Professional Documents
Culture Documents
US Internal Revenue Service: p519 - 1998
US Internal Revenue Service: p519 - 1998
US Internal Revenue Service: p519 - 1998
Internal
Revenue
Service for Aliens Alien? ...........................................
10
Index .................................................... 51
Introduction
For tax purposes, an alien is an individual
who is not a U.S. citizen. Aliens are classified
as nonresident aliens and resident aliens.
This publication will help you determine your
status and give you information you will need
to file your U.S. tax return. Resident aliens
generally are taxed on their worldwide in-
come, the same as U.S. citizens. Nonresi-
dent aliens are taxed only on their income
from sources within the United States and on
certain income connected with the conduct
of a trade or business in the United States.
Table A, What You Need To Know About
U.S. Taxes, provides a list of questions and
the chapter or chapters in this publication
where you will find the related discussion.
The information in this publication is not
as comprehensive for resident aliens as it is
for nonresident aliens. Resident aliens are
generally treated the same as U.S. citizens
and can find more information in other IRS
publications.
Important Changes
Child tax credit. Beginning in 1998, you may
be able to take a credit on your tax return of
up to $400 for each qualifying child. For this
credit a qualifying child:
Table A. What You Need To Know About U.S. Taxes
Commonly Asked Questions Where To Find The Answer
Can I be a nonresident alien and a resident alien in the same year? ● See Dual Status Aliens in chapter 1.
● See chapter 6.
I am a resident alien and my wife is a nonresident alien, are there ● See Nonresident Spouse Treated as a
special rules for us? Resident in chapter 1.
● See Community Income in chapter 2.
Is my scholarship subject to U.S. tax? ● See Scholarships, Grants, Prizes, and Awards
in chapter 2.
● See Scholarships and Fellowship Grants in
chapter 3.
● See chapter 9.
What is the tax rate on my income subject to U.S. tax? See chapter 4.
I moved to the U.S. this year. Can I deduct my moving expenses on See Deductions in chapter 5.
my U.S. return?
Can I claim an exemption for my spouse and children? See Exemptions in chapter 5.
I pay income taxes to my home country. Can I get credit for these See Tax Payments and Credits in chapter 5.
taxes on my U.S. tax return?
What forms must I file and when and where do I file them? See chapter 7.
Am I eligible for any benefits under a tax treaty? ● See Income Entitled to Tax Treaty Benefits in
chapter 8.
● See chapter 9.
Is there anything special I have to do before leaving the United ● See chapter 11.
States? ● See Expatriation Tax in chapter 4.
• Is a U.S. citizen, national, or resident al- Days of presence in the United States. New documentation requirements. The
ien, Beginning in 1998, days that a nonresident Internal Revenue Service issued new regu-
alien is temporarily present in the United lations relating to the withholding of income
• Is claimed as a dependent on your tax States as a regular member of the crew of a tax on certain U.S. source income paid to
return, foreign vessel engaged in transportation be- foreign persons. These regulations will apply
• Is your son, daughter, adopted child, tween the United States and a foreign country to payments made after 1999.
grandchild, stepchild, or foster child, and or a U.S. possession are not counted as days In 1999 you may be asked to give with-
of presence in the United States. However, holding agents new withholding certificates
• Was under age 17 at the end of the year.
this exception does not apply if the alien oth- that contain the necessary information and
See the form instructions for a worksheet to erwise engages in any trade or business in representations required by the new regu-
figure the amount of the credit. the United States on that day. lations.
The following are the new withholding
Education credits. Beginning in 1998, you certificates that you may be asked to com-
may be able to claim two new credits for Source of income. Beginning in 1998, plete and submit.
higher education costs. You may qualify for compensation for services performed by a
these credits if you paid qualified tuition and nonresident alien in connection with the indi-
1) Form W-8BEN, Certificate of Foreign
related expenses for yourself, your spouse, vidual's temporary presence in the United
Status of Beneficial Owner for United
or your dependent, and you are not married States as a regular member of the crew of a
States Tax Withholding, should be pro-
filing separately. foreign vessel engaged in transportation be-
vided to a withholding agent or payer by
tween the United States and a foreign country
a beneficial owner of certain types of in-
Foreign earned income exclusion. For or U.S. possession is not income from
come to:
1998, the foreign earned income exclusion is sources in the United States.
