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H&r Block Military

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H&r Block Military

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

Per capita payments from trust funds held by the Department of the Interior
The Department of the Treasury and IRS issued interim guidance regarding per capita distributions made to members of Indian tribes from funds held in trust by the Secretary of the Interior.

Voluntary Withholding on Dividends and Other Distributions by Alaska Native Corporations
Shareholders who receive dividends or other distributions from an Alaska Native Corporation (ANC) can now request voluntary withholding.

Indian fishing rights-related activities income eligible for qualified retirement plan contributions
Amendments to the Treasury Regulations clarify that Indian tribal members who earn compensation for services performed in a fishing rights-related activity can contribute those amounts to a qualified retirement plan.

ITG Voluntary Closing Agreement Process
Information for Indian Tribes that are interested in an effective way of correcting a past error, mistake or misinterpretation of tax law or filing requirement.

Treasury and the IRS Release Tribal General Welfare Guidance
The Department of the Treasury announced key economic development initiatives that address the unique set of challenges faced by the Native American community.

Per Capita Payments from Certain Tribal Trust Settlement Proceeds Excluded from Income
Updated information regarding per capita payments from Tribal trust settlements

Reallocation Process Announced for Tribal Economic Development Bonds
The IRS has announced a process for reallocation of available amounts of volume cap for Tribal Economic Development Bonds.

Casino Issues
Information into the intent of Title 31 (anti-money laundering), non-Title 31 and other casino issues.

Indian Health Care Benefits and Section 139D
Frequently asked questions concerning Indian Health Care Benefits and Section 139D.

Recent Developments
Newsworthy items which may affect Indian tribal governments.

ITG News
News information of interest to Indian tribal governments.

IRS Requests Consultation on General Welfare and Issues Important New Guidance that will affect Indian Tribal Governments
The IRS has issued several important items of guidance that affect Indian Tribal Governments. Items include a Retirement Plan phone forum, reallocation of Tribal Economic Development Bonds, the Pension Protection Act and governmental plans, IGRA trust guidance, and a request for consultation on the general welfare doctrine.

ACT Public Meeting, Agenda, New Member
One new member joined ITG project team; report on recommendations to be released in June.

Voluntary Classification Settlement Program
Employers may reclassify workers as employees for future periods with partial employment tax relief.

Indian Tribal Governments Webinars and Phone Forums
Educational recordings covering topics for Indian Tribal governments

ITG Published Guidance
Links to guidance published by the Service regarding federal tax administration as it relates to tribal governments.

New Annual Electronic Filing Requirement for Small Tax-Exempt Organizations
Beginning in 2008, small tax-exempt organizations that previously were not required to file returns risk losing their tax-exempt status if they do not file an annual electronic notice (e-Postcard Form 990-N). This will include small tax-exempt organizations operated by, or on behalf of Indian tribal governments.

Tax Status of Tribes
Different ways tribal entities can be structured and the tax implications of each; what constitutes a federally recognized tribe and the benefits of such; and the taxability of certain types of income to tribal members.

Natural Resources
Information regarding tribal governments federal tax obligations and responsibilities regarding income from natural resources, IRC Section 7873, etc.

Excise Taxes
Information regarding excise taxes, who is liable, and definitions.

Tax Information for Charities and Other Non-Profits - ITG
Information for Tribal governments as well as other organizations on charitable organizations and deductions.

Tax Exempt Bonds
Insights into tribal governments' economic benefits of issuing tax exempt bonds; their ability to issue tax exempt bonds; what requirements must be met; and other applicable general rules.

FAQs for Indian Tribal Governments regarding Targeted Tax Benefits
Insights into the employment tax credits (Indian Employment, Work Opportunity, Welfare-to-Work, and Empowerment Zone Employment) available to those doing business with or employing Native Americans, and special depreciation rules for qualified property used on reservations.

Links to Helpful Resources
A repository of resources for specific research and/or general knowledge.

IRS’ Electronic Filing and E-Services
The IRS continues to expand its electronic filing and e-Services to allow tax professionals and payers to do business with the IRS electronically.

IRS Privacy Policy
The Internal Revenue Service's Office of Privacy ensures your personal information is protected whenever you visit the IRS website.

Helpful Tip
Want to visit us again? Just remember www.irs.gov/tribes. It's that easy!

ITG P.R.E.P.A.R.E
Instructions for ITG customers when they experience an interruption in tax preparation for whatever reason.

ITG 2011 Customer Satisfaction Survey
ITG 2011 Customer Satisfaction Survey

Treasury Department Tribal Consultation and Coordination
The Treasury Department now has a web page for Tribal Consultation.

ITG Employment Taxes
Information for Indian Tribal Governments with regard to the withholding, filing, and paying of employment taxes.

Frequently Asked Questions and Answers for Indian Tribal Governments
General information about subjects of interest to tribal governments.

Tip Income
Information regarding the taxability of tip income, employee and employer reporting responsibilities, and the Tip Rate Determination Agreement (TRDA) program.

