election to defer payment of the mark-to-market tax imposed on the deemed sale of property. Federal 1040x If you make this election, the following rules apply. Federal 1040x You can make the election on a property-by-property basis. Federal 1040x The deferred tax attributable to a particular property is due on the return for the tax year in which you dispose of the property. Federal 1040x Interest is charged for the period the tax is deferred. Federal 1040x The due date for the payment of the deferred tax cannot be extended beyond the earlier of the following dates. Federal 1040x The due date of the return required for the year of death. Federal 1040x The time that the security provided for the property fails to be adequate. Federal 1040x See item (6) below. Federal 1040x You make the election on Form 8854. Federal 1040x You must provide adequate security (such as a bond). Federal 1040x You must make an irrevocable waiver of any right under any treaty of the United States which would preclude assessment or collection of the mark-to-market tax. Federal 1040x   For more information about the deferral of payment, see the Instructions for Form 8854. Federal 1040x Prev  Up  Next   Home   More Online Publications