$72,000. The exclusion increases to $74,000 a) Establish foreign status,
for 1999.
Page 2
b) Claim that such person is the ben- New tax treaties. The United States ex- aliens should send the form to the Internal
eficial owner of the income for changed instruments of ratification for new Revenue Service Center for their old address
which the form is being furnished, income tax treaties with Austria, Ireland, (addresses for the Service Centers are on the
and South Africa, Switzerland, Thailand, and Tur- back of the form).
key. The new treaties with Austria, Ireland,
c) If applicable, claim a reduced rate and Switzerland replace existing treaties. Expatriation tax. If you are a former U.S.
of, or exemption from, withholding Generally, the treaties are effective for tax citizen or former long-term U.S. resident,
as a resident of a foreign country years beginning on or after January 1, 1998. special tax rules may apply to you. See
with which the United States has The new treaty with Austria is effective for tax Expatriation Tax in chapter 4.
an income tax treaty. years beginning on or after January 1, 1999.
You can elect to apply the old treaty with
2) Form W-8ECI, Certificate of Foreign Austria, Ireland, or Switzerland in its entirety
Person's Claim for Exemption From for the first tax year following the date the new
Withholding on Income Effectively Con- treaty would otherwise apply. See Publication
nected With the Conduct of a Trade or
Business in the United States, should be
provided to a withholding agent or payer
901, U.S. Tax Treaties, for more information.
1.
by a foreign person to: Resident aliens from France. The United
Substantial Presence Test The specific rules that apply to each of these
Medical condition. Do not count the days
You will be considered a U.S. resident for tax categories are discussed next.
you intended to leave, but could not leave the
purposes if you meet the substantial presence United States because of a medical condition
test for the calendar year. To meet this test, Regular commuters from Canada or or problem that developed while you were in
you must be physically present in the United Mexico. Do not count the days on which you the United States. Whether you intended to
States on at least: commute to work in the United States from
Page 4 Chapter 1 Nonresident Alien or Resident Alien?
Figure 1-A. Nonresident Alien or Resident Alien?
Yes No
Ä
Were you physically present in the United States on at least 31
3
days during 1998?
Yes
No
Ä
Were you physically present in the United States on at least 183
days during the 3-year period consisting of 1996, 1997, and
1998, counting all days of presence in 1998, 1⁄3 the days of
Ä presence in 1997, and 1⁄6 the days of presence in 1996?
3
Ä
You are a 4 You are a
resident alien Yes No nonresident
©
for U.S. tax alien for U.S.
1,2
purposes. Ä tax purposes.
¶ ¶ Were you physically present in the United States on at least 183 ¶
days during 1998?
Yes No
Ä
Can you show that for 1998 you have a tax home in a foreign
country and have a closer connection to that country than to the
United States?
No Yes
1
If this is your first or last year of residency, you may have a dual status for the year. See the discussion of Dual Status Aliens in Chapter 1.
2
In some circumstances you may still be considered a nonresident alien under an income tax treaty between the U.S. and your country. Check the provisions of
the treaty carefully.
3
See Days of Presence in the United States in this chapter for days that do not count as days of presence in the United States.
4
If you meet the substantial presence test for 1999, you may be able to choose treatment as a U.S. resident alien for part of 1998. For details see Substantial
Presence Test under Resident Aliens and First-year choice under Dual-Status Aliens in Chapter 1.
leave the United States on a particular day is 1) You were initially prevented from leav- 3) A student temporarily present in the
determined based on all the facts and cir- ing, were then able to leave, but re- United States under an “F,” “J,” “M,” or
cumstances. For example, you may be able mained in the United States beyond a “Q” visa, who substantially complies with
to establish that you intended to leave if your reasonable period for making arrange- the requirements of the visa.