Information Reporting
Information into what types of forms need to be filed based on the types of income being reported, and the rules on backup withholding - when it's applicable and how it's reported.

Fraud and Abusive Schemes Information for Indian Tribal Governments
Information on abusive schemes for Indian Tribal Governments.

Voluntary Classification Settlement Program (VCSP)
This page describes the new Voluntary Classification Settlement Program for employers.

Page Last Reviewed or Updated: 28-Mar-2014

The H&r Block Military

H&r block military 1. H&r block military   Definitions You Need To Know Table of Contents Other options. H&r block military Exception. H&r block military Certain terms used in this publication are defined below. H&r block military The same term used in another publication may have a slightly different meaning. H&r block military Annual additions. H&r block military   Annual additions are the total of all your contributions in a year, employee contributions (not including rollovers), and forfeitures allocated to a participant's account. H&r block military Annual benefits. H&r block military   Annual benefits are the benefits to be paid yearly in the form of a straight life annuity (with no extra benefits) under a plan to which employees do not contribute and under which no rollover contributions are made. H&r block military Business. H&r block military   A business is an activity in which a profit motive is present and economic activity is involved. H&r block military Service as a newspaper carrier under age 18 or as a public official is not a business. H&r block military Common-law employee. H&r block military   A common-law employee is any individual who, under common law, would have the status of an employee. H&r block military A leased employee can also be a common-law employee. H&r block military   A common-law employee is a person who performs services for an employer who has the right to control and direct the results of the work and the way in which it is done. H&r block military For example, the employer: Provides the employee's tools, materials, and workplace, and Can fire the employee. H&r block military   Common-law employees are not self-employed and cannot set up retirement plans for income from their work, even if that income is self-employment income for social security tax purposes. H&r block military For example, common-law employees who are ministers, members of religious orders, full-time insurance salespeople, and U. H&r block military S. H&r block military citizens employed in the United States by foreign governments cannot set up retirement plans for their earnings from those employments, even though their earnings are treated as self-employment income. H&r block military   However, an individual may be a common-law employee and a self-employed person as well. H&r block military For example, an attorney can be a corporate common-law employee during regular working hours and also practice law in the evening as a self-employed person. H&r block military In another example, a minister employed by a congregation for a salary is a common-law employee even though the salary is treated as self-employment income for social security tax purposes. H&r block military However, fees reported on Schedule C (Form 1040), Profit or Loss From Business, for performing marriages, baptisms, and other personal services are self-employment earnings for qualified plan purposes. H&r block military Compensation. H&r block military   Compensation for plan allocations is the pay a participant received from you for personal services for a year. H&r block military You can generally define compensation as including all the following payments. H&r block military Wages and salaries. H&r block military Fees for professional services. H&r block military Other amounts received (cash or noncash) for personal services actually rendered by an employee, including, but not limited to, the following items. H&r block military Commissions and tips. H&r block military Fringe benefits. H&r block military Bonuses. H&r block military   For a self-employed individual, compensation means the earned income, discussed later, of that individual. H&r block military   Compensation generally includes amounts deferred in the following employee benefit plans. H&r block military These amounts are elective deferrals. H&r block military Qualified cash or deferred arrangement (section 401(k) plan). H&r block military Salary reduction agreement to contribute to a tax-sheltered annuity (section 403(b) plan), a SIMPLE IRA plan, or a SARSEP. H&r block military Section 457 nonqualified deferred compensation plan. H&r block military Section 125 cafeteria plan. H&r block military   However, an employer can choose to exclude elective deferrals under the above plans from the definition of compensation. H&r block military The limit on elective deferrals is discussed in chapter 2 under Salary Reduction Simplified Employee Pension (SARSEP) and in chapter 4. H&r block military Other options. H&r block military   In figuring the compensation of a participant, you can treat any of the following amounts as the employee's compensation. H&r block military The employee's wages as defined for income tax withholding purposes. H&r block military The employee's wages you report in box 1 of Form W-2, Wage and Tax Statement. H&r block military The employee's social security wages (including elective deferrals). H&r block military   Compensation generally cannot include either of the following items. H&r block military Nontaxable reimbursements or other expense allowances. H&r block military Deferred compensation (other than elective deferrals). H&r block military SIMPLE plans. H&r block military   A special definition of compensation applies for SIMPLE plans. H&r block military See chapter 3. H&r block military Contribution. H&r block military   A contribution is an amount you pay into a plan for all those participating in the plan, including self-employed individuals. H&r block military Limits apply to how much, under the contribution formula of the plan, can be contributed each year for a participant. H&r block military Deduction. H&r block military   A deduction is the plan contributions you can subtract from gross income on your federal income tax return. H&r block military Limits apply to the amount deductible. H&r block military Earned income. H&r block military   Earned income is net earnings from self-employment, discussed later, from a business in which your services materially helped to produce the income. H&r block military   You can also have earned income from property your personal efforts helped create, such as royalties from your books or inventions. H&r block military Earned income includes net earnings from selling or otherwise disposing of the property, but it does not include capital gains. H&r block military