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Form 1040nr 2011

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Form 1040nr 2011

Form 1040nr 2011 2. Form 1040nr 2011   Entertainment Table of Contents Directly-Related Test Associated TestMeetings at conventions. Form 1040nr 2011 50% LimitExceptions to the 50% Limit What Entertainment Expenses Are Deductible?A meal as a form of entertainment. Form 1040nr 2011 Deduction may depend on your type of business. Form 1040nr 2011 Exception for events that benefit charitable organizations. Form 1040nr 2011 Food and beverages in skybox seats. Form 1040nr 2011 What Entertainment Expenses Are Not Deductible?Out-of-pocket expenses. Form 1040nr 2011 You may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. Form 1040nr 2011 The rules and definitions are summarized in Table 2-1 . Form 1040nr 2011 You can deduct entertainment expenses only if they are both ordinary and necessary and meet one of the following tests. Form 1040nr 2011 Directly-related test. Form 1040nr 2011 Associated test. Form 1040nr 2011 Both of these tests are explained later. Form 1040nr 2011 An ordinary expense is one that is common and accepted in your trade or business. Form 1040nr 2011 A necessary expense is one that is helpful and appropriate for your business. Form 1040nr 2011 An expense does not have to be required to be considered necessary. Form 1040nr 2011 The amount you can deduct for entertainment expenses may be limited. Form 1040nr 2011 Generally, you can deduct only 50% of your unreimbursed entertainment expenses. Form 1040nr 2011 This limit is discussed later under 50% Limit. Form 1040nr 2011 Directly-Related Test To meet the directly-related test for entertainment expenses (including entertainment-related meals), you must show that: The main purpose of the combined business and entertainment was the active conduct of business, You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit at some future time. Form 1040nr 2011 Business is generally not considered to be the main purpose when business and entertainment are combined on hunting or fishing trips, or on yachts or other pleasure boats. Form 1040nr 2011 Even if you show that business was the main purpose, you generally cannot deduct the expenses for the use of an entertainment facility. Form 1040nr 2011 See Entertainment facilities under What Entertainment Expenses Are Not Deductible? later in this chapter. Form 1040nr 2011 You must consider all the facts, including the nature of the business transacted and the reasons for conducting business during the entertainment. Form 1040nr 2011 It is not necessary to devote more time to business than to entertainment. Form 1040nr 2011 However, if the business discussion is only incidental to the entertainment, the entertainment expenses do not meet the directly-related test. Form 1040nr 2011 Table 2-1. Form 1040nr 2011 When Are Entertainment Expenses Deductible? General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. Form 1040nr 2011 Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. Form 1040nr 2011 An ordinary expense is one that is common and accepted in your trade or business. Form 1040nr 2011 A necessary expense is one that is helpful and appropriate. Form 1040nr 2011 Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. Form 1040nr 2011   Associated test Entertainment is associated with your trade or business, and Entertainment is directly before or after a substantial business discussion. Form 1040nr 2011 Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. Form 1040nr 2011 You cannot deduct expenses that are lavish or extravagant under the circumstances. Form 1040nr 2011 You generally can deduct only 50% of your unreimbursed entertainment expenses (see 50% Limit ). Form 1040nr 2011 You do not have to show that business income or other business benefit actually resulted from each entertainment expense. Form 1040nr 2011 Clear business setting. Form 1040nr 2011   If the entertainment takes place in a clear business setting and is for your business or work, the expenses are considered directly related to your business or work. Form 1040nr 2011 The following situations are examples of entertainment in a clear business setting. Form 1040nr 2011 Entertainment in a hospitality room at a convention where business goodwill is created through the display or discussion of business products. Form 1040nr 2011 Entertainment that is mainly a price rebate on the sale of your products (such as a restaurant owner providing an occasional free meal to a loyal customer). Form 1040nr 2011 Entertainment of a clear business nature occurring under circumstances where there is no meaningful personal or social relationship between you and the persons entertained. Form 1040nr 2011 An example is entertainment of business and civic leaders at the opening of a new hotel or play when the purpose is to get business publicity rather than to create or maintain the goodwill of the persons entertained. Form 1040nr 2011 Expenses not considered directly related. Form 1040nr 2011   Entertainment expenses generally are not considered directly related if you are not there or in situations where there are substantial distractions that generally prevent you from actively conducting business. Form 1040nr 2011 The following are examples of situations where there are substantial distractions. Form 1040nr 2011 A meeting or discussion at a nightclub, theater, or sporting event. Form 1040nr 2011 A meeting or discussion during what is essentially a social gathering, such as a cocktail party. Form 1040nr 2011 A meeting with a group that includes persons who are not business associates at places such as cocktail lounges, country clubs, golf clubs, athletic clubs, or vacation resorts. Form 1040nr 2011 Associated Test Even if your expenses do not meet the directly-related test, they may meet the associated test. Form 1040nr 2011 To meet the associated test for entertainment expenses (including entertainment-related meals), you must show that the entertainment is: Associated with the active conduct of your trade or business, and Directly before or after a substantial business discussion (defined later). Form 1040nr 2011 Associated with trade or business. Form 1040nr 2011   Generally, an expense is associated with the active conduct of your trade or business if you can show that you had a clear business purpose for having the expense. Form 1040nr 2011 The purpose may be to get new business or to encourage the continuation of an existing business relationship. Form 1040nr 2011 Substantial business discussion. Form 1040nr 2011   Whether a business discussion is substantial depends on the facts of each case. Form 1040nr 2011 A business discussion will not be considered substantial unless you can show that you actively engaged in the discussion, meeting, negotiation, or other business transaction to get income or some other specific business benefit. Form 1040nr 2011   The meeting does not have to be for any specified length of time, but you must show that the business discussion was substantial in relation to the meal or entertainment. Form 1040nr 2011 It is not necessary that you devote more time to business than to entertainment. Form 1040nr 2011 You do not have to discuss business during the meal or entertainment. Form 1040nr 2011 Meetings at conventions. Form 1040nr 2011   You are considered to have a substantial business discussion if you attend meetings at a convention or similar event, or at a trade or business meeting sponsored and conducted by a business or professional organization. Form 1040nr 2011 However, your reason for attending the convention or meeting must be to further your trade or business. Form 1040nr 2011 The organization that sponsors the convention or meeting must schedule a program of business activities that is the main activity of the convention or meeting. Form 1040nr 