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Filing 2011 Tax Return In 2013

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Filing 2011 Tax Return In 2013

Filing 2011 tax return in 2013 2. Filing 2011 tax return in 2013   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. Filing 2011 tax return in 2013 Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 or foreign source income. Filing 2011 tax return in 2013 This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 Virgin Islands (USVI). Filing 2011 tax return in 2013 Generally, the same rules that apply for determining U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 source income also apply for determining possession source income. Filing 2011 tax return in 2013 However, there are some important exceptions to these rules. Filing 2011 tax return in 2013 Both the general rules and the exceptions are discussed in this chapter. Filing 2011 tax return in 2013 U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 income rule. Filing 2011 tax return in 2013   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. Filing 2011 tax return in 2013 Table 2-1 shows the general rules for determining whether income is from sources within the United States. Filing 2011 tax return in 2013 Table 2-1. Filing 2011 tax return in 2013 General Rules for Determining U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Filing 2011 tax return in 2013 Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. Filing 2011 tax return in 2013 For more information, see Regulations section 1. Filing 2011 tax return in 2013 863-1(b). Filing 2011 tax return in 2013 Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. Filing 2011 tax return in 2013 Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Filing 2011 tax return in 2013 Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. Filing 2011 tax return in 2013 It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Filing 2011 tax return in 2013 Services performed wholly within a relevant possession. Filing 2011 tax return in 2013   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Filing 2011 tax return in 2013 However, there is an exception for income earned as a member of the U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 Armed Forces or a civilian spouse. Filing 2011 tax return in 2013 U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 Armed Forces. Filing 2011 tax return in 2013   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. Filing 2011 tax return in 2013 However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. Filing 2011 tax return in 2013 Civilian spouse of active duty member of the U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 Armed Forces. Filing 2011 tax return in 2013   If you are a bona fide resident of a U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. Filing 2011 tax return in 2013 Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Filing 2011 tax return in 2013 Services performed partly inside and partly outside a relevant possession. Filing 2011 tax return in 2013   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. Filing 2011 tax return in 2013 Compensation (other than certain fringe benefits) is sourced on a time basis. Filing 2011 tax return in 2013 Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Filing 2011 tax return in 2013   Or, you may be permitted to use an alternative basis to determine the source of compensation. Filing 2011 tax return in 2013 See Alternative basis , later. Filing 2011 tax return in 2013   If you are self-employed, determine the source of your income 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. Filing 2011 tax return in 2013 In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Filing 2011 tax return in 2013 Time basis. Filing 2011 tax return in 2013   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Filing 2011 tax return in 2013 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 relevant  possession 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. Filing 2011 tax return in 2013 The time period for which the income is made does not have to be a year. Filing 2011 tax return in 2013 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. Filing 2011 tax return in 2013 Example. Filing 2011 tax return in 2013 In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. Filing 2011 tax return in 2013 Your Puerto Rico source income is $60,000, figured as follows. Filing 2011 tax return in 2013       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Filing 2011 tax return in 2013   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Filing 2011 tax return in 2013 Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. Filing 2011 tax return in 2013 You determine the period to which the income is attributable based on the facts and circumstances of your case. Filing 2011 tax return in 2013 For more information on multi-year compensation, see Treasury Decision (T. Filing 2011 tax return in 2013 D. Filing 2011 tax return in 2013 ) 9212 and Regulations section 1. Filing 2011 tax return in 2013 861-4, 2005-35 I. Filing 2011 tax return in 2013 R. Filing 2011 tax return in 2013 B. Filing 2011 tax return in 2013 429, available at www. Filing 2011 tax return in 2013 irs. Filing 2011 tax return in 2013 gov/irb/2005-35_IRB/ar14. Filing 2011 tax return in 2013 html. Filing 2011 tax return in 2013 Certain fringe benefits sourced on a geographical basis. Filing 2011 tax return in 2013   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. Filing 2011 tax return in 2013 Housing. Filing 2011 tax return in 2013 Education. Filing 2011 tax return in 2013 Local transportation. Filing 2011 tax return in 2013 Tax reimbursement. Filing 2011 tax return in 2013 Hazardous or hardship duty pay. Filing 2011 tax return in 2013 Moving expense reimbursement. Filing 2011 tax return in 2013 For information on determining the source of the fringe benefits listed above, see Regulations section 1. Filing 2011 tax return in 2013 861-4. Filing 2011 tax return in 2013 Alternative basis. Filing 2011 tax return in 2013   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 income than the time or geographical basis. Filing 2011 tax return in 2013 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 income. Filing 2011 tax return in 2013 De minimis exception. Filing 2011 tax return in 2013   There is an exception to the rule for determining the source of income earned in a possession. Filing 2011 tax return in 2013 Generally, you will not have income from a possession if during a tax year you: Are a U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. Filing 2011 tax return in 2013 This exception began with income earned during your 2008 tax year. Filing 2011 tax return in 2013 Pensions. Filing 2011 tax return in 2013   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Filing 2011 tax return in 2013 The contribution portion is sourced according to where services were performed that earned the pension. Filing 2011 tax return in 2013 The investment earnings portion is sourced according to the location of the pension trust. Filing 2011 tax return in 2013 Example. Filing 2011 tax return in 2013 You are a U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 citizen who worked in Puerto Rico for a U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 company. Filing 2011 tax return in 2013 All services were performed in Puerto Rico. Filing 2011 tax return in 2013 Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 pension trust of your employer. Filing 2011 tax return in 2013 Distributions from the U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 source income. Filing 2011 tax return in 2013 Investment Income This category includes such income as interest, dividends, rents, and royalties. Filing 2011 tax return in 2013 Interest income. Filing 2011 tax return in 2013   The source of interest income is generally determined by the residence of the payer. Filing 2011 tax return in 2013 Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. Filing 2011 tax return in 2013   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. Filing 2011 tax return in 2013 See Regulations section 1. Filing 2011 tax return in 2013 937-2(i) for more information. Filing 2011 tax return in 2013 Dividends. Filing 2011 tax return in 2013   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Filing 2011 tax return in 2013 There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. Filing 2011 tax return in 2013 For more information, see Regulations section 1. Filing 2011 tax return in 2013 937-2(g). Filing 2011 tax return in 2013 Rental income. Filing 2011 tax return in 2013   Rents from property located in a relevant possession are treated as income from sources within that possession. Filing 2011 tax return in 2013 Royalties. Filing 2011 tax return in 2013   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Filing 2011 tax return in 2013   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. Filing 2011 tax return in 2013 Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Filing 2011 tax return in 2013 The most common situations are discussed below. Filing 2011 tax return in 2013 Real