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1040x efile 4. 1040x efile   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. 1040x efile Resident aliens are generally taxed in the same way as U. 1040x efile S. 1040x efile citizens. 1040x efile Nonresident aliens are taxed based on the source of their income and whether or not their income is effectively connected with a U. 1040x efile S. 1040x efile trade or business. 1040x efile The following discussions will help you determine if income you receive during the tax year is effectively connected with a U. 1040x efile S. 1040x efile trade or business and how it is taxed. 1040x efile Topics - This chapter discusses: Income that is effectively connected with a U. 1040x efile S. 1040x efile trade or business. 1040x efile Income that is not effectively connected with a U. 1040x efile S. 1040x efile trade or business. 1040x efile Interrupted period of residence. 1040x efile Expatriation tax. 1040x efile 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. 1040x efile Resident Aliens Resident aliens are generally taxed in the same way as U. 1040x efile S. 1040x efile citizens. 1040x efile This means that their worldwide income is subject to U. 1040x efile S. 1040x efile tax and must be reported on their U. 1040x efile S. 1040x efile tax return. 1040x efile Income of resident aliens is subject to the graduated tax rates that apply to U. 1040x efile S. 1040x efile citizens. 1040x efile Resident aliens use the Tax Table or Tax Computation Worksheets located in the Form 1040 instructions, which apply to U. 1040x efile S. 1040x efile citizens. 1040x efile Nonresident Aliens A nonresident alien's income that is subject to U. 1040x efile S. 1040x efile 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). 1040x efile The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. 1040x efile These are the same rates that apply to U. 1040x efile S. 1040x efile citizens and residents. 1040x efile Income that is not effectively connected is taxed at a flat 30% (or lower treaty) rate. 1040x efile If you were formerly a U. 1040x efile S. 1040x efile citizen or resident alien, these rules may not apply. 1040x efile See Expatriation Tax, later, in this chapter. 1040x efile 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. 1040x efile Whether you are engaged in a trade or business in the United States depends on the nature of your activities. 1040x efile The discussions that follow will help you determine whether you are engaged in a trade or business in the United States. 1040x efile 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. 1040x efile Certain compensation paid to a nonresident alien by a foreign employer is not included in gross income. 1040x efile For more information, see Services Performed for Foreign Employer in chapter 3. 1040x efile Other Trade or Business Activities Other examples of being engaged in a trade or business in the United States follow. 1040x efile Students and trainees. 1040x efile   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. 1040x efile 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. 1040x efile The taxable part of any scholarship or fellowship grant that is U. 1040x efile S. 1040x efile source income is treated as effectively connected with a trade or business in the United States. 1040x efile Business operations. 1040x efile   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. 1040x efile Partnerships. 1040x efile   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. 1040x efile Beneficiary of an estate or trust. 1040x efile   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. 1040x efile Trading in stocks, securities, and commodities. 1040x efile   If your only U. 1040x efile S. 1040x efile business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U. 1040x efile S. 1040x efile resident broker or other agent, you are not engaged in a trade or business in the United States. 1040x efile   For transactions in stocks or securities, this applies to any nonresident alien, including a dealer or broker in stocks and securities. 1040x efile   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. 1040x efile   This discussion does not apply if you have a U. 1040x efile S. 1040x efile 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. 1040x efile Trading for a nonresident alien's own account. 1040x efile   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. 1040x efile S. 1040x efile business activity. 1040x efile 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. 1040x efile   This does not apply to trading for your own account if you are a dealer in stocks, securities, or commodities. 1040x efile 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. 1040x efile Determine that based on the facts and circumstances in each case or under the rules given above in Trading in stocks, securities, and commodities . 1040x efile Effectively Connected Income If you are engaged in a U. 1040x efile S. 1040x efile 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. 1040x efile 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. 1040x efile 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. 1040x efile In limited circumstances, some kinds of foreign source income may be treated as effectively connected with a trade or business in the United States. 1040x efile For a discussion of these rules, see Foreign Income , later. 1040x efile Investment Income Investment income from U. 1040x efile S. 1040x efile sources that may or may not be treated as effectively connected with a U. 1040x efile S. 1040x efile trade or business generally falls into the following three categories. 1040x efile Fixed or determinable income (interest, dividends, rents, royalties, premiums, annuities, etc. 1040x efile ). 1040x efile Gains (some of which are considered capital gains) from the sale or exchange of the following types of property. 1040x efile Timber, coal, or domestic iron ore with a retained economic interest. 1040x efile Patents, copyrights, and similar property on which you receive contingent payments after October 4, 1966. 1040x efile Patents transferred before October 5, 1966. 1040x efile Original issue discount obligations. 1040x efile Capital gains (and losses). 1040x efile Use the two tests, described next, to determine whether an item of U. 1040x efile S. 1040x efile source income falling in one of the three categories above and received during the tax year is effectively connected with your U. 1040x efile S. 1040x efile trade or business. 1040x efile If the tests indicate that the item of income is effectively connected, you must include it with your other effectively connected income. 1040x efile If the item of income is not effectively connected, include it with all other income discussed under The 30% Tax later, in this chapter. 1040x efile Asset-use test. 1040x efile   This test usually applies to income that is not directly produced by trade or business activities. 1040x efile 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. 1040x efile   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. 1040x efile 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. 1040x efile Business-activities test. 1040x efile   This test usually applies when income, gain, or loss comes directly from the active conduct of the trade or business. 1040x efile 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. 1040x efile Under this test, if the conduct of the U. 1040x efile S. 1040x efile trade or business was a material factor in producing the income, the income is considered effectively connected. 1040x efile Personal Service Income You usually are engaged in a U. 1040x efile S. 1040x efile trade or business when you perform personal services in the United States. 1040x efile Personal service income you receive in a tax year in which you are engaged in a U. 1040x efile S. 1040x efile trade or business is effectively connected with a U. 1040x efile S. 1040x efile trade or business. 