2011 Directly before or after business discussion. Form 1040nr 2011   If the entertainment is held on the same day as the business discussion, it is considered to be held directly before or after the business discussion. Form 1040nr 2011   If the entertainment and the business discussion are not held on the same day, you must consider the facts of each case to see if the associated test is met. Form 1040nr 2011 Among the facts to consider are the place, date, and duration of the business discussion. Form 1040nr 2011 If you or your business associates are from out of town, you must also consider the dates of arrival and departure, and the reasons the entertainment and the discussion did not take place on the same day. Form 1040nr 2011 Example. Form 1040nr 2011 A group of business associates comes from out of town to your place of business to hold a substantial business discussion. Form 1040nr 2011 If you entertain those business guests on the evening before the business discussion, or on the evening of the day following the business discussion, the entertainment generally is considered to be held directly before or after the discussion. Form 1040nr 2011 The expense meets the associated test. Form 1040nr 2011 50% Limit In general, you can deduct only 50% of your business-related meal and entertainment expenses. Form 1040nr 2011 (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal and entertainment expenses. Form 1040nr 2011 See Individuals subject to “hours of service” limits , later. Form 1040nr 2011 ) The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. Form 1040nr 2011 Figure A summarizes the general rules explained in this section. Form 1040nr 2011 The 50% limit applies to business meals or entertainment expenses you have while: Traveling away from home (whether eating alone or with others) on business, Entertaining customers at your place of business, a restaurant, or other location, or Attending a business convention or reception, business meeting, or business luncheon at a club. Form 1040nr 2011 Included expenses. Form 1040nr 2011   Expenses subject to the 50% limit include: Taxes and tips relating to a business meal or entertainment activity, Cover charges for admission to a nightclub, Rent paid for a room in which you hold a dinner or cocktail party, and Amounts paid for parking at a sports arena. Form 1040nr 2011 However, the cost of transportation to and from a business meal or a business-related entertainment activity is not subject to the 50% limit. Form 1040nr 2011 Figure A. Form 1040nr 2011 Does the 50% Limit Apply to Your Expenses? There are exceptions to these rules. Form 1040nr 2011 See Exceptions to the 50% Limit . Form 1040nr 2011 Please click here for the text description of the image. Form 1040nr 2011 Figure A. Form 1040nr 2011 Does the 50% limit apply to Your Expenses?TAs for Figure A are: Notice 87-23; Form 2106 instructions Application of 50% limit. Form 1040nr 2011   The 50% limit on meal and entertainment expenses applies if the expense is otherwise deductible and is not covered by one of the exceptions discussed later. Form 1040nr 2011   The 50% limit also applies to certain meal and entertainment expenses that are not business related. Form 1040nr 2011 It applies to meal and entertainment expenses you have for the production of income, including rental or royalty income. Form 1040nr 2011 It also applies to the cost of meals included in deductible educational expenses. Form 1040nr 2011 When to apply the 50% limit. Form 1040nr 2011   You apply the 50% limit after determining the amount that would otherwise qualify for a deduction. Form 1040nr 2011 You first have to determine the amount of meal and entertainment expenses that would be deductible under the other rules discussed in this publication. Form 1040nr 2011 Example 1. Form 1040nr 2011 You spend $200 for a business-related meal. Form 1040nr 2011 If $110 of that amount is not allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. Form 1040nr 2011 Your deduction cannot be more than $45 (50% × $90). Form 1040nr 2011 Example 2. Form 1040nr 2011 You purchase two tickets to a concert and give them to a client. Form 1040nr 2011 You purchased the tickets through a ticket agent. Form 1040nr 2011 You paid $200 for the two tickets, which had a face value of $80 each ($160 total). Form 1040nr 2011 Your deduction cannot be more than $80 (50% × $160). Form 1040nr 2011 Exceptions to the 50% Limit Generally, business-related meal and entertainment expenses are subject to the 50% limit. Form 1040nr 2011 Figure A can help you determine if the 50% limit applies to you. Form 1040nr 2011 Expenses not subject to 50% limit. Form 1040nr 2011   Your meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions. Form 1040nr 2011 1 - Employee's reimbursed expenses. Form 1040nr 2011   If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. Form 1040nr 2011 Accountable plans are discussed in chapter 6. Form 1040nr 2011 2 - Self-employed. Form 1040nr 2011   If you are self-employed, your deductible meal and entertainment expenses are not subject to the 50% limit if all of the following requirements are met. Form 1040nr 2011 You have these expenses as an independent contractor. Form 1040nr 2011 Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform. Form 1040nr 2011 You provide adequate records of these expenses to your customer or client. Form 1040nr 2011 (See chapter 5 . Form 1040nr 2011 )   In this case, your client or customer is subject to the 50% limit on the expenses. Form 1040nr 2011 Example. Form 1040nr 2011 You are a self-employed attorney who adequately accounts for meal and entertainment expenses to a client who reimburses you for these expenses. Form 1040nr 2011 You are not subject to the directly-related or associated test, nor are you subject to the 50% limit. Form 1040nr 2011 If the client can deduct the expenses, the client is subject to the 50% limit. Form 1040nr 2011 If you (as an independent contractor) have expenses for meals and entertainment related to providing services for a client but do not adequately account for and seek reimbursement from the client for those expenses, you are subject to the directly-related or associated test and to the 50% limit. Form 1040nr 2011 3 - Advertising expenses. Form 1040nr 2011   You are not subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community. Form 1040nr 2011 For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit. Form 1040nr 2011 4 - Sale of meals or entertainment. Form 1040nr 2011   You are not subject to the 50% limit if you actually sell meals, entertainment, goods and services, or use of facilities to the public. Form 1040nr 2011 For example, if you run a nightclub, your expense for the entertainment you furnish to your customers, such as a floor show, is not subject to the 50% limit. Form 1040nr 2011 5 - Charitable sports event. Form 1040nr 2011   You are not subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified charitable sports event. Form 1040nr 2011 For the conditions the sports event must meet, see Exception for events that benefit charitable organizations under What Entertainment Expenses Are Deductible?, later. Form 1040nr 2011 Individuals subject to “hours of service” limits. Form 1040nr 2011   You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. Form 1040nr 2011 The percentage is 80%. Form 1040nr 2011   Individuals subject to the Department of Transportation's “hours of service” limits include the following persons. Form 1040nr 2011 Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations. Form 1040nr 2011 Interstate truck operators and bus drivers who are under Department of Transportation regulations. Form 1040nr 2011 Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations. Form 1040nr 2011 Certain merchant mariners who are under Coast Guard regulations. Form 1040nr 2011 What Entertainment Expenses Are