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It1040ez

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It1040ez

It1040ez Publication 550 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionOrdering forms and publications. It1040ez Tax questions. It1040ez Future Developments For the latest information about developments related to Publication 550, such as legislation enacted after it was published, go to www. It1040ez irs. It1040ez gov/pub550. It1040ez What's New Net investment income tax (NIIT). It1040ez  Beginning in 2013, you may be subject to the NIIT. It1040ez The NIIT applies at a rate of 3. It1040ez 8% to certain net investment income of individuals, estates, and trusts that have income above statutory threshold amounts. It1040ez See Net investment income tax (NIIT) , later. It1040ez Maximum capital gain rates. It1040ez  For 2013, the maximum capital gain rates are 0%, 15%, 20%, 25%, and 28%. It1040ez See Capital Gain Tax Rates , later, for more information. It1040ez Gift tax exclusion amount increased. It1040ez  For calendar year 2013, the first $14,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts. It1040ez See Property Received as a Gift , later. It1040ez Reminders Mutual fund distributions. It1040ez  Publication 564, Mutual Fund Distributions, has been incorporated into this publication. It1040ez Foreign source income. It1040ez  If you are a U. It1040ez S. It1040ez citizen with investment income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U. It1040ez S. It1040ez law. It1040ez This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. It1040ez Employee stock options. It1040ez  If you received an option to buy or sell stock or other property as payment for your services, see Publication 525, Taxable and Nontaxable Income, for the special tax rules that apply. It1040ez Photographs of missing children. It1040ez  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. It1040ez Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. It1040ez You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. It1040ez Introduction This publication provides information on the tax treatment of investment income and expenses. It1040ez It includes information on the tax treatment of investment income and expenses for individual shareholders of mutual funds or other regulated investment companies, such as money market funds. It1040ez It explains what investment income is taxable and what investment expenses are deductible. It1040ez It explains when and how to show these items on your tax return. It1040ez It also explains how to determine and report gains and losses on the disposition of investment property and provides information on property trades and tax shelters. It1040ez The glossary at the end of this publication defines many of the terms used. It1040ez Investment income. It1040ez   This generally includes interest, dividends, capital gains, and other types of distributions including mutual fund distributions. It1040ez Investment expenses. It1040ez   These include interest paid or incurred to acquire investment property and expenses to manage or collect income from investment property. It1040ez Qualified retirement plans and IRAs. It1040ez   The rules in this publication do not apply to mutual fund shares held in individual retirement arrangements (IRAs), section 401(k) plans, and other qualified retirement plans. It1040ez The value of the mutual fund shares and earnings allocated to you are included in your retirement plan assets and stay tax free generally until the plan distributes them to you. It1040ez The tax rules that apply to retirement plan distributions are explained in the following publications. It1040ez Publication 560, Retirement Plans for Small Business. It1040ez Publication 571, Tax-Sheltered Annuity Plans. It1040ez Publication 575, Pension and Annuity Income. It1040ez Publication 590, Individual Retirement Arrangements (IRAs). It1040ez Publication 721, Tax Guide to U. It1040ez S. It1040ez Civil Service Retirement Benefits. It1040ez    Comments and suggestions. It1040ez   We welcome your comments about this publication and your suggestions for future editions. It1040ez   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. It1040ez NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. It1040ez Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. It1040ez   You can send your comments from www. It1040ez irs. It1040ez gov/formspubs/. It1040ez Click on “More Information” and then on “Comment on Tax Forms and Publications. It1040ez ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. It1040ez Ordering forms and publications. It1040ez   Visit www. It1040ez irs. It1040ez gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. It1040ez Internal Revenue Service 1201 N. It1040ez Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. It1040ez   If you have a tax question, check the information available on IRS. It1040ez gov or call 1-800-829-1040. It1040ez We cannot answer tax questions sent to either of the above addresses. It1040ez Prev  Up  Next   Home   More Online Publications
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Bureau of International Labor Affairs

The Bureau of International Labor Affairs works to improve working conditions, raise living standards, protect workers’ ability to exercise their rights, and address the workplace exploitation of children and other vulnerable populations.