1040x efile 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. 1040x efile Personal service income includes wages, salaries, commissions, fees, per diem allowances, and employee allowances and bonuses. 1040x efile The income may be paid to you in the form of cash, services, or property. 1040x efile If you are engaged in a U. 1040x efile S. 1040x efile 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. 1040x efile 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. 1040x efile Pensions. 1040x efile   If you were a nonresident alien engaged in a U. 1040x efile S. 1040x efile 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. 1040x efile This is true whether or not you are engaged in a U. 1040x efile S. 1040x efile trade or business in the year you receive the retirement pay. 1040x efile Transportation Income Transportation income (defined in chapter 2) is effectively connected if you meet both of the following conditions. 1040x efile You had a fixed place of business in the United States involved in earning the income. 1040x efile At least 90% of your U. 1040x efile S. 1040x efile source transportation income is attributable to regularly scheduled transportation. 1040x efile “Fixed place of business” generally means a place, site, structure, or other similar facility through which you engage in a trade or business. 1040x efile “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. 1040x efile This definition applies to both scheduled and chartered air transportation. 1040x efile If you do not meet the two conditions above, the income is not effectively connected and is taxed at a 4% rate. 1040x efile See Transportation Tax, later, in this chapter. 1040x efile Business Profits and Losses and Sales Transactions All profits or losses from U. 1040x efile S. 1040x efile 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. 1040x efile 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. 1040x efile A share of U. 1040x efile S. 1040x efile 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. 1040x efile Real Property Gain or Loss Gains and losses from the sale or exchange of U. 1040x efile S. 1040x efile 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. 1040x efile You must treat the gain or loss as effectively connected with that trade or business. 1040x efile U. 1040x efile S. 1040x efile real property interest. 1040x efile   This is any interest in real property located in the United States or the U. 1040x efile S. 1040x efile Virgin Islands or any interest (other than as a creditor) in a domestic corporation that is a U. 1040x efile S. 1040x efile real property holding corporation. 1040x efile Real property includes the following. 1040x efile Land and unsevered natural products of the land, such as growing crops and timber, and mines, wells, and other natural deposits. 1040x efile Improvements on land, including buildings, other permanent structures, and their structural components. 1040x efile 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. 1040x efile U. 1040x efile S. 1040x efile real property holding corporation. 1040x efile   A corporation is a U. 1040x efile S. 1040x efile real property holding corporation if the fair market value of the corporation's U. 1040x efile S. 1040x efile real property interests are at least 50% of the total fair market value of: The corporation's U. 1040x efile S. 1040x efile 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. 1040x efile   Gain or loss on the sale of the stock in any domestic corporation is taxed as if you are engaged in a U. 1040x efile S. 1040x efile trade or business unless you establish that the corporation is not a U. 1040x efile S. 1040x efile real property holding corporation. 1040x efile   A U. 1040x efile S. 1040x efile 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. 1040x efile An interest in a foreign corporation owning U. 1040x efile S. 1040x efile real property generally is not a U. 1040x efile S. 1040x efile real property interest unless the corporation chooses to be treated as a domestic corporation. 1040x efile Qualified investment entities. 1040x efile   Special rules apply to qualified investment entities (QIEs). 1040x efile A QIE is any real estate investment trust (REIT) or any regulated investment company (RIC) that is a U. 1040x efile S. 1040x efile real property holding corporation. 1040x efile    Generally, any distribution from a QIE to a shareholder that is attributable to gain from the sale or exchange of a U. 1040x efile S. 1040x efile real property interest is treated as a U. 1040x efile S. 1040x efile real property gain by the shareholder receiving the distribution. 1040x efile 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. 1040x efile S. 1040x efile 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. 1040x efile A distribution that you do not treat as gain from the sale or exchange of a U. 1040x efile S. 1040x efile real property interest is included in your gross income as a regular dividend. 1040x efile Note. 1040x efile Beginning January 1, 2014 (unless extended by legislation), a RIC that is a U. 1040x efile S. 1040x efile 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. 1040x efile Domestically controlled QIE. 1040x efile   The sale of an interest in a domestically controlled QIE is not the sale of a U. 1040x efile S. 1040x efile real property interest. 1040x efile 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. 1040x efile 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. 1040x efile Wash sale. 1040x efile    If you dispose of an interest in a domestically controlled QIE in an applicable wash sale transaction, special rules apply. 1040x efile 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. 1040x efile S. 1040x efile 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. 1040x efile If this occurs, you are treated as having gain from the sale or exchange of a U. 1040x efile S. 1040x efile real property interest in an amount equal to the distribution made after June 15, 2006, that would have been treated as such gain. 1040x efile This also applies to any substitute dividend payment. 1040x efile   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. 1040x efile Alternative minimum tax. 1040x efile   There may be a minimum tax on your net gain from the disposition of U. 1040x efile S. 1040x efile real property interests. 1040x efile Figure the amount of this tax, if any, on Form 6251. 1040x efile Withholding of tax. 1040x efile   If you dispose of a U. 1040x efile S. 1040x efile real property interest, the buyer may have to withhold tax. 1040x efile See the discussion of Tax Withheld on Real Property Sales in chapter 8. 1040x efile 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. 1040x efile 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. 1040x efile The three kinds of foreign source income are listed below. 1040x efile 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. 1040x efile 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. 1040x efile 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. 1040x efile 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. 1040x efile Income, gain, or loss from the sale outside the United States, through the U. 1040x efile S. 1040x efile 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. 1040x efile 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. 1040x efile Any foreign source income that is equivalent to any item of income described above is treated as effectively connected with a U. 1040x efile S. 1040x efile trade or business. 1040x efile For example, foreign source interest and dividend equivalents are treated as U. 1040x efile S. 1040x efile 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. 1040x efile 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. 1040x efile S. 1040x efile citizens and residents. 1040x efile 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. 1040x efile 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. 1040x efile Example. 