Deductible? This section explains different types of entertainment expenses you may be able to deduct. Form 1040nr 2011 Entertainment. Form 1040nr 2011   Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Form 1040nr 2011 Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips. Form 1040nr 2011   Entertainment also may include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families. Form 1040nr 2011 A meal as a form of entertainment. Form 1040nr 2011   Entertainment includes the cost of a meal you provide to a customer or client, whether the meal is a part of other entertainment or by itself. Form 1040nr 2011 A meal expense includes the cost of food, beverages, taxes, and tips for the meal. Form 1040nr 2011 To deduct an entertainment-related meal, you or your employee must be present when the food or beverages are provided. Form 1040nr 2011    You cannot claim the cost of your meal both as an entertainment expense and as a travel expense. Form 1040nr 2011    Meals sold in the normal course of your business are not considered entertainment. Form 1040nr 2011 Deduction may depend on your type of business. Form 1040nr 2011   Your kind of business may determine if a particular activity is considered entertainment. Form 1040nr 2011 For example, if you are a dress designer and have a fashion show to introduce your new designs to store buyers, the show generally is not considered entertainment. Form 1040nr 2011 This is because fashion shows are typical in your business. Form 1040nr 2011 But, if you are an appliance distributor and hold a fashion show for the spouses of your retailers, the show generally is considered entertainment. Form 1040nr 2011 Separating costs. Form 1040nr 2011   If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. Form 1040nr 2011 You must have a reasonable basis for making this allocation. Form 1040nr 2011 For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge. Form 1040nr 2011 Taking turns paying for meals or entertainment. Form 1040nr 2011   If a group of business acquaintances takes turns picking up each others' meal or entertainment checks primarily for personal reasons, without regard to whether any business purposes are served, no member of the group can deduct any part of the expense. Form 1040nr 2011 Lavish or extravagant expenses. Form 1040nr 2011   You cannot deduct expenses for entertainment that are lavish or extravagant. Form 1040nr 2011 An expense is not considered lavish or extravagant if it is reasonable considering the facts and circumstances. Form 1040nr 2011 Expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Form 1040nr 2011 Allocating between business and nonbusiness. Form 1040nr 2011   If you entertain business and nonbusiness individuals at the same event, you must divide your entertainment expenses between business and nonbusiness. Form 1040nr 2011 You can deduct only the business part. Form 1040nr 2011 If you cannot establish the part of the expense for each person participating, allocate the expense to each participant on a pro rata basis. Form 1040nr 2011 Example. Form 1040nr 2011 You entertain a group of individuals that includes yourself, three business prospects, and seven social guests. Form 1040nr 2011 Only 4/11 of the expense qualifies as a business entertainment expense. Form 1040nr 2011 You cannot deduct the expenses for the seven social guests because those costs are nonbusiness expenses. Form 1040nr 2011 Trade association meetings. Form 1040nr 2011   You can deduct entertainment expenses that are directly related to and necessary for attending business meetings or conventions of certain exempt organizations if the expenses of your attendance are related to your active trade or business. Form 1040nr 2011 These organizations include business leagues, chambers of commerce, real estate boards, trade associations, and professional associations. Form 1040nr 2011 Entertainment tickets. Form 1040nr 2011   Generally, you cannot deduct more than the face value of an entertainment ticket, even if you paid a higher price. Form 1040nr 2011 For example, you cannot deduct service fees you pay to ticket agencies or brokers or any amount over the face value of the tickets you pay to scalpers. Form 1040nr 2011 Exception for events that benefit charitable organizations. Form 1040nr 2011   Different rules apply when the cost of a ticket to a sports event benefits a charitable organization. Form 1040nr 2011 You can take into account the full cost you pay for the ticket, even if it is more than the face value, if all of the following conditions apply. Form 1040nr 2011 The event's main purpose is to benefit a qualified charitable organization. Form 1040nr 2011 The entire net proceeds go to the charity. Form 1040nr 2011 The event uses volunteers to perform substantially all the event's work. Form 1040nr 2011    The 50% limit on entertainment does not apply to any expense for a package deal that includes a ticket to such a charitable sports event. Form 1040nr 2011 Example 1. Form 1040nr 2011 You purchase tickets to a golf tournament organized by the local volunteer fire company. Form 1040nr 2011 All net proceeds will be used to buy new fire equipment. Form 1040nr 2011 The volunteers will run the tournament. Form 1040nr 2011 You can deduct the entire cost of the tickets as a business expense if they otherwise qualify as an entertainment expense. Form 1040nr 2011 Example 2. Form 1040nr 2011 You purchase tickets to a college football game through a ticket broker. Form 1040nr 2011 After having a business discussion, you take a client to the game. Form 1040nr 2011 Net proceeds from the game go to colleges that qualify as charitable organizations. Form 1040nr 2011 However, since the colleges also pay individuals to perform services, such as coaching and recruiting, you can only use the face value of the tickets in determining your business deduction. Form 1040nr 2011 Skyboxes and other private luxury boxes. Form 1040nr 2011   If you rent a skybox or other private luxury box for more than one event at the same sports arena, you generally cannot deduct more than the price of a nonluxury box seat ticket. Form 1040nr 2011   To determine whether a skybox has been rented for more than one event, count each game or other performance as one event. Form 1040nr 2011 For example, renting a skybox for a series of playoff games is considered renting it for more than one event. Form 1040nr 2011 All skyboxes you rent in the same arena, along with any rentals by related parties, are considered in making this determination. Form 1040nr 2011   Related parties include: Family members (spouses, ancestors, and lineal descendants), Parties who have made a reciprocal arrangement involving the sharing of skyboxes, Related corporations, A partnership and its principal partners, and A corporation and a partnership with common ownership. Form 1040nr 2011 Example. Form 1040nr 2011 You pay $3,000 to rent a 10-seat skybox at Team Stadium for three baseball games. Form 1040nr 2011 The cost of regular nonluxury box seats at each event is $30 a seat. Form 1040nr 2011 You can deduct (subject to the 50% limit) $900 ((10 seats × $30 each) × 3 events). Form 1040nr 2011 Food and beverages in skybox seats. Form 1040nr 2011   If expenses for food and beverages are separately stated, you can deduct these expenses in addition to the amounts allowable for the skybox, subject to the requirements and limits that apply. Form 1040nr 2011 The amounts separately stated for food and beverages must be reasonable. Form 1040nr 2011 You cannot inflate the charges for food and beverages to avoid the limited deduction for skybox rentals. Form 1040nr 2011 What Entertainment Expenses Are Not Deductible? This section explains different types of entertainment expenses you generally may not be able to deduct. Form 1040nr 2011 Club dues and membership fees. Form 1040nr 2011   You cannot deduct dues (including