Contact the Agency or Department

Website: Bureau of International Labor Affairs

E-mail:

Address: 200 Constitution Avenue, NW
Washington, DC 20210

Phone Number: (202) 693-4770

Toll-free: (866) 487-2365

TTY: (877) 889-5627

Forms: Bureau of International Labor Affairs Forms

The It1040ez

It1040ez 4. It1040ez   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. It1040ez Resident aliens are generally taxed in the same way as U. It1040ez S. It1040ez citizens. It1040ez Nonresident aliens are taxed based on the source of their income and whether or not their income is effectively connected with a U. It1040ez S. It1040ez trade or business. It1040ez The following discussions will help you determine if income you receive during the tax year is effectively connected with a U. It1040ez S. It1040ez trade or business and how it is taxed. It1040ez Topics - This chapter discusses: Income that is effectively connected with a U. It1040ez S. It1040ez trade or business. It1040ez Income that is not effectively connected with a U. It1040ez S. It1040ez trade or business. It1040ez Interrupted period of residence. It1040ez Expatriation tax. It1040ez 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. It1040ez Resident Aliens Resident aliens are generally taxed in the same way as U. It1040ez S. It1040ez citizens. It1040ez This means that their worldwide income is subject to U. It1040ez S. It1040ez tax and must be reported on their U. It1040ez S. It1040ez tax return. It1040ez Income of resident aliens is subject to the graduated tax rates that apply to U. It1040ez S. It1040ez citizens. It1040ez Resident aliens use the Tax Table or Tax Computation Worksheets located in the Form 1040 instructions, which apply to U. It1040ez S. It1040ez citizens. It1040ez Nonresident Aliens A nonresident alien's income that is subject to U. It1040ez S. It1040ez 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). It1040ez The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. It1040ez These are the same rates that apply to U. It1040ez S. It1040ez citizens and residents. It1040ez Income that is not effectively connected is taxed at a flat 30% (or lower treaty) rate. It1040ez If you were formerly a U. It1040ez S. It1040ez citizen or resident alien, these rules may not apply. It1040ez See Expatriation Tax, later, in this chapter. It1040ez 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. It1040ez Whether you are engaged in a trade or business in the United States depends on the nature of your activities. It1040ez The discussions that follow will help you determine whether you are engaged in a trade or business in the United States. It1040ez 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. It1040ez Certain compensation paid to a nonresident alien by a foreign employer is not included in gross income. It1040ez For more information, see Services Performed for Foreign Employer in chapter 3. It1040ez Other Trade or Business Activities Other examples of being engaged in a trade or business in the United States follow. It1040ez Students and trainees. It1040ez   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. It1040ez 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. It1040ez The taxable part of any scholarship or fellowship grant that is U. It1040ez S. It1040ez source income is treated as effectively connected with a trade or business in the United States. It1040ez Business operations. It1040ez   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. It1040ez Partnerships. It1040ez   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. It1040ez Beneficiary of an estate or trust. It1040ez   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. It1040ez Trading in stocks, securities, and commodities. It1040ez   If your only U. It1040ez S. It1040ez business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U. It1040ez S. It1040ez resident broker or other agent, you are not engaged in a trade or business in the United States. It1040ez   For transactions in stocks or securities, this applies to any nonresident alien, including a dealer or broker in stocks and securities. It1040ez   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. It1040ez   This discussion does not apply if you have a U. It1040ez S. It1040ez 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. It1040ez Trading for a nonresident alien's own account. It1040ez   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. It1040ez S. It1040ez business activity. It1040ez 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. It1040ez   This does not apply to trading for your own account if you are a dealer in stocks, securities, or commodities. It1040ez 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. It1040ez Determine that based on the facts and circumstances in each case or under the rules given above in Trading in stocks, securities, and commodities . It1040ez Effectively Connected Income If you are engaged in a U. It1040ez S. It1040ez 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. It1040ez 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. It1040ez 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. It1040ez In limited circumstances, some kinds of foreign source income may be treated as effectively connected with a trade or business in the United States. It1040ez For a discussion of these rules, see Foreign Income , later. It1040ez Investment Income Investment income from U. It1040ez S. It1040ez sources that may or may not be treated as effectively connected with a U. It1040ez S. It1040ez trade or business generally falls into the following three categories. It1040ez Fixed or determinable income (interest, dividends, rents, royalties, premiums, annuities, etc. It1040ez ). It1040ez Gains (some of which are considered capital gains) from the sale or exchange of the following types of property. It1040ez Timber, coal, or domestic iron ore with a retained economic interest. It1040ez Patents, copyrights, and similar property on which you receive contingent payments after October 4, 1966. It1040ez Patents transferred before October 5, 1966. It1040ez Original issue discount obligations. It1040ez Capital gains (and losses). It1040ez Use the two tests, described next, to determine whether an item of U. It1040ez S. It1040ez source income falling in one of the three categories above and received during the tax year is effectively connected with your U. It1040ez S. It1040ez trade or business. It1040ez If the tests indicate that the item of income is effectively connected, you must include it with your