1040x efile Ted Richards, a nonresident alien, entered the United States in August 2012, to perform personal services in the U. 1040x efile S. 1040x efile office of his overseas employer. 1040x efile He worked in the U. 1040x efile S. 1040x efile office until December 25, 2012, but did not leave this country until January 11, 2013. 1040x efile On January 8, 2013, he received his final paycheck for services performed in the United States during 2012. 1040x efile All of Ted's income during his stay here is U. 1040x efile S. 1040x efile source income. 1040x efile During 2012, Ted was engaged in the trade or business of performing personal services in the United States. 1040x efile 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. 1040x efile The salary payment Ted received in January 2013 is U. 1040x efile S. 1040x efile source income to him in 2013. 1040x efile 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. 1040x efile Real property income. 1040x efile   You may be able to choose to treat all income from real property as effectively connected. 1040x efile See Income From Real Property , later, in this chapter. 1040x efile The 30% Tax Tax at a 30% (or lower treaty) rate applies to certain items of income or gains from U. 1040x efile S. 1040x efile sources but only if the items are not effectively connected with your U. 1040x efile S. 1040x efile trade or business. 1040x efile Fixed or Determinable Income The 30% (or lower treaty) rate applies to the gross amount of U. 1040x efile S. 1040x efile source fixed or determinable annual or periodic gains, profits, or income. 1040x efile Income is fixed when it is paid in amounts known ahead of time. 1040x efile Income is determinable whenever there is a basis for figuring the amount to be paid. 1040x efile Income can be periodic if it is paid from time to time. 1040x efile It does not have to be paid annually or at regular intervals. 1040x efile Income can be determinable or periodic even if the length of time during which the payments are made is increased or decreased. 1040x efile 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. 1040x efile 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. 1040x efile Other items of income, such as royalties, also may be subject to the 30% tax. 1040x efile Some fixed or determinable income may be exempt from U. 1040x efile S. 1040x efile tax. 1040x efile See chapter 3 if you are not sure whether the income is taxable. 1040x efile Original issue discount (OID). 1040x efile   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. 1040x efile The amount of OID is the difference between the stated redemption price at maturity and the issue price of the debt instrument. 1040x efile The 30% tax applies in the following circumstances. 1040x efile You received a payment on a debt instrument. 1040x efile 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. 1040x efile But the tax on the OID cannot be more than the payment minus the tax on the interest payment on the debt instrument. 1040x efile You sold or exchanged the debt instrument. 1040x efile 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. 1040x efile   Report on your return the amount of OID shown on Form 1042-S, Foreign Person's U. 1040x efile S. 1040x efile Source Income Subject to Withholding, if you bought the debt instrument at original issue. 1040x efile However, you must recompute your proper share of OID shown on Form 1042-S if any of the following apply. 1040x efile You bought the debt instrument at a premium or paid an acquisition premium. 1040x efile The debt instrument is a stripped bond or a stripped coupon (including zero coupon instruments backed by U. 1040x efile S. 1040x efile Treasury securities). 1040x efile The debt instrument is a contingent payment or inflation-indexed debt instrument. 1040x efile For the definition of premium and acquisition premium and instructions on how to recompute OID, get Publication 1212. 1040x efile   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. 1040x efile See chapter 12. 1040x efile 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. 1040x efile S. 1040x efile trade or business and is not exempted by treaty. 1040x efile 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. 1040x efile Nonresident aliens are taxed at graduated rates on net gambling income won in the United States that is effectively connected with a U. 1040x efile S. 1040x efile trade or business. 1040x efile Social Security Benefits A nonresident alien must include 85% of any U. 1040x efile S. 1040x efile social security benefit (and the social security equivalent part of a tier 1 railroad retirement benefit) in U. 1040x efile S. 1040x efile source fixed or determinable annual or periodic income. 1040x efile Social security benefits include monthly retirement, survivor, and disability benefits. 1040x efile This income is exempt under some tax treaties. 1040x efile See Table 1 in Publication 901, U. 1040x efile S. 1040x efile Tax Treaties, for a list of tax treaties that exempt U. 1040x efile S. 1040x efile social security benefits from U. 1040x efile S. 1040x efile tax. 1040x efile 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. 1040x efile They apply even if you are engaged in a trade or business in the United States. 1040x efile These rules do not apply to the sale or exchange of a U. 1040x efile S. 1040x efile real property interest or to the sale of any property that is effectively connected with a trade or business in the United States. 1040x efile See Real Property Gain or Loss , earlier, under Effectively Connected Income. 1040x efile A capital asset is everything you own except: Inventory. 1040x efile Business accounts or notes receivable. 1040x efile Depreciable property used in a trade or business. 1040x efile Real property used in a trade or business. 1040x efile Supplies regularly used in a trade or business. 1040x efile Certain copyrights, literary or musical or artistic compositions, letters or memoranda, or similar property. 1040x efile Certain U. 1040x efile S. 1040x efile government publications. 1040x efile Certain commodities derivative financial instruments held by a commodities derivatives dealer. 1040x efile Hedging transactions. 1040x efile A capital gain is a gain on the sale or exchange of a capital asset. 1040x efile A capital loss is a loss on the sale or exchange of a capital asset. 1040x efile 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. 1040x efile S. 1040x efile currency at the rate of exchange prevailing as of the date of the purchase and date of the sale, respectively. 1040x efile You may want to read Publication 544. 1040x efile However, use Publication 544 only to determine what is a sale or exchange of a capital asset, or what is treated as such. 1040x efile Specific tax treatment that applies to U. 1040x efile S. 1040x efile citizens or residents generally does not apply to you. 1040x efile The following gains are subject to the 30% (or lower treaty) rate without regard to the 183-day rule, discussed later. 1040x efile Gains on the disposal of timber, coal, or domestic iron ore with a retained economic interest. 1040x efile Gains on contingent payments received from the sale or exchange of patents, copyrights, and similar property after October 4, 1966. 1040x efile Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966. 1040x efile Gains on the sale or exchange of original issue discount obligations. 1040x efile 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. 1040x efile S. 1040x efile trade or business. 1040x efile See Income From Real Property , later. 1040x efile 183-day rule. 1040x efile   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. 1040x efile For purposes of the 30% (or lower treaty) rate, net gain is the excess of your capital gains from U. 1040x efile S. 1040x efile sources over your capital losses from U. 1040x efile S. 1040x efile sources. 1040x efile This rule applies even if any of the transactions occurred while you were not in the United States. 