It includes income from licensing the use of property other than goodwill. H&r block military   Earned income includes amounts received for services by self-employed members of recognized religious sects opposed to social security benefits who are exempt from self-employment tax. H&r block military   If you have more than one business, but only one has a retirement plan, only the earned income from that business is considered for that plan. H&r block military Employer. H&r block military   An employer is generally any person for whom an individual performs or did perform any service, of whatever nature, as an employee. H&r block military A sole proprietor is treated as his or her own employer for retirement plan purposes. H&r block military However, a partner is not an employer for retirement plan purposes. H&r block military Instead, the partnership is treated as the employer of each partner. H&r block military Highly compensated employee. H&r block military   A highly compensated employee is an individual who: Owned more than 5% of the interest in your business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or For the preceding year, received compensation from you of more than $115,000 (if the preceding year is 2012, 2013, or 2014) and, if you so choose, was in the top 20% of employees when ranked by compensation. H&r block military Leased employee. H&r block military   A leased employee who is not your common-law employee must generally be treated as your employee for retirement plan purposes if he or she does all the following. H&r block military Provides services to you under an agreement between you and a leasing organization. H&r block military Has performed services for you (or for you and related persons) substantially full time for at least 1 year. H&r block military Performs services under your primary direction or control. H&r block military Exception. H&r block military   A leased employee is not treated as your employee if all the following conditions are met. H&r block military Leased employees are not more than 20% of your non-highly compensated work force. H&r block military The employee is covered under the leasing organization's qualified pension plan. H&r block military The leasing organization's plan is a money purchase pension plan that has all the following provisions. H&r block military Immediate participation. H&r block military (This requirement does not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000. H&r block military ) Full and immediate vesting. H&r block military A nonintegrated employer contribution rate of at least 10% of compensation for each participant. H&r block military However, if the leased employee is your common-law employee, that employee will be your employee for all purposes, regardless of any pension plan of the leasing organization. H&r block military Net earnings from self-employment. H&r block military   For SEP and qualified plans, net earnings from self-employment is your gross income from your trade or business (provided your personal services are a material income-producing factor) minus allowable business deductions. H&r block military Allowable deductions include contributions to SEP and qualified plans for common-law employees and the deduction allowed for the deductible part of your self-employment tax. H&r block military   Net earnings from self-employment does not include items excluded from gross income (or their related deductions) other than foreign earned income and foreign housing cost amounts. H&r block military   For the deduction limits, earned income is net earnings for personal services actually rendered to the business. H&r block military You take into account the income tax deduction for the deductible part of self-employment tax and the deduction for contributions to the plan made on your behalf when figuring net earnings. H&r block military   Net earnings include a partner's distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). H&r block military It does not include income passed through to shareholders of S corporations. H&r block military Guaranteed payments to limited partners are net earnings from self-employment if they are paid for services to or for the partnership. H&r block military Distributions of other income or loss to limited partners are not net earnings from self-employment. H&r block military   For SIMPLE plans, net earnings from self-employment is the amount on line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040), Self-Employment Tax, before subtracting any contributions made to the SIMPLE plan for yourself. H&r block military Qualified plan. H&r block military   A qualified plan is a retirement plan that offers a tax-favored way to save for retirement. H&r block military You can deduct contributions made to the plan for your employees. H&r block military Earnings on these contributions are generally tax free until distributed at retirement. H&r block military Profit-sharing, money purchase, and defined benefit plans are qualified plans. H&r block military A 401(k) plan is also a qualified plan. H&r block military Participant. H&r block military   A participant is an eligible employee who is covered by your retirement plan. H&r block military See the discussions of the different types of plans for the definition of an employee eligible to participate in each type of plan. H&r block military Partner. H&r block military   A partner is an individual who shares ownership of an unincorporated trade or business with one or more persons. H&r block military For retirement plans, a partner is treated as an employee of the partnership. H&r block military Self-employed individual. H&r block military   An individual in business for himself or herself, and whose business is not incorporated, is self-employed. H&r block military Sole proprietors and partners are self-employed. H&r block military Self-employment can include part-time work. H&r block military   Not everyone who has net earnings from self-employment for social security tax purposes is self-employed for qualified plan purposes. H&r block military See Common-law employee and Net earnings from self-employment , earlier. H&r block military   In addition, certain fishermen may be considered self-employed for setting up a qualified plan. H&r block military See Publication 595, Capital Construction Fund for Commercial Fishermen, for the special rules used to determine whether fishermen are self-employed. H&r block military Sole proprietor. H&r block military   A sole proprietor is an individual who owns an unincorporated business by himself or herself, including a single member limited liability company that is treated as a disregarded entity for tax purposes. H&r block military For retirement plans, a sole proprietor is treated as both an employer and an employee. H&r block military Prev  Up  Next   Home   More Online Publications