initiation fees) for membership in any club organized for: Business, Pleasure, Recreation, or Other social purpose. Form 1040nr 2011 This rule applies to any membership organization if one of its principal purposes is either: To conduct entertainment activities for members or their guests, or To provide members or their guests with access to entertainment facilities, discussed later. Form 1040nr 2011   The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. Form 1040nr 2011 You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions. Form 1040nr 2011 Entertainment facilities. Form 1040nr 2011   Generally, you cannot deduct any expense for the use of an entertainment facility. Form 1040nr 2011 This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection. Form 1040nr 2011   An entertainment facility is any property you own, rent, or use for entertainment. Form 1040nr 2011 Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort. Form 1040nr 2011 Out-of-pocket expenses. Form 1040nr 2011   You can deduct out-of-pocket expenses, such as for food and beverages, catering, gas, and fishing bait, that you provided during entertainment at a facility. Form 1040nr 2011 These are not expenses for the use of an entertainment facility. Form 1040nr 2011 However, these expenses are subject to the directly-related and associated tests and to the 50% limit , all discussed earlier. Form 1040nr 2011 Expenses for spouses. Form 1040nr 2011   You generally cannot deduct the cost of entertainment for your spouse or for the spouse of a customer. Form 1040nr 2011 However, you can deduct these costs if you can show you had a clear business purpose, rather than a personal or social purpose, for providing the entertainment. Form 1040nr 2011 Example. Form 1040nr 2011 You entertain a customer. Form 1040nr 2011 The cost is an ordinary and necessary business expense and is allowed under the entertainment rules. Form 1040nr 2011 The customer's spouse joins you because it is impractical to entertain the customer without the spouse. Form 1040nr 2011 You can deduct the cost of entertaining the customer's spouse. Form 1040nr 2011 If your spouse joins the party because the customer's spouse is present, the cost of the entertainment for your spouse is also deductible. Form 1040nr 2011 Gift or entertainment. Form 1040nr 2011   Any item that might be considered either a gift or entertainment generally will be considered entertainment. Form 1040nr 2011 However, if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift. Form 1040nr 2011   If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. Form 1040nr 2011 You can treat the tickets as either a gift or entertainment, whichever is to your advantage. Form 1040nr 2011   You can change your treatment of the tickets at a later date by filing an amended return. Form 1040nr 2011 Generally, an amended return must be filed within 3 years from the date the original return was filed or within 2 years from the time the tax was paid, whichever is later. Form 1040nr 2011   If you go with the customer to the event, you must treat the cost of the tickets as an entertainment expense. Form 1040nr 2011 You cannot choose, in this case, to treat the tickets as a gift. Form 1040nr 2011 Prev  Up  Next   Home   More Online Publications
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The Form 1040nr 2011

Form 1040nr 2011 2. Form 1040nr 2011   Source of Income Table of Contents Introduction Topics - This chapter discusses: Resident Aliens Nonresident AliensInterest Income Dividends Guarantee of Indebtedness Personal Services Transportation Income Scholarships, Grants, Prizes, and Awards Pensions and Annuities Rents or Royalties Real Property Personal Property Community Income Introduction After you have determined your alien status, you must determine the source of your income. Form 1040nr 2011 This chapter will help you determine the source of different types of income you may receive during the tax year. Form 1040nr 2011 This chapter also discusses special rules for married individuals who are domiciled in a country with community property laws. Form 1040nr 2011 Topics - This chapter discusses: Income source rules, and Community income. Form 1040nr 2011 Resident Aliens A resident alien's income is generally subject to tax in the same manner as a U. Form 1040nr 2011 S. Form 1040nr 2011 citizen. Form 1040nr 2011 If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U. Form 1040nr 2011 S. Form 1040nr 2011 tax return. Form 1040nr 2011 You must report these amounts from sources within and outside the United States. Form 1040nr 2011 Nonresident Aliens A nonresident alien usually is subject to U. Form 1040nr 2011 S. Form 1040nr 2011 income tax only on U. Form 1040nr 2011 S. Form 1040nr 2011 source income. Form 1040nr 2011 Under limited circumstances, certain foreign source income is subject to U. Form 1040nr 2011 S. Form 1040nr 2011 tax. Form 1040nr 2011 See Foreign Income in chapter 4. Form 1040nr 2011 The general rules for determining U. Form 1040nr 2011 S. Form 1040nr 2011 source income that apply to most nonresident aliens are shown in Table 2-1. Form 1040nr 2011 The following discussions cover the general rules as well as the exceptions to these rules. Form 1040nr 2011 Not all items of U. Form 1040nr 2011 S. Form 1040nr 2011 source income are taxable. Form 1040nr 2011 See chapter 3. Form 1040nr 2011 Interest Income Generally, U. Form 1040nr 2011 S. Form 1040nr 2011 source interest income includes the following items. Form 1040nr 2011 Interest on bonds, notes, or other interest-bearing obligations of U. Form 1040nr 2011 S. Form 1040nr 2011 residents or domestic corporations. Form 1040nr 2011 Interest paid by a domestic or foreign partnership or foreign corporation engaged in a U. Form 1040nr 2011 S. Form 1040nr 2011 trade or business at any time during the tax year. Form 1040nr 2011 Original issue discount. Form 1040nr 2011 Interest from a state, the District of Columbia, or the U. Form 1040nr 2011 S. Form 1040nr 2011 Government. Form 1040nr 2011 The place or manner of payment is immaterial in determining the source of the income. Form 1040nr 2011 A substitute interest payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as the interest on the transferred security. Form 1040nr 2011 Exceptions. Form 1040nr 2011   U. Form 1040nr 2011 S. Form 1040nr 2011 source interest income does not include the following items. Form 1040nr 2011 Interest paid by a resident alien or a domestic corporation on obligations issued before August 10, 2010, if for the 3-year period ending with the close of the payer's tax year preceding the interest payment, at least 80% of the payer's total gross income: Is from sources outside the United States, and Is attributable to the active conduct of a trade or business by the individual or corporation in a foreign country or a U. Form 1040nr 2011 S. Form 1040nr 2011 possession. Form 1040nr 2011 However, the interest will be considered U. Form 1040nr 2011 S. Form 1040nr 2011 source interest income if either of the following apply. Form 1040nr 2011 The recipient of the interest is related to the resident alien or domestic corporation. Form 1040nr 2011 See section 954(d)(3) for the definition of related person. Form 1040nr 2011 The terms of the obligation are significantly modified after August 9, 2010. Form 1040nr 2011 Any extension of the term of the obligation is considered a significant modification. Form 1040nr 2011 Interest paid by a foreign branch of a domestic corporation or a domestic partnership on deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law if the interest paid or credited can be deducted by the association. Form 1040nr 2011 Interest on deposits with a foreign branch of a domestic corporation or domestic partnership, but only if the branch is in the commercial banking business. Form 1040nr 2011 Dividends In most cases, dividend income received from