1040x efile   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. 1040x efile S. 1040x efile trade or business during the year and the gains and losses were effectively connected with that trade or business during the tax year. 1040x efile   In arriving at your net gain, do not take the following into consideration. 1040x efile The four types of gains listed earlier. 1040x efile The deduction for a capital loss carryover. 1040x efile Capital losses in excess of capital gains. 1040x efile Exclusion for gain from the sale or exchange of qualified small business stock (section 1202 exclusion). 1040x efile Losses from the sale or exchange of property held for personal use. 1040x efile However, losses resulting from casualties or thefts may be deductible on Schedule A (Form 1040NR). 1040x efile See Itemized Deductions in chapter 5. 1040x efile   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. 1040x efile Also, you must file your tax return on a calendar-year basis. 1040x efile   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. 1040x efile Reporting. 1040x efile   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. 1040x efile 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. 1040x efile Attach them to Form 1040NR. 1040x efile 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. 1040x efile 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. 1040x efile This includes income from rents, royalties from mines, oil or gas wells, or other natural resources. 1040x efile It also includes gains from the sale or exchange of timber, coal, or domestic iron ore with a retained economic interest. 1040x efile You can make this choice only for real property income that is not otherwise effectively connected with your U. 1040x efile S. 1040x efile trade or business. 1040x efile 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. 1040x efile This choice does not treat a nonresident alien, who is not otherwise engaged in a U. 1040x efile S. 1040x efile trade or business, as being engaged in a trade or business in the United States during the year. 1040x efile Example. 1040x efile You are a nonresident alien and are not engaged in a U. 1040x efile S. 1040x efile trade or business. 1040x efile You own a single-family house in the United States that you rent out. 1040x efile Your rental income for the year is $10,000. 1040x efile This is your only U. 1040x efile S. 1040x efile source income. 1040x efile As discussed earlier under The 30% Tax, the rental income is subject to a tax at a 30% (or lower treaty) rate. 1040x efile You received a Form 1042-S showing that your tenants properly withheld this tax from the rental income. 1040x efile You do not have to file a U. 1040x efile S. 1040x efile tax return (Form 1040NR) because your U. 1040x efile S. 1040x efile tax liability is satisfied by the withholding of tax. 1040x efile If you make the choice discussed earlier, you can offset the $10,000 income by certain rental expenses. 1040x efile (See Publication 527, Residential Rental Property, for information on rental expenses. 1040x efile ) Any resulting net income is taxed at graduated rates. 1040x efile If you make this choice, report the rental income and expenses on Schedule E (Form 1040) and attach the schedule to Form 1040NR. 1040x efile For the first year you make the choice, also attach the statement discussed next. 1040x efile Making the choice. 1040x efile   Make the initial choice by attaching a statement to your return, or amended return, for the year of the choice. 1040x efile Include the following in your statement. 1040x efile That you are making the choice. 1040x efile Whether the choice is under Internal Revenue Code section 871(d) (explained earlier) or a tax treaty. 1040x efile A complete list of all your real property, or any interest in real property, located in the United States. 1040x efile Give the legal identification of U. 1040x efile S. 1040x efile timber, coal, or iron ore in which you have an interest. 1040x efile The extent of your ownership in the property. 1040x efile The location of the property. 1040x efile A description of any major improvements to the property. 1040x efile The dates you owned the property. 1040x efile Your income from the property. 1040x efile Details of any previous choices and revocations of the real property income choice. 1040x efile   This choice stays in effect for all later tax years unless you revoke it. 1040x efile Revoking the choice. 1040x efile   You can revoke the choice without IRS approval by filing Form 1040X, Amended U. 1040x efile S. 1040x efile Individual Income Tax Return, for the year you made the choice and for later tax years. 1040x efile 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. 1040x efile If this time period has expired for the year of choice, you cannot revoke the choice for that year. 1040x efile However, you may revoke the choice for later tax years only if you have IRS approval. 1040x efile For information on how to get IRS approval, see Regulation section 1. 1040x efile 871-10(d)(2). 1040x efile 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 . 1040x efile If you receive transportation income subject to the 4% tax, you should figure the tax and show it on line 57 of Form 1040NR. 1040x efile Attach a statement to your return that includes the following information (if applicable). 1040x efile Your name, taxpayer identification number, and tax year. 1040x efile A description of the types of services performed (whether on or off board). 1040x efile Names of vessels or registration numbers of aircraft on which you performed the services. 1040x efile Amount of U. 1040x efile S. 1040x efile source transportation income derived from each type of service for each vessel or aircraft for the calendar year. 1040x efile Total amount of U. 1040x efile S. 1040x efile source transportation income derived from all types of services for the calendar year. 1040x efile This 4% tax applies to your U. 1040x efile S. 1040x efile source gross transportation income. 1040x efile 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. 1040x efile For transportation income from personal services, the transportation must be between the United States and a U. 1040x efile S. 1040x efile possession. 1040x efile For personal services of a nonresident alien, this only applies to income derived from, or in connection with, an aircraft. 1040x efile Interrupted Period of Residence You are subject to tax under a special rule if you interrupt your period of U. 1040x efile S. 1040x efile residence with a period of nonresidence. 1040x efile The special rule applies if you meet all of the following conditions. 1040x efile You were a U. 1040x efile S. 1040x efile resident for a period that includes at least 3 consecutive calendar years. 1040x efile You were a U. 1040x efile S. 1040x efile resident for at least 183 days in each of those years. 1040x efile You ceased to be treated as a U. 1040x efile S. 1040x efile resident. 1040x efile You then again became a U. 1040x efile S. 1040x efile resident before the end of the third calendar year after the end of the period described in (1) above. 1040x efile Under this special rule, you are subject to tax on your U. 1040x efile S. 1040x efile 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. 1040x efile S. 1040x efile trade or business. 1040x efile 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. 1040x efile Example. 1040x efile John Willow, a citizen of New Zealand, entered the United States on April 1, 2008, as a lawful permanent resident. 1040x efile On August 1, 2010, John ceased to be a lawful permanent resident and returned to New Zealand. 1040x efile 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). 1040x efile He returned to the United States on October 5, 2013, as a lawful permanent resident. 1040x efile 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). 1040x efile 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. 1040x efile Reporting requirements. 