other effectively connected income. It1040ez If the item of income is not effectively connected, include it with all other income discussed under The 30% Tax later, in this chapter. It1040ez Asset-use test. It1040ez   This test usually applies to income that is not directly produced by trade or business activities. It1040ez 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. It1040ez   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. It1040ez 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. It1040ez Business-activities test. It1040ez   This test usually applies when income, gain, or loss comes directly from the active conduct of the trade or business. It1040ez 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. It1040ez Under this test, if the conduct of the U. It1040ez S. It1040ez trade or business was a material factor in producing the income, the income is considered effectively connected. It1040ez Personal Service Income You usually are engaged in a U. It1040ez S. It1040ez trade or business when you perform personal services in the United States. It1040ez Personal service income you receive in a tax year in which you are engaged in a U. It1040ez S. It1040ez trade or business is effectively connected with a U. It1040ez S. It1040ez trade or business. It1040ez 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. It1040ez Personal service income includes wages, salaries, commissions, fees, per diem allowances, and employee allowances and bonuses. It1040ez The income may be paid to you in the form of cash, services, or property. It1040ez If you are engaged in a U. It1040ez S. It1040ez 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. It1040ez 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. It1040ez Pensions. It1040ez   If you were a nonresident alien engaged in a U. It1040ez S. It1040ez 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. It1040ez This is true whether or not you are engaged in a U. It1040ez S. It1040ez trade or business in the year you receive the retirement pay. It1040ez Transportation Income Transportation income (defined in chapter 2) is effectively connected if you meet both of the following conditions. It1040ez You had a fixed place of business in the United States involved in earning the income. It1040ez At least 90% of your U. It1040ez S. It1040ez source transportation income is attributable to regularly scheduled transportation. It1040ez “Fixed place of business” generally means a place, site, structure, or other similar facility through which you engage in a trade or business. It1040ez “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. It1040ez This definition applies to both scheduled and chartered air transportation. It1040ez If you do not meet the two conditions above, the income is not effectively connected and is taxed at a 4% rate. It1040ez See Transportation Tax, later, in this chapter. It1040ez Business Profits and Losses and Sales Transactions All profits or losses from U. It1040ez S. It1040ez 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. It1040ez 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. It1040ez A share of U. It1040ez S. It1040ez 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. It1040ez Real Property Gain or Loss Gains and losses from the sale or exchange of U. It1040ez S. It1040ez 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. It1040ez You must treat the gain or loss as effectively connected with that trade or business. It1040ez U. It1040ez S. It1040ez real property interest. It1040ez   This is any interest in real property located in the United States or the U. It1040ez S. It1040ez Virgin Islands or any interest (other than as a creditor) in a domestic corporation that is a U. It1040ez S. It1040ez real property holding corporation. It1040ez Real property includes the following. It1040ez Land and unsevered natural products of the land, such as growing crops and timber, and mines, wells, and other natural deposits. It1040ez Improvements on land, including buildings, other permanent structures, and their structural components. It1040ez 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. It1040ez U. It1040ez S. It1040ez real property holding corporation. It1040ez   A corporation is a U. It1040ez S. It1040ez real property holding corporation if the fair market value of the corporation's U. It1040ez S. It1040ez real property interests are at least 50% of the total fair market value of: The corporation's U. It1040ez S. It1040ez 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. It1040ez   Gain or loss on the sale of the stock in any domestic corporation is taxed as if you are engaged in a U. It1040ez S. It1040ez trade or business unless you establish that the corporation is not a U. It1040ez S. It1040ez real property holding corporation. It1040ez   A U. It1040ez S. It1040ez 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. It1040ez An interest in a foreign corporation owning U. It1040ez S. It1040ez real property generally is not a U. It1040ez S. It1040ez real property interest unless the corporation chooses to be treated as a domestic corporation. It1040ez Qualified investment entities. It1040ez   Special rules apply to qualified investment entities (QIEs). It1040ez A QIE is any real estate investment trust (REIT) or any regulated investment company (RIC) that is a U. It1040ez S. It1040ez real property holding corporation. It1040ez    Generally, any distribution from a QIE to a shareholder that is attributable to gain from the sale or exchange of a U. It1040ez S. It1040ez real property interest is treated as a U. It1040ez S. It1040ez real property gain by the shareholder receiving the distribution. It1040ez 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. It1040ez S. It1040ez 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. It1040ez A distribution that you do not treat as gain from the sale or exchange of a U. It1040ez S. It1040ez real property interest is included in your gross income as a regular dividend. It1040ez Note. It1040ez Beginning January 1, 2014 (unless extended by legislation), a RIC that is a U. It1040ez S. It1040ez 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. It1040ez Domestically controlled QIE. It1040ez   The sale of an interest in a domestically controlled QIE is not the sale of a U. It1040ez S. It1040ez real property interest. It1040ez 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. It1040ez 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. It1040ez Wash sale. It1040ez    If you dispose of an interest