domestic corporations is U. Form 1040nr 2011 S. Form 1040nr 2011 source income. Form 1040nr 2011 Dividend income from foreign corporations is usually foreign source income. Form 1040nr 2011 Exceptions to both of these rules are discussed below. Form 1040nr 2011 A substitute dividend payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as a distribution on the transferred security. Form 1040nr 2011 Dividend equivalent payments. Form 1040nr 2011   U. Form 1040nr 2011 S. Form 1040nr 2011 source dividends also include all dividend equivalent payments. Form 1040nr 2011 Dividend equivalent payments include substitute dividends, payments made pursuant to a specified notional principal contract, and all similar payments that, directly or indirectly, are contingent on or determined by reference to, the payment of a dividend from U. Form 1040nr 2011 S. Form 1040nr 2011 sources. Form 1040nr 2011    The Internal Revenue Service has issued final regulations that would affect the treatment of dividend equivalent payments and specified notional principal contracts. Form 1040nr 2011 You can view this regulation at www. Form 1040nr 2011 irs. Form 1040nr 2011 gov/irb/2013-52_IRB/ar08. Form 1040nr 2011 html. Form 1040nr 2011 First exception. Form 1040nr 2011   Dividends received from a domestic corporation are not U. Form 1040nr 2011 S. Form 1040nr 2011 source income if the corporation elects to take the American Samoa economic development credit. Form 1040nr 2011 Second exception. Form 1040nr 2011   Part of the dividends received from a foreign corporation is U. Form 1040nr 2011 S. Form 1040nr 2011 source income if 25% or more of its total gross income for the 3-year period ending with the close of its tax year preceding the declaration of dividends was effectively connected with a trade or business in the United States. Form 1040nr 2011 If the corporation was formed less than 3 years before the declaration, use its total gross income from the time it was formed. Form 1040nr 2011 Determine the part that is U. Form 1040nr 2011 S. Form 1040nr 2011 source income by multiplying the dividend by the following fraction. Form 1040nr 2011   Foreign corporation's gross income connected with a U. Form 1040nr 2011 S. Form 1040nr 2011 trade or business for the 3-year period     Foreign corporation's gross income from all sources for that period   Guarantee of Indebtedness Certain amounts received directly or indirectly, for the provision of a guarantee of indebtedness issued after September 27, 2010, are U. Form 1040nr 2011 S. Form 1040nr 2011 source income. Form 1040nr 2011 They must be paid by a noncorporate resident or U. Form 1040nr 2011 S. Form 1040nr 2011 corporation or by any foreign person if the amounts are effectively connected with the conduct of a U. Form 1040nr 2011 S. Form 1040nr 2011 trade or business. Form 1040nr 2011 For more information, see Internal Revenue Code sections 861(a)(9) and 862(a)(9). Form 1040nr 2011 Personal Services All wages and any other compensation for services performed in the United States are considered to be from sources in the United States. Form 1040nr 2011 The only exceptions to this rule are discussed in chapter 3 under Employees of foreign persons, organizations, or offices, and under Crew members. Form 1040nr 2011 If you are an employee and receive compensation for labor or personal services performed both inside and outside the United States, special rules apply in determining the source of the compensation. Form 1040nr 2011 Compensation (other than certain fringe benefits) is sourced on a time basis. Form 1040nr 2011 Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Form 1040nr 2011 Or, you may be permitted to use an alternative basis to determine the source of compensation. Form 1040nr 2011 See Alternative Basis , later. Form 1040nr 2011 Multi-level marketing. Form 1040nr 2011   Certain companies sell products through a multi-level marketing arrangement, such that an upper-tier distributor, who has sponsored a lower-tier distributor, is entitled to a payment from the company based on certain activities of that lower-tier distributor. Form 1040nr 2011 Generally, depending on the facts, payments from such multi-level marketing companies to independent (non-employee) distributors (upper-tier distributors) that are based on the sales or purchases of persons whom they have sponsored (lower-tier distributors) constitute income for the performance of personal services in recruiting, training, and supporting the lower-tier distributors. Form 1040nr 2011 The source of such income is generally based on where the services of the upper-tier distributor are performed, and may, depending on the facts, be considered multi-year compensation, with the source of income determined over the period to which such compensation is attributable. Form 1040nr 2011 Self-employed individuals. Form 1040nr 2011   If you are self-employed, you determine the source of compensation for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Form 1040nr 2011 In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Form 1040nr 2011 Time Basis Use a time basis to figure your U. Form 1040nr 2011 S. Form 1040nr 2011 source compensation (other than the fringe benefits discussed later). Form 1040nr 2011 Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed services in the United States during the year     Total number of days you performed services during the year   You can use a unit of time less than a day in the above fraction, if appropriate. Form 1040nr 2011 The time period for which the compensation is made does not have to be a year. Form 1040nr 2011 Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Form 1040nr 2011 Example 1. Form 1040nr 2011 Christina Brooks, a resident of the Netherlands, worked 240 days for a U. Form 1040nr 2011 S. Form 1040nr 2011 company during the tax year. Form 1040nr 2011 She received $80,000 in compensation. Form 1040nr 2011 None of it was for fringe benefits. Form 1040nr 2011 Christina performed services in the United States for 60 days and performed services in the Netherlands for 180 days. Form 1040nr 2011 Using the time basis for determining the source of compensation, $20,000 ($80,000 × 60/240) is her U. Form 1040nr 2011 S. Form 1040nr 2011 source income. Form 1040nr 2011 Example 2. Form 1040nr 2011 Rob Waters, a resident of South Africa, is employed by a corporation. Form 1040nr 2011 His annual salary is $100,000. Form 1040nr 2011 None of it is for fringe benefits. Form 1040nr 2011 During the first quarter of the year he worked entirely within the United States. Form 1040nr 2011 On April 1, Rob was transferred to Singapore for the remainder of the year. Form 1040nr 2011 Rob is able to establish that the first quarter of the year and the last 3 quarters of the year are two separate, distinct, and continuous periods of time. Form 1040nr 2011 Accordingly, $25,000 of Rob's annual salary is attributable to the first quarter of the year (. Form 1040nr 2011 25 × $100,000). Form 1040nr 2011 All of it is U. Form 1040nr 2011 S. Form 1040nr 2011 source income because he worked entirely within the United States during that quarter. Form 1040nr 2011 The remaining $75,000 is attributable to the last three quarters of the year. Form 1040nr 2011 During those quarters, he worked 150 days in Singapore and 30 days in the United States. Form 1040nr 2011 His periodic performance of services in the United States did not result in distinct, separate, and continuous periods of time. Form 1040nr 2011 Of this $75,000, $12,500 ($75,000 × 30/180) is U. Form 1040nr 2011 S. Form 1040nr 2011 source income. Form 1040nr 2011 Multi-year compensation. Form 1040nr 2011   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Form 1040nr 2011 Multi-year compensation is compensation that is included in your income in one tax year but that is attributable to a period that includes two or more tax