1040x efile   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. 1040x efile The return is due by the due date (including extensions) for filing your U. 1040x efile S. 1040x efile income tax return for the year that you again become a U. 1040x efile S. 1040x efile resident. 1040x efile If you already filed returns for that period, you must file amended returns. 1040x efile You must attach a statement to your return that identifies the source of all of your U. 1040x efile S. 1040x efile and foreign gross income and the items of income subject to this special rule. 1040x efile Expatriation Tax The expatriation tax provisions apply to U. 1040x efile S. 1040x efile citizens who have renounced their citizenship and long-term residents who have ended their residency. 1040x efile The rules that apply are based on the dates of expatriation, which are described in the following sections. 1040x efile Expatriation Before June 4, 2004. 1040x efile Expatriation After June 3, 2004, and Before June 17, 2008. 1040x efile Expatriation After June 16, 2008. 1040x efile Long-term resident defined. 1040x efile   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. 1040x efile 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. 1040x efile 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. 1040x efile S. 1040x efile taxes. 1040x efile Unless you received a ruling from the IRS that you did not expatriate to avoid U. 1040x efile S. 1040x efile 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. 1040x efile The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1). 1040x efile Table 4-1. 1040x efile Inflation-Adjusted Amounts for Expatriation Actions Before June 4, 2004 IF you expatriated during . 1040x efile . 1040x efile . 1040x efile   THEN the rules outlined on this page apply if . 1040x efile . 1040x efile . 1040x efile     Your 5-year average annual net income tax was more than . 1040x efile . 1040x efile . 1040x efile OR Your net worth equaled or exceeded . 1040x efile . 1040x efile . 1040x efile 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. 1040x efile Reporting requirements. 1040x efile   If you lost your U. 1040x efile S. 1040x efile citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. 1040x efile 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. 1040x efile   Your U. 1040x efile S. 1040x efile 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. 1040x efile Penalties. 1040x efile   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. 1040x efile 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. 1040x efile The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect. 1040x efile Expatriation tax. 1040x efile   The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. 1040x efile It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. 1040x efile See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section. 1040x efile 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. 1040x efile 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. 1040x efile $127,000 if you expatriated or terminated residency in 2005. 1040x efile $131,000 if you expatriated or terminated residency in 2006. 1040x efile $136,000 if you expatriated or terminated residency in 2007. 1040x efile $139,000 if you expatriated or terminated residency in 2008. 1040x efile Your net worth is $2 million or more on the date of your expatriation or termination of residency. 1040x efile You fail to certify on Form 8854 that you have complied with all U. 1040x efile S. 1040x efile federal tax obligations for the 5 tax years preceding the date of your expatriation or termination of residency. 1040x efile Exception for dual-citizens and certain minors. 1040x efile   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) earlier. 1040x efile However, they still must provide the certification required in (3). 1040x efile Certain dual-citizens. 1040x efile   You may qualify for the exception described above if all of the following apply. 1040x efile You became at birth a U. 1040x efile S. 1040x efile citizen and a citizen of another country and you continue to be a citizen of that other country. 1040x efile You were never a resident alien of the United States (as defined in chapter 1). 1040x efile You never held a U. 1040x efile S. 1040x efile passport. 1040x efile 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. 1040x efile S. 1040x efile citizenship. 1040x efile Certain minors. 1040x efile   You may qualify for the exception described above if you meet all of the following requirements. 1040x efile You became a U. 1040x efile S. 1040x efile citizen at birth. 1040x efile Neither of your parents was a U. 1040x efile S. 1040x efile citizen at the time of your birth. 1040x efile You expatriated before you were 18½. 1040x efile 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. 1040x efile Tax consequences of presence in the United States. 1040x efile   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. 1040x efile   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. 1040x efile Instead, you are treated as a U. 1040x efile S. 1040x efile citizen or resident and taxed on your worldwide income for that tax year. 1040x efile You must file Form 1040, 1040A, or 1040EZ and figure your tax as prescribed in the instructions for those forms. 1040x efile   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. 1040x efile 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. 1040x efile You have ties with other countries. 1040x efile 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. 1040x efile 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. 1040x efile 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. 1040x efile See Exempt individual and Medical condition in chapter 1 under Substantial Presence Test, but disregard the information about Form 8843. 1040x efile Related employer. 1040x efile   If your employer in the United States is any of the following, then your employer is related to you. 1040x efile You must count any days you performed services in the United States for that employer as days of presence in the United States. 1040x efile Members of your family. 1040x efile This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. 1040x efile ), and lineal descendants (children, grandchildren, etc. 1040x efile ). 1040x efile A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. 1040x efile A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. 1040x efile (See Publication 550, chapter 4, Constructive ownership of stock, for how to determine whether you directly or indirectly own outstanding stock. 1040x efile ) 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. 1040x efile Date of tax expatriation. 1040x efile   For purposes of U. 1040x efile S. 1040x efile tax rules, the date of your expatriation or termination of residency is the later of the dates on which you perform the following actions. 1040x efile You notify either the Department of State or the Department of Homeland Security (whichever is appropriate) of your expatriating act or termination of residency. 1040x efile You file Form 8854 in accordance with the form instructions. 1040x efile Annual return. 1040x efile   If the expatriation tax applies to you, you must file Form 8854 each year during the 10-year period following the date of expatriation. 1040x efile You must file this form even if you owe no U. 1040x efile S. 1040x efile tax. 1040x efile Penalty. 1040x efile   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. 1040x efile You will not have to pay a penalty if you show that the failure is due to reasonable cause and not to willful neglect. 1040x efile 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. 1040x efile S. 1040x efile 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. 1040x efile S. 1040x efile trade or business. 1040x efile For this purpose, U. 1040x efile S. 1040x efile 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. 