in a domestically controlled QIE in an applicable wash sale transaction, special rules apply. It1040ez 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. It1040ez S. It1040ez 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. It1040ez If this occurs, you are treated as having gain from the sale or exchange of a U. It1040ez S. It1040ez real property interest in an amount equal to the distribution made after June 15, 2006, that would have been treated as such gain. It1040ez This also applies to any substitute dividend payment. It1040ez   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. It1040ez Alternative minimum tax. It1040ez   There may be a minimum tax on your net gain from the disposition of U. It1040ez S. It1040ez real property interests. It1040ez Figure the amount of this tax, if any, on Form 6251. It1040ez Withholding of tax. It1040ez   If you dispose of a U. It1040ez S. It1040ez real property interest, the buyer may have to withhold tax. It1040ez See the discussion of Tax Withheld on Real Property Sales in chapter 8. It1040ez 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. It1040ez 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. It1040ez The three kinds of foreign source income are listed below. It1040ez 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. It1040ez 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. It1040ez 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. It1040ez 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. It1040ez Income, gain, or loss from the sale outside the United States, through the U. It1040ez S. It1040ez 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. It1040ez 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. It1040ez Any foreign source income that is equivalent to any item of income described above is treated as effectively connected with a U. It1040ez S. It1040ez trade or business. It1040ez For example, foreign source interest and dividend equivalents are treated as U. It1040ez S. It1040ez 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. It1040ez 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. It1040ez S. It1040ez citizens and residents. It1040ez 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. It1040ez 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. It1040ez Example. It1040ez Ted Richards, a nonresident alien, entered the United States in August 2012, to perform personal services in the U. It1040ez S. It1040ez office of his overseas employer. It1040ez He worked in the U. It1040ez S. It1040ez office until December 25, 2012, but did not leave this country until January 11, 2013. It1040ez On January 8, 2013, he received his final paycheck for services performed in the United States during 2012. It1040ez All of Ted's income during his stay here is U. It1040ez S. It1040ez source income. It1040ez During 2012, Ted was engaged in the trade or business of performing personal services in the United States. It1040ez 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. It1040ez The salary payment Ted received in January 2013 is U. It1040ez S. It1040ez source income to him in 2013. It1040ez 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. It1040ez Real property income. It1040ez   You may be able to choose to treat all income from real property as effectively connected. It1040ez See Income From Real Property , later, in this chapter. It1040ez The 30% Tax Tax at a 30% (or lower treaty) rate applies to certain items of income or gains from U. It1040ez S. It1040ez sources but only if the items are not effectively connected with your U. It1040ez S. It1040ez trade or business. It1040ez Fixed or Determinable Income The 30% (or lower treaty) rate applies to the gross amount of U. It1040ez S. It1040ez source fixed or determinable annual or periodic gains, profits, or income. It1040ez Income is fixed when it is paid in amounts known ahead of time. It1040ez Income is determinable whenever there is a basis for figuring the amount to be paid. It1040ez Income can be periodic if it is paid from time to time. It1040ez It does not have to be paid annually or at regular intervals. It1040ez Income can be determinable or periodic even if the length of time during which the payments are made is increased or decreased. It1040ez 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. It1040ez 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. It1040ez Other items of income, such as royalties, also may be subject to the 30% tax. It1040ez Some fixed or determinable income may be exempt from U. It1040ez S. It1040ez tax. It1040ez See chapter 3 if you are not sure whether the income is taxable. It1040ez Original issue discount (OID). It1040ez   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. It1040ez The amount of OID is the difference between the stated redemption price at maturity and the issue price of the debt instrument. It1040ez The 30% tax applies in the following circumstances. It1040ez You received a payment on a debt instrument. It1040ez 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. It1040ez But the tax on the OID cannot be more than the payment minus the tax on the interest payment on the debt instrument. It1040ez You sold or exchanged the debt instrument. It1040ez 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. It1040ez   Report on your return the amount of OID shown on Form 1042-S, Foreign Person's U. It1040ez S. It1040ez Source Income Subject to Withholding, if you bought the debt instrument at original issue. It1040ez However, you must recompute your proper share of OID shown on Form 1042-S if any of the following apply. It1040ez You bought the debt instrument at a premium or paid an acquisition premium. It1040ez The debt instrument is a stripped bond or a stripped coupon (including zero coupon instruments backed by U. It1040ez S. It1040ez Treasury securities). It1040ez The debt instrument is a contingent payment or inflation-indexed debt instrument. It1040ez For the definition of premium and acquisition premium and instructions on how to recompute OID, get Publication 1212. It1040ez   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. It1040ez See chapter 12. It1040ez 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. It1040ez S. It1040ez trade or business and is not exempted by treaty. It1040ez 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. It1040ez Nonresident aliens are taxed at graduated rates on net gambling income won in the United States that is effectively connected with a U. It1040ez S. It1040ez trade or