property. Filing 2011 tax return in 2013   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Filing 2011 tax return in 2013 The location of the property generally determines the source of income from the sale. Filing 2011 tax return in 2013 For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. Filing 2011 tax return in 2013 If, however, the home you sold was located in the United States, the gain is U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 source income. Filing 2011 tax return in 2013 Personal property. Filing 2011 tax return in 2013   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Filing 2011 tax return in 2013 Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Filing 2011 tax return in 2013 If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. Filing 2011 tax return in 2013   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. Filing 2011 tax return in 2013 The rules applying to sales of inventory are discussed below. Filing 2011 tax return in 2013 For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Filing 2011 tax return in 2013 Inventory. Filing 2011 tax return in 2013   Your inventory 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. Filing 2011 tax return in 2013 The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Filing 2011 tax return in 2013 Purchased. Filing 2011 tax return in 2013   Income from the sale of inventory that you purchased is sourced where you sell the property. Filing 2011 tax return in 2013 Generally, this is where title to the property passes to the buyer. Filing 2011 tax return in 2013 Produced. Filing 2011 tax return in 2013   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. Filing 2011 tax return in 2013 For information on making the allocation, see Regulations section 1. Filing 2011 tax return in 2013 863-3(f). Filing 2011 tax return in 2013 Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 citizen or resident alien prior to becoming a bona fide resident of a possession. Filing 2011 tax return in 2013 You are subject to these special rules if you meet both of the following conditions. Filing 2011 tax return in 2013 For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Filing 2011 tax return in 2013 For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). Filing 2011 tax return in 2013 If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. Filing 2011 tax return in 2013 Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 tax return. Filing 2011 tax return in 2013 (See chapter 3 for additional filing information. Filing 2011 tax return in 2013 ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. Filing 2011 tax return in 2013 These rules apply to dispositions after April 11, 2005. Filing 2011 tax return in 2013 For details, see Regulations section 1. Filing 2011 tax return in 2013 937-2(f)(1) and Examples 1 and 2 of section 1. Filing 2011 tax return in 2013 937-2(k). Filing 2011 tax return in 2013 Example 1. Filing 2011 tax return in 2013 In 2007, Cheryl Jones, a U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 corporation listed on the New York Stock Exchange. Filing 2011 tax return in 2013 On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Filing 2011 tax return in 2013 Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. Filing 2011 tax return in 2013 On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Filing 2011 tax return in 2013 On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Filing 2011 tax return in 2013 Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Filing 2011 tax return in 2013 The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Filing 2011 tax return in 2013 This existing special rule applies if you are a U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 assets during the 10-year period beginning when you became a bona fide resident. Filing 2011 tax return in 2013 The gain is U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 source income that generally is subject to U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 tax if the property is either (1) located in the United States; (2) stock issued by a U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 corporation or a debt obligation of a U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). Filing 2011 tax return in 2013 See chapter 3 for filing information. Filing 2011 tax return in 2013 Special election. Filing 2011 tax return in 2013   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. Filing 2011 tax return in 2013 Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Filing 2011 tax return in 2013 This election overrides both of the special rules discussed earlier. Filing 2011 tax return in 2013   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. Filing 2011 tax return in 2013 Marketable securities. Filing 2011 tax return in 2013   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Filing 2011 tax return in 2013 Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 holding periods. Filing 2011 tax return in 2013   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Filing 2011 tax return in 2013 The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. Filing 2011 tax return in 2013 This is your gain (or loss) that is treated as being from sources within the relevant possession. Filing 2011 tax return in 2013 If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. Filing 2011 tax return in 2013 Example 2. Filing 2011 tax return in 2013 Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Filing 2011 tax return in 2013 S. Filing 2011 tax return in 2013 and possession holding periods. Filing 2011 tax return in 2013 Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Filing 2011 tax return in 2013 Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). Filing 2011 tax return in 2013 By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Filing 2011 tax return in 2013 Other personal property. Filing 2011 tax return in 2013   For personal property other than marketable securities, use a time-based allocation. Filing 2011 tax return in 2013 Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Filing 2011 tax return in 2013      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. Filing 2011 tax return in 2013 Example 3. Filing 2011 tax return in 2013 In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Filing 2011 tax return in 2013 On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Filing 2011 tax return in 2013 On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. Filing 2011 tax return in 2013 She had owned the interest for a total of 1,720 days. Filing 2011 tax return in 2013 Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Filing 2011 tax return in 2013 The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Filing 2011 tax return in 2013 By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Filing 2011 tax return in 2013 Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. Filing 2011 tax return in 2013 Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. Filing 2011 tax return in 2013 These rules do not apply to amounts paid as salary or other compensation for services. Filing 2011 tax return in 2013 See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Filing 2011 tax return in 2013 Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. Filing 2011 tax return in 2013 These circumstances are listed below. Filing 2011 tax return in 2013 You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Filing 2011 tax return in 2013 That office or place of business is a material factor in producing the income. Filing 2011 tax return in 2013 The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Filing 2011 tax return in 2013 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. Filing 2011 tax return in 2013 The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Filing 2011 tax return in 2013 Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. Filing 2011 tax return in 2013 Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, 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 relevant possession. Filing 2011 tax return in 2013 Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Filing 2011 tax return in 2013 Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, 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. Filing 2011 tax return in 2013 Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. Filing 2011 tax return in 2013 Example. Filing 2011 tax return in 2013 Marcy Jackson is a bona fide resident of American Samoa. Filing 2011 tax return in 2013 Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Filing 2011 tax return in 2013 A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. Filing 2011 tax return in 2013 Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. Filing 2011 tax return in 2013 The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. Filing 2011 tax return in 2013 However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. Filing 2011 tax return in 2013 Prev  Up  Next   Home   More Online Publications
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IRS Clarifies Temporary ITIN Application Requirements for Noncitizens with Tax Extensions and Many Foreign Students