1040x efile S. 1040x efile domestic corporation, and Debt obligations of U. 1040x efile S. 1040x efile persons or of the United States, a state or political subdivision thereof, or the District of Columbia. 1040x efile U. 1040x efile S. 1040x efile 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. 1040x efile The income or gain is considered U. 1040x efile S. 1040x efile 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. 1040x efile 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. 1040x efile S. 1040x efile source gross income in the tax year of the exchange unless you enter into a gain recognition agreement under Notice 97-19. 1040x efile Other information. 1040x efile   For more information on the expatriation tax provisions, including exceptions to the tax and special U. 1040x efile S. 1040x efile source rules, see section 877 of the Internal Revenue Code. 1040x efile Expatriation Tax Return If you expatriated or terminated your U. 1040x efile S. 1040x efile residency, or you are subject to the expatriation tax, you must file Form 8854, Initial and Annual Expatriation Statement. 1040x efile Attach it to Form 1040NR if you are required to file that form. 1040x efile If you are present in the United States following your expatriation and are subject to tax as a U. 1040x efile S. 1040x efile citizen or resident, file Form 8854 with Form 1040. 1040x efile 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. 1040x efile 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. 1040x efile $145,000 if you expatriated or terminated residency in 2009 or 2010. 1040x efile $147,000 if you expatriated or terminated residency in 2011. 1040x efile $151,000 if you expatriated or terminated residency in 2012. 1040x efile $155,000 if you expatriated or terminated residency in 2013. 1040x efile Your net worth is $2 million or more on the date of your expatriation or termination of residency. 1040x efile You fail to certify on Form 8854 that you have complied with all U. 1040x efile S. 1040x efile federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency. 1040x efile Exception for dual-citizens and certain minors. 1040x efile   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) above. 1040x efile However, they still must provide the certification required in (3) above. 1040x efile Certain dual-citizens. 1040x efile   You may qualify for the exception described above if both of the following apply. 1040x efile You became at birth a U. 1040x efile S. 1040x efile 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. 1040x efile 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. 1040x efile For the purpose of determining U. 1040x efile S. 1040x efile residency, use the substantial presence test described in chapter 1. 1040x efile Certain minors. 1040x efile   You may qualify for the exception described earlier if you meet both of the following requirements. 1040x efile You expatriated before you were 18½. 1040x efile You have been a resident of the United States for not more than 10 tax years before the expatriation occurs. 1040x efile For the purpose of determining U. 1040x efile S. 1040x efile residency, use the substantial presence test described in chapter 1. 1040x efile Expatriation date. 1040x efile   Your expatriation date is the date you relinquish U. 1040x efile S. 1040x efile citizenship (in the case of a former citizen) or terminate your long-term residency (in the case of a former U. 1040x efile S. 1040x efile resident). 1040x efile Former U. 1040x efile S. 1040x efile citizen. 1040x efile   You are considered to have relinquished your U. 1040x efile S. 1040x efile citizenship on the earliest of the following dates. 1040x efile The date you renounced U. 1040x efile S. 1040x efile 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). 1040x efile The date you furnished to the State Department a signed statement of voluntary relinquishment of U. 1040x efile S. 1040x efile 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). 1040x efile The date the State Department issued a certificate of loss of nationality. 1040x efile The date that a U. 1040x efile S. 1040x efile court canceled your certificate of naturalization. 1040x efile Former long-term resident. 1040x efile   You are considered to have terminated your long-term residency on the earliest of the following dates. 1040x efile The date you voluntarily relinquished your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U. 1040x efile S. 1040x efile consular or immigration officer, and the Department of Homeland Security determined that you have, in fact, abandoned your lawful permanent resident status. 1040x efile 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. 1040x efile 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. 1040x efile See Effect of Tax Treaties in chapter 1 for more information about dual residents. 1040x efile 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”). 1040x efile This applies to most types of property interests you held on the date of relinquishment of citizenship or termination of residency. 1040x efile But see Exceptions , later. 1040x efile Gains arising from deemed sales must be taken into account for the tax year of the deemed sale without regard to other U. 1040x efile S. 1040x efile internal revenue laws. 1040x efile Losses from deemed sales must be taken into account to the extent otherwise provided under U. 1040x efile S. 1040x efile internal revenue laws. 1040x efile However, Internal Revenue Code section 1091 (relating to the disallowance of losses on wash sales of stock and securities) does not apply. 1040x efile 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. 1040x efile $626,000 if you expatriated or terminated residency in 2009. 1040x efile $627,000 if you expatriated or terminated residency in 2010. 1040x efile $636,000 if you expatriated or terminated residency in 2011. 1040x efile $651,000 if you expatriated or terminated residency in 2012. 1040x efile $668,000 if you expatriated or terminated residency in 2013. 1040x efile Exceptions. 1040x efile   The mark-to-market tax does not apply to the following. 1040x efile Eligible deferred compensation items. 1040x efile Ineligible deferred compensation items. 1040x efile Interests in nongrantor trusts. 1040x efile Specified tax deferred accounts. 1040x efile Instead, items (1) and (3) may be subject to withholding at source. 1040x efile 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. 1040x efile 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. 1040x efile See paragraphs (d), (e), and (f) of section 877A for more information. 1040x efile Expatriation Tax Return If you expatriated or terminated your U. 1040x efile S. 1040x efile 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. 1040x efile Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms. 1040x efile Deferral of payment of mark-to-market tax. 1040x efile   You can make an irrevocable election to defer payment of the mark-to-market tax imposed on the deemed sale of property. 1040x efile If you make this election, the following rules apply. 1040x efile You can make the election on a property-by-property basis. 1040x efile The deferred tax attributable to a particular property is due on the return for the tax year in which you dispose of the property. 1040x efile Interest is charged for the period the tax is deferred. 1040x efile The due date for the payment of the deferred tax cannot be extended beyond the earlier of the following dates. 1040x efile The due date of the return required for the year of death. 1040x efile The time that the security provided for the property fails to be adequate. 1040x efile See item (6) below. 1040x efile You make the election on Form 8854. 1040x efile You must provide adequate security (such as a bond). 1040x efile 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. 1040x efile   For more information about the deferral of payment, see the Instructions for Form 8854. 1040x efile Prev  Up  Next   Home   More Online Publications
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Understanding your CP27 Notice