business. It1040ez Social Security Benefits A nonresident alien must include 85% of any U. It1040ez S. It1040ez social security benefit (and the social security equivalent part of a tier 1 railroad retirement benefit) in U. It1040ez S. It1040ez source fixed or determinable annual or periodic income. It1040ez Social security benefits include monthly retirement, survivor, and disability benefits. It1040ez This income is exempt under some tax treaties. It1040ez See Table 1 in Publication 901, U. It1040ez S. It1040ez Tax Treaties, for a list of tax treaties that exempt U. It1040ez S. It1040ez social security benefits from U. It1040ez S. It1040ez tax. It1040ez 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. It1040ez They apply even if you are engaged in a trade or business in the United States. It1040ez These rules do not apply to the sale or exchange of a U. It1040ez S. It1040ez real property interest or to the sale of any property that is effectively connected with a trade or business in the United States. It1040ez See Real Property Gain or Loss , earlier, under Effectively Connected Income. It1040ez A capital asset is everything you own except: Inventory. It1040ez Business accounts or notes receivable. It1040ez Depreciable property used in a trade or business. It1040ez Real property used in a trade or business. It1040ez Supplies regularly used in a trade or business. It1040ez Certain copyrights, literary or musical or artistic compositions, letters or memoranda, or similar property. It1040ez Certain U. It1040ez S. It1040ez government publications. It1040ez Certain commodities derivative financial instruments held by a commodities derivatives dealer. It1040ez Hedging transactions. It1040ez A capital gain is a gain on the sale or exchange of a capital asset. It1040ez A capital loss is a loss on the sale or exchange of a capital asset. It1040ez 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. It1040ez S. It1040ez currency at the rate of exchange prevailing as of the date of the purchase and date of the sale, respectively. It1040ez You may want to read Publication 544. It1040ez However, use Publication 544 only to determine what is a sale or exchange of a capital asset, or what is treated as such. It1040ez Specific tax treatment that applies to U. It1040ez S. It1040ez citizens or residents generally does not apply to you. It1040ez The following gains are subject to the 30% (or lower treaty) rate without regard to the 183-day rule, discussed later. It1040ez Gains on the disposal of timber, coal, or domestic iron ore with a retained economic interest. It1040ez Gains on contingent payments received from the sale or exchange of patents, copyrights, and similar property after October 4, 1966. It1040ez Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966. It1040ez Gains on the sale or exchange of original issue discount obligations. It1040ez 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. It1040ez S. It1040ez trade or business. It1040ez See Income From Real Property , later. It1040ez 183-day rule. It1040ez   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. It1040ez For purposes of the 30% (or lower treaty) rate, net gain is the excess of your capital gains from U. It1040ez S. It1040ez sources over your capital losses from U. It1040ez S. It1040ez sources. It1040ez This rule applies even if any of the transactions occurred while you were not in the United States. It1040ez   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. It1040ez S. It1040ez trade or business during the year and the gains and losses were effectively connected with that trade or business during the tax year. It1040ez   In arriving at your net gain, do not take the following into consideration. It1040ez The four types of gains listed earlier. It1040ez The deduction for a capital loss carryover. It1040ez Capital losses in excess of capital gains. It1040ez Exclusion for gain from the sale or exchange of qualified small business stock (section 1202 exclusion). It1040ez Losses from the sale or exchange of property held for personal use. It1040ez However, losses resulting from casualties or thefts may be deductible on Schedule A (Form 1040NR). It1040ez See Itemized Deductions in chapter 5. It1040ez   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. It1040ez Also, you must file your tax return on a calendar-year basis. It1040ez   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. It1040ez Reporting. It1040ez   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. It1040ez 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. It1040ez Attach them to Form 1040NR. It1040ez 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. It1040ez 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. It1040ez This includes income from rents, royalties from mines, oil or gas wells, or other natural resources. It1040ez It also includes gains from the sale or exchange of timber, coal, or domestic iron ore with a retained economic interest. It1040ez You can make this choice only for real property income that is not otherwise effectively connected with your U. It1040ez S. It1040ez trade or business. It1040ez 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. It1040ez This choice does not treat a nonresident alien, who is not otherwise engaged in a U. It1040ez S. It1040ez trade or business, as being engaged in a trade or business in the United States during the year. It1040ez Example. It1040ez You are a nonresident alien and are not engaged in a U. It1040ez S. It1040ez trade or business. It1040ez You own a single-family house in the United States that you rent out. It1040ez Your rental income for the year is $10,000. It1040ez This is your only U. It1040ez S. It1040ez source income. It1040ez As discussed earlier under The 30% Tax, the rental income is subject to a tax at a 30% (or lower treaty) rate. It1040ez You received a Form 1042-S showing that your tenants properly withheld this tax from the rental income. It1040ez You do not have to file a U. It1040ez S. It1040ez tax return (Form 1040NR) because your U. It1040ez S. It1040ez tax liability is satisfied by the withholding of tax. It1040ez If you make the choice discussed earlier, you can offset the $10,000 income by certain rental expenses. It1040ez (See Publication 527, Residential Rental Property, for information on rental expenses. It1040ez ) Any resulting net income is taxed at graduated rates. It1040ez If you make this choice, report the rental income and expenses on Schedule E (Form 1040) and attach the schedule to Form 1040NR. It1040ez