years. Form 1040nr 2011   You determine the period to which the compensation is attributable based on the facts and circumstances of your case. Form 1040nr 2011 For example, an amount of compensation that specifically relates to a period of time that includes several calendar years is attributable to the entire multi-year period. Form 1040nr 2011   The amount of compensation treated as from U. Form 1040nr 2011 S. Form 1040nr 2011 sources is figured by multiplying the total multi-year compensation by a fraction. Form 1040nr 2011 The numerator of the fraction is the number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in the United States in connection with the project. Form 1040nr 2011 The denominator of the fraction is the total number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in connection with the project. Form 1040nr 2011 Geographical Basis Compensation you receive as an employee in the form of the following fringe benefits is sourced on a geographical basis. Form 1040nr 2011 Housing. Form 1040nr 2011 Education. Form 1040nr 2011 Local transportation. Form 1040nr 2011 Tax reimbursement. Form 1040nr 2011 Hazardous or hardship duty pay as defined in Regulations section 1. Form 1040nr 2011 861-4(b)(2)(ii)(D)(5). Form 1040nr 2011 Moving expense reimbursement. Form 1040nr 2011 The amount of fringe benefits must be reasonable and you must substantiate them by adequate records or by sufficient evidence. Form 1040nr 2011 Principal place of work. Form 1040nr 2011   The above fringe benefits, except for tax reimbursement and hazardous or hardship duty pay, are sourced based on your principal place of work. Form 1040nr 2011 Your principal place of work is usually the place where you spend most of your working time. Form 1040nr 2011 This could be your office, plant, store, shop, or other location. Form 1040nr 2011 If there is no one place where you spend most of your working time, your main job location is the place where your work is centered, such as where you report for work or are otherwise required to “base” your work. Form 1040nr 2011   If you have more than one job at any time, your main job location depends on the facts in each case. Form 1040nr 2011 The more important factors to be considered are: The total time you spend at each place, The amount of work you do at each place, and How much money you earn at each place. Form 1040nr 2011 Housing. Form 1040nr 2011   The source of a housing fringe benefit is determined based on the location of your principal place of work. Form 1040nr 2011 A housing fringe benefit includes payments to you or on your behalf (and your family's if your family resides with you) only for the following. Form 1040nr 2011 Rent. Form 1040nr 2011 Utilities (except telephone charges). Form 1040nr 2011 Real and personal property insurance. Form 1040nr 2011 Occupancy taxes not deductible under section 164 or 216(a). Form 1040nr 2011 Nonrefundable fees for securing a leasehold. Form 1040nr 2011 Rental of furniture and accessories. Form 1040nr 2011 Household repairs. Form 1040nr 2011 Residential parking. Form 1040nr 2011 Fair rental value of housing provided in kind by your employer. Form 1040nr 2011   A housing fringe benefit does not include: Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation), The cost of buying property, including principal payments on a mortgage, The cost of domestic labor (maids, gardeners, etc. Form 1040nr 2011 ), Pay television subscriptions, Improvements and other expenses that increase the value or appreciably prolong the life of property, Purchased furniture or accessories, Depreciation or amortization of property or improvements, The value of meals or lodging that you exclude from gross income, or The value of meals or lodging that you deduct as moving expenses. Form 1040nr 2011 Education. Form 1040nr 2011   The source of an education fringe benefit for the education expenses of your dependents is determined based on the location of your principal place of work. Form 1040nr 2011 An education fringe benefit includes payments only for the following expenses for education at an elementary or secondary school. Form 1040nr 2011 Tuition, fees, academic tutoring, special needs services for a special needs student, books, supplies, and other equipment. Form 1040nr 2011 Room and board and uniforms that are required or provided by the school in connection with enrollment or attendance. Form 1040nr 2011 Local transportation. Form 1040nr 2011   The source of a local transportation fringe benefit is determined based on the location of your principal place of work. Form 1040nr 2011 Your local transportation fringe benefit is the amount that you receive as compensation for local transportation for you or your spouse or dependents at the location of your principal place of work. Form 1040nr 2011 The amount treated as a local transportation fringe benefit is limited to actual expenses incurred for local transportation and the fair rental value of any employer-provided vehicle used predominantly by you, your spouse, or your dependents for local transportation. Form 1040nr 2011 Actual expenses do not include the cost (including interest) of any vehicle purchased by you or on your behalf. Form 1040nr 2011 Tax reimbursement. Form 1040nr 2011   The source of a tax reimbursement fringe benefit is determined based on the location of the jurisdiction that imposed the tax for which you are reimbursed. Form 1040nr 2011 Moving expense reimbursement. Form 1040nr 2011   The source of a moving expense reimbursement is generally based on the location of your new principal place of work. Form 1040nr 2011 However, the source is determined based on the location of your former principal place of work if you provide sufficient evidence that such determination of source is more appropriate under the facts and circumstances of your case. Form 1040nr 2011 Sufficient evidence generally requires an agreement between you and your employer, or a written statement of company policy, which is reduced to writing before the move and which is entered into or established to induce you or other employees to move to another country. Form 1040nr 2011 The written statement or agreement must state that your employer will reimburse you for moving expenses that you incur to return to your former principal place of work regardless of whether you continue to work for your employer after returning to that location. Form 1040nr 2011 It may contain certain conditions upon which the right to reimbursement is determined as long as those conditions set forth standards that are definitely ascertainable and can only be fulfilled prior to, or through completion of, your return move to your former principal place of work. Form 1040nr 2011 Alternative Basis If you are an employee, you can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your compensation than the time or geographical basis. Form 1040nr 2011 If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your compensation. Form 1040nr 2011 Also, if your total compensation from all sources is $250,000 or more, check “Yes” to both questions on line K on page 5 of Form 1040NR, and attach a written statement to your tax return that sets forth all of the following. Form 1040nr 2011 Your name and social security number (written across the top of the statement). Form 1040nr 2011 The specific compensation income, or the specific fringe benefit, for which you are using the alternative basis. Form 1040nr 2011 For each item in (2), the alternative basis of allocation of source used. Form 1040nr 2011 For each item in (2), a computation showing how the alternative allocation was computed. Form 1040nr 2011 A comparison of the dollar amount of the U. Form 1040nr 2011 S. Form 1040nr 2011 compensation and foreign compensation sourced under both the alternative basis and the time or geographical basis discussed earlier. Form 1040nr 2011 Transportation