We've sent you this notice because our records indicate you may be eligible for the Earned Income Credit (EIC), but didn't claim it on your tax return.


What you need to do

  • Read your notice carefully — it will explain the steps needed to determine your qualifications.
  • Complete the Earned Income Credit Eligibility Worksheet.

    If you are eligible for the credit,
    • Sign and date the worksheet.
    • Mail the signed worksheet in the envelope provided.

    If you are not eligible for the credit,
    • Do not return the eligibility worksheet to us.

What we will do

We will review your worksheet and make a determination.

  • If you're eligible for the credit, we'll send you a refund check in 6 ― 8 weeks, as long as you don't owe tax or any other debts we're required to collect.
  • If we deny the credit, we will send you a letter of explanation.
  • If you don't hear from us after 8 weeks, call our toll free line at 1-800-829-0922 to check the status.

You may want to...


Answers to Common Questions

Why did the IRS send me this notice?
You may be eligible for the Earned Income Credit (EIC). The EIC is a credit for certain people who work and have earned income. People without dependent children may qualify for a refund up to $464, even if they do not owe any tax.

I lost the return envelope. Where do I mail my Earned Income Credit Eligibility Worksheet?
Mail the completed worksheet to the address listed on the top left corner of the worksheet. This office handles cases in your region, so it's important you send it there to avoid potential delays in processing.


Tips for next year

Claim the credit if you are still eligible.

Ask the IRS to figure the earned income credit for you by writing "EIC" on the EIC line, complete Schedule EIC, and attach it to your return. If you qualify for the credit, the IRS will calculate it for you.

Write "NO" on the EIC line if you do not want or you do not qualify for the credit.

Page Last Reviewed or Updated: 03-Mar-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The 1040x Efile