For the first year you make the choice, also attach the statement discussed next. It1040ez Making the choice. It1040ez   Make the initial choice by attaching a statement to your return, or amended return, for the year of the choice. It1040ez Include the following in your statement. It1040ez That you are making the choice. It1040ez Whether the choice is under Internal Revenue Code section 871(d) (explained earlier) or a tax treaty. It1040ez A complete list of all your real property, or any interest in real property, located in the United States. It1040ez Give the legal identification of U. It1040ez S. It1040ez timber, coal, or iron ore in which you have an interest. It1040ez The extent of your ownership in the property. It1040ez The location of the property. It1040ez A description of any major improvements to the property. It1040ez The dates you owned the property. It1040ez Your income from the property. It1040ez Details of any previous choices and revocations of the real property income choice. It1040ez   This choice stays in effect for all later tax years unless you revoke it. It1040ez Revoking the choice. It1040ez   You can revoke the choice without IRS approval by filing Form 1040X, Amended U. It1040ez S. It1040ez Individual Income Tax Return, for the year you made the choice and for later tax years. It1040ez 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. It1040ez If this time period has expired for the year of choice, you cannot revoke the choice for that year. It1040ez However, you may revoke the choice for later tax years only if you have IRS approval. It1040ez For information on how to get IRS approval, see Regulation section 1. It1040ez 871-10(d)(2). It1040ez 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 . It1040ez If you receive transportation income subject to the 4% tax, you should figure the tax and show it on line 57 of Form 1040NR. It1040ez Attach a statement to your return that includes the following information (if applicable). It1040ez Your name, taxpayer identification number, and tax year. It1040ez A description of the types of services performed (whether on or off board). It1040ez Names of vessels or registration numbers of aircraft on which you performed the services. It1040ez Amount of U. It1040ez S. It1040ez source transportation income derived from each type of service for each vessel or aircraft for the calendar year. It1040ez Total amount of U. It1040ez S. It1040ez source transportation income derived from all types of services for the calendar year. It1040ez This 4% tax applies to your U. It1040ez S. It1040ez source gross transportation income. It1040ez 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. It1040ez For transportation income from personal services, the transportation must be between the United States and a U. It1040ez S. It1040ez possession. It1040ez For personal services of a nonresident alien, this only applies to income derived from, or in connection with, an aircraft. It1040ez Interrupted Period of Residence You are subject to tax under a special rule if you interrupt your period of U. It1040ez S. It1040ez residence with a period of nonresidence. It1040ez The special rule applies if you meet all of the following conditions. It1040ez You were a U. It1040ez S. It1040ez resident for a period that includes at least 3 consecutive calendar years. It1040ez You were a U. It1040ez S. It1040ez resident for at least 183 days in each of those years. It1040ez You ceased to be treated as a U. It1040ez S. It1040ez resident. It1040ez You then again became a U. It1040ez S. It1040ez resident before the end of the third calendar year after the end of the period described in (1) above. It1040ez Under this special rule, you are subject to tax on your U. It1040ez S. It1040ez 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. It1040ez S. It1040ez trade or business. It1040ez 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. It1040ez Example. It1040ez John Willow, a citizen of New Zealand, entered the United States on April 1, 2008, as a lawful permanent resident. It1040ez On August 1, 2010, John ceased to be a lawful permanent resident and returned to New Zealand. It1040ez 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). It1040ez He returned to the United States on October 5, 2013, as a lawful permanent resident. It1040ez 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). It1040ez 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. It1040ez Reporting requirements. It1040ez   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. It1040ez The return is due by the due date (including extensions) for filing your U. It1040ez S. It1040ez income tax return for the year that you again become a U. It1040ez S. It1040ez resident. It1040ez If you already filed returns for that period, you must file amended returns. It1040ez You must attach a statement to your return that identifies the source of all of your U. It1040ez S. It1040ez and foreign gross income and the items of income subject to this special rule. It1040ez Expatriation Tax The expatriation tax provisions apply to U. It1040ez S. It1040ez citizens who have renounced their citizenship and long-term residents who have ended their residency. It1040ez The rules that apply are based on the dates of expatriation, which are described in the following sections. It1040ez Expatriation Before June 4, 2004. It1040ez Expatriation After June 3, 2004, and Before June 17, 2008. It1040ez Expatriation After June 16, 2008. It1040ez Long-term resident defined. It1040ez   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. It1040ez 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. It1040ez 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. It1040ez S. It1040ez taxes. It1040ez Unless you received a ruling from the IRS that you did not expatriate to avoid U. It1040ez S. It1040ez 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. It1040ez The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1). It1040ez Table 4-1. It1040ez Inflation-Adjusted Amounts for Expatriation Actions Before June 4, 2004 IF you expatriated during . It1040ez . It1040ez . It1040ez   THEN the rules outlined on this page apply if . It1040ez . It1040ez . It1040ez     Your 5-year average annual net income tax was more than . It1040ez . It1040ez . It1040ez OR Your net worth equaled or exceeded . It1040ez . It1040ez . It1040ez 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. It1040ez Reporting requirements. It1040ez   If you lost your U. It1040ez S. It1040ez citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. It1040ez 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. It1040ez   Your U. It1040ez S. It1040ez 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. It1040ez Penalties. It1040ez   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. It1040ez 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. It1040ez The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect. It1040ez Expatriation tax. It1040ez   The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. It1040ez It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. It1040ez See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section. It1040ez 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. It1040ez 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. It1040ez $127,000 if you expatriated or terminated residency in 2005. It1040ez $131,000 if you expatriated or terminated residency in 2006. It1040ez $136,000 if you expatriated or terminated residency in 2007. It1040ez $139,000 if you expatriated or terminated residency in 2008. It1040ez Your net worth is $2 million or more on the date of your expatriation or termination of residency. It1040ez You fail to certify on Form 8854 that you have complied with all U. It1040ez S. It1040ez federal tax obligations for the 5 tax years preceding the date of your expatriation or termination of residency. It1040ez Exception for dual-citizens and certain minors. It1040ez   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) earlier. It1040ez However, they still must provide the certification required in (3). It1040ez Certain dual-citizens. It1040ez   You may qualify for the exception described above if all of the following apply. It1040ez You became at birth a U. It1040ez S. It1040ez citizen and a citizen of another country and you continue to be a citizen of that other country. It1040ez You were never a resident alien of the United States (as defined in chapter 1). It1040ez You never held a U. It1040ez S. It1040ez passport. It1040ez 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. It1040ez S. It1040ez citizenship. It1040ez Certain minors. It1040ez   You may qualify for the exception described above if you meet all of the following requirements. It1040ez You became a U. It1040ez S. It1040ez citizen at birth. It1040ez Neither of your parents was a U. It1040ez S. It1040ez citizen at the time of your birth. It1040ez You expatriated before you were 18½. It1040ez 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. It1040ez Tax consequences of presence in the United States. It1040ez   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. It1040ez   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. It1040ez Instead, you are treated as a U. It1040ez S. It1040ez citizen or resident and taxed on your worldwide income for that tax year. It1040ez You must file Form 1040, 1040A, or 1040EZ and figure your tax as prescribed in the instructions for those forms. It1040ez   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. It1040ez 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. It1040ez You have ties with other countries. It1040ez 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. It1040ez 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. It1040ez 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. It1040ez See Exempt individual and Medical condition in chapter 1 under Substantial Presence Test, but disregard the information about Form 8843. It1040ez Related employer. It1040ez   If your employer in the United States is any of the following, then your employer is related to you. It1040ez You must count any days you performed services in the United States for that employer as days of presence in the United States. It1040ez Members of your family. It1040ez This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. It1040ez ), and lineal descendants (children, grandchildren, etc. It1040ez ). It1040ez A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. It1040ez A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. It1040ez (See Publication 550, chapter 4, Constructive ownership of stock, for how to determine whether you directly or indirectly own outstanding stock. It1040ez ) 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. It1040ez Date of tax expatriation. It1040ez   For purposes of U. It1040ez S. It1040ez tax rules, the date of your expatriation or termination of residency is the later of the dates on which you perform the following actions. It1040ez You notify either the Department of State or the Department of Homeland Security (whichever is appropriate) of your expatriating act or termination of residency. It1040ez You file Form 8854 in accordance with the form instructions. It1040ez Annual return. It1040ez   If the expatriation tax applies to you, you must file Form 8854 each year during the 10-year period following the date of expatriation. It1040ez You must file this form even if you owe no U. It1040ez S. It1040ez tax. It1040ez Penalty. It1040ez   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. It1040ez You will not have to pay a penalty if you show that the failure is due to reasonable cause and not to willful neglect. It1040ez 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. It1040ez S. It1040ez 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. It1040ez S. It1040ez trade or business. It1040ez For this purpose, U. It1040ez S. It1040ez 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. It1040ez S. It1040ez domestic corporation, and Debt obligations of U. It1040ez S. It1040ez persons or of the United States, a state or political subdivision thereof, or the District of Columbia. It1040ez U. It1040ez S. It1040ez 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. It1040ez The income or gain is considered U. It1040ez S. It1040ez 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. It1040ez 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. It1040ez S. It1040ez source gross income in the tax year of the exchange unless you enter into a gain recognition agreement under Notice 97-19. It1040ez Other information. It1040ez   For more information on the expatriation tax provisions, including exceptions to the tax and special U. It1040ez S. It1040ez source rules, see section 877 of the Internal Revenue Code. It1040ez Expatriation Tax Return If you expatriated or terminated your U. It1040ez S. It1040ez residency, or you are subject to the expatriation tax, you must file Form 8854, Initial and Annual Expatriation Statement. It1040ez Attach it to Form 1040NR if you are