Income Transportation income is income from the use of a vessel or aircraft or for the performance of services directly related to the use of any vessel or aircraft. Form 1040nr 2011 This is true whether the vessel or aircraft is owned, hired, or leased. Form 1040nr 2011 The term “vessel or aircraft” includes any container used in connection with a vessel or aircraft. Form 1040nr 2011 All income from transportation that begins and ends in the United States is treated as derived from sources in the United States. Form 1040nr 2011 If the transportation begins or ends in the United States, 50% of the transportation income is treated as derived from sources in the United States. Form 1040nr 2011 For transportation income from personal services, 50% of the income is U. Form 1040nr 2011 S. Form 1040nr 2011 source income if the transportation is between the United States and a U. Form 1040nr 2011 S. Form 1040nr 2011 possession. Form 1040nr 2011 For nonresident aliens, this only applies to income derived from, or in connection with, an aircraft. Form 1040nr 2011 For information on how U. Form 1040nr 2011 S. Form 1040nr 2011 source transportation income is taxed, see chapter 4. Form 1040nr 2011 Scholarships, Grants, Prizes, and Awards Generally, the source of scholarships, fellowship grants, grants, prizes, and awards is the residence of the payer regardless of who actually disburses the funds. Form 1040nr 2011 However, see Activities to be performed outside the United States , later. Form 1040nr 2011 For example, payments for research or study in the United States made by the United States, a noncorporate U. Form 1040nr 2011 S. Form 1040nr 2011 resident, or a domestic corporation, are from U. Form 1040nr 2011 S. Form 1040nr 2011 sources. Form 1040nr 2011 Similar payments from a foreign government or foreign corporation are foreign source payments even though the funds may be disbursed through a U. Form 1040nr 2011 S. Form 1040nr 2011 agent. Form 1040nr 2011 Payments made by an entity designated as a public international organization under the International Organizations Immunities Act are from foreign sources. Form 1040nr 2011 Activities to be performed outside the United States. Form 1040nr 2011   Scholarships, fellowship grants, targeted grants, and achievement awards received by nonresident aliens for activities performed, or to be performed, outside the United States are not U. Form 1040nr 2011 S. Form 1040nr 2011 source income. Form 1040nr 2011    These rules do not apply to amounts paid as salary or other compensation for services. Form 1040nr 2011 See Personal Services, earlier, for the source rules that apply. Form 1040nr 2011 Pensions and Annuities If you receive a pension from a domestic trust for services performed both in and outside the United States, part of the pension payment is from U. Form 1040nr 2011 S. Form 1040nr 2011 sources. Form 1040nr 2011 That part is the amount attributable to earnings of the pension plan and the employer contributions made for services performed in the United States. Form 1040nr 2011 This applies whether the distribution is made under a qualified or nonqualified stock bonus, pension, profit-sharing, or annuity plan (whether or not funded). Form 1040nr 2011 If you performed services as an employee of the United States, you may receive a distribution from the U. Form 1040nr 2011 S. Form 1040nr 2011 Government under a plan, such as the Civil Service Retirement System, that is treated as a qualified pension plan. Form 1040nr 2011 Your U. Form 1040nr 2011 S. Form 1040nr 2011 source income is the otherwise taxable amount of the distribution that is attributable to your total U. Form 1040nr 2011 S. Form 1040nr 2011 Government basic pay other than tax-exempt pay for services performed outside the United States. Form 1040nr 2011 Rents or Royalties Your U. Form 1040nr 2011 S. Form 1040nr 2011 source income includes rent and royalty income received during the tax year from property located in the United States or from any interest in that property. Form 1040nr 2011 U. Form 1040nr 2011 S. Form 1040nr 2011 source income also includes rents or royalties for the use of, or for the privilege of using, in the United States, intangible property such as patents, copyrights, secret processes and formulas, goodwill, trademarks, franchises, and similar property. Form 1040nr 2011 Real Property Real property is land and buildings and generally anything built on, growing on, or attached to land. Form 1040nr 2011 Gross income from sources in the United States includes gains, profits, and income from the sale or other disposition of real property located in the United States. Form 1040nr 2011 Natural resources. Form 1040nr 2011   The income from the sale of products of any farm, mine, oil or gas well, other natural deposit, or timber located in the United States and sold in a foreign country, or located in a foreign country and sold in the United States, is partly from sources in the United States. Form 1040nr 2011 For information on determining that part, see section 1. Form 1040nr 2011 863-1(b) of the regulations. Form 1040nr 2011 Table 2-1. Form 1040nr 2011 Summary of Source Rules for Income of Nonresident Aliens Item of income Factor determining source Salaries, wages, other compensation Where services performed Business income:   Personal services Where services performed Sale of inventory—purchased Where sold Sale of inventory—produced Allocation Interest Residence of payer Dividends Whether a U. Form 1040nr 2011 S. Form 1040nr 2011 or foreign corporation* Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Form 1040nr 2011 Where property is used Sale of real property Location of property Sale of personal property Seller's tax home (but see Personal Property , later, for exceptions) Pension distributions attributable to contributions Where services were performed that earned the pension Investment earnings on pension contributions Location of pension trust Sale of natural resources Allocation based on fair market value of product at export terminal. Form 1040nr 2011 For more information, see section 1. Form 1040nr 2011 863-1(b) of the regulations. Form 1040nr 2011 *Exceptions include: a) Dividends paid by a U. Form 1040nr 2011 S. Form 1040nr 2011 corporation are foreign source if the corporation elects the  American Samoa economic development credit. Form 1040nr 2011  b) Part of a dividend paid by a foreign corporation is U. Form 1040nr 2011 S. Form 1040nr 2011 source if at least 25% of the  corporation's gross income is effectively connected with a U. Form 1040nr 2011 S. Form 1040nr 2011 trade or business for the  3 tax years before the year in which the dividends are declared. Form 1040nr 2011 Personal Property Personal property is property, such as machinery, equipment, or furniture, that is not real property. Form 1040nr 2011 Gain or loss from the sale or exchange of personal property generally has its source in the United States if you have a tax home in the United States. Form 1040nr 2011 If you do not have a tax home in the United States, the gain or loss generally is considered to be from sources outside the United States. Form 1040nr 2011 Tax home. Form 1040nr 2011   Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Form 1040nr 2011 Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. Form 1040nr 2011 If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. Form 1040nr 2011 If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. Form 1040nr 2011 Inventory property. Form 1040nr 2011   Inventory property is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Form 1040nr 2011 Income from the sale of inventory that you purchased is sourced where the property is sold. Form 1040nr 2011 Generally, this is where title to the property passes to the buyer. Form 1040nr 2011 For example, income from the sale of inventory in the United States is U. Form 1040nr 2011 