1040x efile 5. 1040x efile   How To Get Tax Help Table of Contents Go online, use a smart phone, call or walk in to an office near you. 1040x efile Whether it's help with a tax issue, preparing your tax return or picking up a free publication or form, get the help you need the way you want it. 1040x efile Free help with your tax return. 1040x efile    Free help in preparing your return is available nationwide from IRS-certified volunteers. 1040x efile The Volunteer Income Tax Assistance (VITA) program is designed to help low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers. 1040x efile The Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. 1040x efile Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. 1040x efile Some VITA and TCE sites provide taxpayers the opportunity to prepare their return with the assistance of an IRS-certified volunteer. 1040x efile To find the nearest VITA or TCE site, visit IRS. 1040x efile gov or call 1-800-906-9887. 1040x efile   As part of the TCE program, AARP offers the Tax-Aide counseling program. 1040x efile To find the nearest AARP Tax-Aide site, visit AARP's website at www. 1040x efile aarp. 1040x efile org/money/taxaide or call 1-888-227-7669. 1040x efile   For more information on these programs, go to IRS. 1040x efile gov and enter “VITA” in the search box. 1040x efile Internet. 1040x efile IRS. 1040x efile gov and IRS2Go are ready when you are — every day, every night, 24 hours a day, 7 days a week. 1040x efile Apply for an Employer Identification Number (EIN). 1040x efile Go to IRS. 1040x efile gov and enter Apply for an EIN in the search box. 1040x efile Request an Electronic Filing PIN by going to IRS. 1040x efile gov and entering Electronic Filing PIN in the search box. 1040x efile Check the status of your 2013 refund with Where's My Refund? Go to IRS. 1040x efile gov or the IRS2Go app, and click on Where's My Refund? You'll get a personalized refund date as soon as the IRS processes your tax return and approves your refund. 1040x efile If you e-file, your refund status is usually available within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. 1040x efile Check the status of your amended return. 1040x efile Go to IRS. 1040x efile gov and enter Where's My Amended Return in the search box. 1040x efile Download forms, instructions, and publications, including some accessible versions. 1040x efile Order free transcripts of your tax returns or tax account using the Order a Transcript tool on IRS. 1040x efile gov or IRS2Go. 1040x efile Tax return and tax account transcripts are generally available for the current year and past three years. 1040x efile Figure your income tax withholding with the IRS Withholding Calculator on IRS. 1040x efile gov. 1040x efile Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. 1040x efile Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. 1040x efile gov. 1040x efile Locate the nearest Taxpayer Assistance Center using the Office Locator tool on IRS. 1040x efile gov or IRS2Go. 1040x efile Stop by most business days for face-to-face tax help, no appointment necessary — just walk in. 1040x efile An employee can explain IRS letters, request adjustments to your tax account or help you set up a payment plan. 1040x efile Before you visit, check the Office Locator for the address, phone number, hours of operation and the services provided. 1040x efile If you have an ongoing tax account problem or a special need, such as a disability, you can request an appointment. 1040x efile Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. 1040x efile Locate the nearest volunteer help site with the VITA Locator Tool on IRS. 1040x efile gov. 1040x efile Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. 1040x efile The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. 1040x efile Most VITA and TCE sites offer free electronic filing and some provide IRS-certified volunteers who can help prepare your tax return. 1040x efile AARP offers the Tax-Aide counseling program as part of the TCE program. 1040x efile Visit AARP's website to find the nearest Tax-Aide location. 1040x efile Research your tax questions. 1040x efile Search publications and instructions by topic or keyword. 1040x efile Read the Internal Revenue Code, regulations, or other official guidance. 1040x efile Read Internal Revenue Bulletins. 1040x efile Sign up to receive local and national tax news by email. 1040x efile Phone. 1040x efile You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. 1040x efile Download the free IRS2Go mobile app from the iTunes app store or from Google Play. 1040x efile Use it to watch the IRS YouTube channel, get IRS news as soon as it's released to the public, order transcripts of your tax returns or tax account, check your refund status, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. 1040x efile Call to locate the nearest volunteer help site, 1-800-906-9887. 1040x efile Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. 1040x efile The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. 1040x efile Most VITA and TCE sites offer free electronic filing. 1040x efile Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. 1040x efile Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. 1040x efile Call to check the status of your 2013 refund, 1-800-829-1954 or 1-800-829-4477. 1040x efile The automated Where's My Refund? information is available 24 hours a day, 7 days a week. 1040x efile If you e-file, your refund status is usually available within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. 1040x efile Before you call, have your 2013 tax return handy so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. 1040x efile Where's My Refund? can give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. 1040x efile Where's My Refund? includes information for the most recent return filed in the current year and does not include information about amended returns. 1040x efile Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. 1040x efile Call to order forms, instructions and publications, 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions and publications, and prior-year forms and instructions (limited to 5 years). 1040x efile You should receive your order within 10 business days. 1040x efile Call to order transcripts of your tax returns or tax account, 1-800-908-9946. 1040x efile Follow the prompts to provide your Social Security Number or Individual Taxpayer Identification Number, date of birth, street address and ZIP code. 1040x efile Call for TeleTax topics, 1-800-829-4477, to listen to pre-recorded messages covering various tax topics. 1040x efile Call to ask tax questions, 1-800-829-1040. 1040x efile Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. 1040x efile The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. 1040x efile These individuals can also contact the IRS through relay services such as the Federal Relay Service available at www. 1040x efile gsa. 1040x efile gov/fedrelay. 1040x efile Walk-in. 1040x efile You can find a selection of forms, publications and services — in-person, face-to-face. 1040x efile Products. 1040x efile You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. 1040x efile Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. 1040x efile Services. 1040x efile You can walk in to your local TAC most business days for personal, face-to-face tax help. 1040x efile An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. 1040x efile If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local TAC where you can talk with an IRS representative face-to-face. 1040x efile No appointment is necessary—just walk in. 1040x efile Before visiting, check www. 1040x efile irs. 1040x efile gov/localcontacts for hours of operation and services provided. 1040x efile Mail. 1040x efile You can send your order for forms, instructions, and publications to the address below. 1040x efile You should receive a response within 10 business days after your request is received. 1040x efile  Internal Revenue Service 1201 N. 1040x efile Mitsubishi Motorway Bloomington, IL 61705-6613 The Taxpayer Advocate Service Is Here to Help You. 1040x efile    The Taxpayer Advocate Service (TAS) is your voice at the IRS. 1040x efile Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. 1040x efile What can TAS do for you?    We can offer you free help with IRS problems that you can't resolve on your own. 1040x efile We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. 1040x efile You face (or your business is facing) an immediate threat of adverse action. 1040x efile You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. 1040x efile   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. 1040x efile Here's why we can help: TAS is an independent organization within the IRS. 1040x efile Our advocates know how to work with the IRS. 1040x efile Our services are free and tailored to meet your needs. 1040x efile We have offices in every state, the District of Columbia, and Puerto Rico. 1040x efile How can you reach us?    If you think TAS can help you, call your local advocate, whose number is in your local directory and at www. 1040x efile irs. 1040x efile gov/advocate, or call us toll-free at 1-877-777-4778. 1040x efile How else does TAS help taxpayers?    TAS also works to resolve large-scale, systemic problems that affect many taxpayers. 1040x efile If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System at www. 1040x efile irs. 1040x efile gov/sams. 1040x efile Low Income Taxpayer Clinics. 1040x efile    Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. 1040x efile Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. 1040x efile Visit www. 1040x efile TaxpayerAdvocate. 1040x efile irs. 1040x efile gov or see IRS Publication 4134, Low Income Taxpayer Clinic List. 1040x efile Prev  Up  Next   Home   More Online Publications