Effective Oct. 2, 2012, the IRS implemented two separate clarifying changes to its temporary procedures for issuing Individual Taxpayer Identification Numbers (ITINs).  

First, the IRS will allow individuals studying in the United States under the Student Exchange Visitors Program (SEVP) to get ITINs under a streamlined procedure. SEVP participants already provide documentation to the Department of Homeland Security under the requirements of that program, and will need a letter from their educational institution verifying their status.

Second, the IRS is creating special procedures for taxpayers who have an approved Tax Year 2011 extension to file their completed tax returns.

Under these temporary procedures, eligible taxpayers will be allowed to have their original documents certified by a Certifying Acceptance Agent (CAA) or a SEVP approved institution as appropriate rather than mailing originals to the IRS. Extension filers that choose to not submit originals documents or copies certified by the issuing agency, must apply through a CAA and individuals studying under the SEVP will be required to apply through a university, college or other SEVP-approved institution. For both groups, these temporary procedures cover applications for the primary applicant, their spouse and dependents.

Designed specifically for tax-administration purposes, ITINs are only issued to people who are not eligible to obtain a Social Security Number. ITINs assist the IRS with the collection of taxes from foreign nationals, nonresident aliens and others who have filing or payment obligations under U.S. law. The tightened interim guidelines, announced in June, remain in effect for most other noncitizens. More information about ITINs and these interim guidelines can be found at 2012 ITIN Review Frequently Asked Questions.

The temporary procedures apply to these two groups of taxpayers:

  1. Noncitizens that have filed extensions: These are noncitizens who requested an extension of time to file a 2011 federal income tax return for resident and nonresident aliens and choose to not submit originals documents or copies certified by the issuing agency. The ITINs issued under this procedure are temporary, expiring one year from the extended return due date (e.g., Oct. 15, 2013). The noncitizens must submit their W-7 and related identification documents through a CAA, along with Form W-7 and related attachments. See below for special instructions for CAAs. 
  2. SEVP Students: These are individuals admitted to the U.S. under an F, J or M visa who receive taxable scholarship, fellowship or other grants reportable by the school on Form W-2 or Form 1042-S. See below for special instructions for SEVP institutions, including a sample certification letter.

As previously announced, the IRS is in the process of conducting a review of its ITIN procedures.  Final rules will be issued before the start of the 2013 filing season. 

Related Information:

 

Page Last Reviewed or Updated: 18-Sep-2013

The Filing 2011 Tax Return In 2013

Filing 2011 tax return in 2013 Publication 560 - Additional Material This image is too large to be displayed in the current screen. Filing 2011 tax return in 2013 Please click the link to view the image. Filing 2011 tax return in 2013 Tax Publications Prev  Up  Next   Home   More Online Publications