S. Form 1040nr 2011 source income, whether you purchased it in the United States or in a foreign country. Form 1040nr 2011   Income from the sale of inventory property that you produced in the United States and sold outside the United States (or vice versa) is partly from sources in the United States and partly from sources outside the United States. Form 1040nr 2011 For information on making this allocation, see section 1. Form 1040nr 2011 863-3 of the regulations. Form 1040nr 2011   These rules apply even if your tax home is not in the United States. Form 1040nr 2011 Depreciable property. Form 1040nr 2011   To determine the source of any gain from the sale of depreciable personal property, you must first figure the part of the gain that is not more than the total depreciation adjustments on the property. Form 1040nr 2011 You allocate this part of the gain to sources in the United States based on the ratio of U. Form 1040nr 2011 S. Form 1040nr 2011 depreciation adjustments to total depreciation adjustments. Form 1040nr 2011 The rest of this part of the gain is considered to be from sources outside the United States. Form 1040nr 2011   For this purpose, “U. Form 1040nr 2011 S. Form 1040nr 2011 depreciation adjustments” are the depreciation adjustments to the basis of the property that are allowable in figuring taxable income from U. Form 1040nr 2011 S. Form 1040nr 2011 sources. Form 1040nr 2011 However, if the property is used predominantly in the United States during a tax year, all depreciation deductions allowable for that year are treated as U. Form 1040nr 2011 S. Form 1040nr 2011 depreciation adjustments. Form 1040nr 2011 But there are some exceptions for certain transportation, communications, and other property used internationally. Form 1040nr 2011   Gain from the sale of depreciable property that is more than the total depreciation adjustments on the property is sourced as if the property were inventory property, as discussed above. Form 1040nr 2011   A loss is sourced in the same way as the depreciation deductions were sourced. Form 1040nr 2011 However, if the property was used predominantly in the United States, the entire loss reduces U. Form 1040nr 2011 S. Form 1040nr 2011 source income. Form 1040nr 2011   The basis of property usually means the cost (money plus the fair market value of other property or services) of property you acquire. Form 1040nr 2011 Depreciation is an amount deducted to recover the cost or other basis of a trade or business asset. Form 1040nr 2011 The amount you can deduct depends on the property's cost, when you began using the property, how long it will take to recover your cost, and which depreciation method you use. Form 1040nr 2011 A depreciation deduction is any deduction for depreciation or amortization or any other allowable deduction that treats a capital expenditure as a deductible expense. Form 1040nr 2011 Intangible property. Form 1040nr 2011   Intangible property includes patents, copyrights, secret processes or formulas, goodwill, trademarks, trade names, or other like property. Form 1040nr 2011 The gain from the sale of amortizable or depreciable intangible property, up to the previously allowable amortization or depreciation deductions, is sourced in the same way as the original deductions were sourced. Form 1040nr 2011 This is the same as the source rule for gain from the sale of depreciable property. Form 1040nr 2011 See Depreciable property , earlier, for details on how to apply this rule. Form 1040nr 2011   Gain in excess of the amortization or depreciation deductions is sourced in the country where the property is used if the income from the sale is contingent on the productivity, use, or disposition of that property. Form 1040nr 2011 If the income is not contingent on the productivity, use, or disposition of the property, the income is sourced according to your tax home as discussed earlier. Form 1040nr 2011 If payments for goodwill do not depend on its productivity, use, or disposition, their source is the country in which the goodwill was generated. Form 1040nr 2011 Sales through offices or fixed places of business. Form 1040nr 2011   Despite any of the earlier rules, if you do not have a tax home in the United States, but you maintain an office or other fixed place of business in the United States, treat the income from any sale of personal property (including inventory property) that is attributable to that office or place of business as U. Form 1040nr 2011 S. Form 1040nr 2011 source income. Form 1040nr 2011 However, this rule does not apply to sales of inventory property for use, disposition, or consumption outside the United States if your office or other fixed place of business outside the United States materially participated in the sale. Form 1040nr 2011   If you have a tax home in the United States but maintain an office or other fixed place of business outside the United States, income from sales of personal property, other than inventory, depreciable property, or intangibles, that is attributable to that foreign office or place of business may be treated as U. Form 1040nr 2011 S. Form 1040nr 2011 source income. Form 1040nr 2011 The income is treated as U. Form 1040nr 2011 S. Form 1040nr 2011 source income if an income tax of less than 10% of the income from the sale is paid to a foreign country. Form 1040nr 2011 This rule also applies to losses if the foreign country would have imposed an income tax of less than 10% had the sale resulted in a gain. Form 1040nr 2011 Community Income If you are married and you or your spouse is subject to the community property laws of a foreign country, a U. Form 1040nr 2011 S. Form 1040nr 2011 state, or a U. Form 1040nr 2011 S. Form 1040nr 2011 possession, you generally must follow those laws to determine the income of yourself and your spouse for U. Form 1040nr 2011 S. Form 1040nr 2011 tax purposes. Form 1040nr 2011 But you must disregard certain community property laws if: Both you and your spouse are nonresident aliens, or One of you is a nonresident alien and the other is a U. Form 1040nr 2011 S. Form 1040nr 2011 citizen or resident and you do not both choose to be treated as U. Form 1040nr 2011 S. Form 1040nr 2011 residents as explained in chapter 1. Form 1040nr 2011 In these cases, you and your spouse must report community income as explained later. Form 1040nr 2011 Earned income. Form 1040nr 2011   Earned income of a spouse, other than trade or business income and a partner's distributive share of partnership income, is treated as the income of the spouse whose services produced the income. Form 1040nr 2011 That spouse must report all of it on his or her separate return. Form 1040nr 2011 Trade or business income. Form 1040nr 2011   Trade or business income, other than a partner's distributive share of partnership income, is treated as the income of the spouse carrying on the trade or business. Form 1040nr 2011 That spouse must report all of it on his or her separate return. Form 1040nr 2011 Partnership income (or loss). Form 1040nr 2011   A partner's distributive share of partnership income (or loss) is treated as the income (or loss) of the partner. Form 1040nr 2011 The partner must report all of it on his or her separate return. Form 1040nr 2011 Separate property income. Form 1040nr 2011   Income derived from the separate property of one spouse (and which is not earned income, trade or business income, or partnership distributive share income) is treated as the income of that spouse. Form 1040nr 2011 That spouse must report all of it on his or her separate return. Form 1040nr 2011 Use the appropriate community property law to determine what is separate property. Form 1040nr 2011 Other community income. Form 1040nr 2011   All other community income is treated as provided by the applicable community property laws. Form 1040nr 2011 Prev  Up  Next   Home   More Online Publications