required to file that form. It1040ez If you are present in the United States following your expatriation and are subject to tax as a U. It1040ez S. It1040ez citizen or resident, file Form 8854 with Form 1040. It1040ez 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. It1040ez 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. It1040ez $145,000 if you expatriated or terminated residency in 2009 or 2010. It1040ez $147,000 if you expatriated or terminated residency in 2011. It1040ez $151,000 if you expatriated or terminated residency in 2012. It1040ez $155,000 if you expatriated or terminated residency in 2013. It1040ez Your net worth is $2 million or more on the date of your expatriation or termination of residency. It1040ez You fail to certify on Form 8854 that you have complied with all U. It1040ez S. It1040ez federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency. It1040ez Exception for dual-citizens and certain minors. It1040ez   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) above. It1040ez However, they still must provide the certification required in (3) above. It1040ez Certain dual-citizens. It1040ez   You may qualify for the exception described above if both of the following apply. It1040ez You became at birth a U. It1040ez S. It1040ez 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. It1040ez 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. It1040ez For the purpose of determining U. It1040ez S. It1040ez residency, use the substantial presence test described in chapter 1. It1040ez Certain minors. It1040ez   You may qualify for the exception described earlier if you meet both of the following requirements. It1040ez You expatriated before you were 18½. It1040ez You have been a resident of the United States for not more than 10 tax years before the expatriation occurs. It1040ez For the purpose of determining U. It1040ez S. It1040ez residency, use the substantial presence test described in chapter 1. It1040ez Expatriation date. It1040ez   Your expatriation date is the date you relinquish U. It1040ez S. It1040ez citizenship (in the case of a former citizen) or terminate your long-term residency (in the case of a former U. It1040ez S. It1040ez resident). It1040ez Former U. It1040ez S. It1040ez citizen. It1040ez   You are considered to have relinquished your U. It1040ez S. It1040ez citizenship on the earliest of the following dates. It1040ez The date you renounced U. It1040ez S. It1040ez 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). It1040ez The date you furnished to the State Department a signed statement of voluntary relinquishment of U. It1040ez S. It1040ez 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). It1040ez The date the State Department issued a certificate of loss of nationality. It1040ez The date that a U. It1040ez S. It1040ez court canceled your certificate of naturalization. It1040ez Former long-term resident. It1040ez   You are considered to have terminated your long-term residency on the earliest of the following dates. It1040ez The date you voluntarily relinquished your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U. It1040ez S. It1040ez consular or immigration officer, and the Department of Homeland Security determined that you have, in fact, abandoned your lawful permanent resident status. It1040ez 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. It1040ez 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. It1040ez See Effect of Tax Treaties in chapter 1 for more information about dual residents. It1040ez 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”). It1040ez This applies to most types of property interests you held on the date of relinquishment of citizenship or termination of residency. It1040ez But see Exceptions , later. It1040ez Gains arising from deemed sales must be taken into account for the tax year of the deemed sale without regard to other U. It1040ez S. It1040ez internal revenue laws. It1040ez Losses from deemed sales must be taken into account to the extent otherwise provided under U. It1040ez S. It1040ez internal revenue laws. It1040ez However, Internal Revenue Code section 1091 (relating to the disallowance of losses on wash sales of stock and securities) does not apply. It1040ez 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. It1040ez $626,000 if you expatriated or terminated residency in 2009. It1040ez $627,000 if you expatriated or terminated residency in 2010. It1040ez $636,000 if you expatriated or terminated residency in 2011. It1040ez $651,000 if you expatriated or terminated residency in 2012. It1040ez $668,000 if you expatriated or terminated residency in 2013. It1040ez Exceptions. It1040ez   The mark-to-market tax does not apply to the following. It1040ez Eligible deferred compensation items. It1040ez Ineligible deferred compensation items. It1040ez Interests in nongrantor trusts. It1040ez Specified tax deferred accounts. It1040ez Instead, items (1) and (3) may be subject to withholding at source. It1040ez 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. It1040ez 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. It1040ez See paragraphs (d), (e), and (f) of section 877A for more information. It1040ez Expatriation Tax Return If you expatriated or terminated your U. It1040ez S. It1040ez 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. It1040ez Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms. It1040ez Deferral of payment of mark-to-market tax. It1040ez   You can make an irrevocable election to defer payment of the mark-to-market tax imposed on the deemed sale of property. It1040ez If you make this election, the following rules apply. It1040ez You can make the election on a property-by-property basis. It1040ez The deferred tax attributable to a particular property is due on the return for the tax year in which you dispose of the property. It1040ez Interest is charged for the period the tax is deferred. It1040ez The due date for the payment of the deferred tax cannot be extended beyond the earlier of the following dates. It1040ez The due date of the return required for the year of death. It1040ez The time that the security provided for the property fails to be adequate. It1040ez See item (6) below. It1040ez You make the election on Form 8854. It1040ez You must provide adequate security (such as a bond). It1040ez 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. It1040ez   For more information about the deferral of payment, see the Instructions for Form 8854. It1040ez Prev  Up  Next   Home   More Online Publications