purpose for visiting the United States could ments to leave.
be accomplished during a period that is not 4) A professional athlete temporarily in the
2) You returned to the United States for United States to compete in a charitable
long enough to qualify you for the substantial
treatment of a medical condition that sports event.
presence test. However, if you need an ex-
developed during a prior stay.
tended period of time to accomplish the pur- The specific rules for each of these four
pose of your visit and that period would 3) The condition existed before your arrival categories are discussed next.
qualify you for the substantial presence test, in the United States and you were aware Foreign government-related individ-
you would not be able to establish an intent of the condition. It does not matter uals. A foreign government-related individual
to leave the United States before the end of whether you needed treatment for the is an individual (or a member of the individ-
that extended period. condition when you entered the United ual's immediate family) who is temporarily
In the case of an individual who is judged States. present in the United States:
mentally incompetent, proof of intent to leave
the United States can be determined by ana- Exempt individual. Do not count days for 1) As a full-time employee of an interna-
lyzing the individual's pattern of behavior be- which you are an exempt individual. The term tional organization,
fore he or she was judged mentally incom- “exempt individual” does not refer to someone
petent. exempt from U.S. tax, but to anyone in the 2) By reason of diplomatic status, or
If you qualify to exclude days of presence following categories. 3) By reason of a visa (other than a visa
because of a medical condition, you must file
1) An individual temporarily present in the that grants lawful permanent residence)
a fully completed Form 8843 with the IRS.
United States as a foreign government- that the Secretary of the Treasury de-
See Form 8843, later.
related individual. termines represents full-time diplomatic
You cannot exclude any days of presence
or consular status.
in the United States under the following cir- 2) A teacher or trainee temporarily present
cumstances. in the United States under a “J” or “Q” An international organization is any
visa, who substantially complies with the public international organization that the
requirements of the visa. President of the United States has designated
Chapter 1 Nonresident Alien or Resident Alien? Page 5
by Executive Order as being entitled to the years but her compensation was not paid by 1) You were unable to leave the United
privileges, exemptions, and immunities pro- a foreign employer. She will not be consid- States as planned because of a medical
vided for in the International Organizations ered an exempt individual for the current year condition.
Act. An individual is a full-time employee if because she was exempt as a teacher for at
his or her work schedule meets the organ- least 2 of the past 6 years. 2) You were temporarily in the United
ization's standard full-time work schedule. If her compensation for the past 2 years States as a teacher or trainee on a “J”
An individual is considered to have full- had been paid by a foreign employer, she or “Q” visa.
time diplomatic or consular status if he or would be an exempt individual for the current 3) You were temporarily in the United
she: year. States as a student on an “F,” “J,” “M,”
or “Q” visa.
1) Has been accredited by a foreign gov- Students. A student is any individual who
ernment that is recognized by the United is temporarily in the United States on an “F,” 4) You were a professional athlete com-
States, “J,” “M,” or “Q” visa and who substantially peting in a charitable sports event.
complies with the requirements of that visa.
2) Intends to engage primarily in official Attach Form 8843 to your 1998 income tax
You are considered to have substantially
activities for that foreign government return. If you do not have to file a return, send
complied with the visa requirements if you
while in the United States, and Form 8843 to the Internal Revenue Service
have not engaged in activities that are pro-
3) Has been recognized by the President, hibited by U.S. immigration laws and could Center, Philadelphia, PA 19255, by the due
Secretary of State, or a consular officer result in the loss of your visa status. date for filing an income tax return. The due
as being entitled to that status. Also included are immediate family mem- date for filing is discussed in chapter 7.
bers of exempt students. See the definition If you do not timely file Form 8843, you
Members of the immediate family include of immediate family, earlier, under Foreign cannot exclude the days you were present in
the individual's spouse and unmarried chil- government-related individuals. the United States as a professional athlete
dren (whether by blood or adoption) but only You will not be an exempt individual as a or because of a medical condition that arose
if the spouse's or unmarried children's visa student if you have been exempt as a while you were in the United States. This
statuses are derived from and dependent on teacher, trainee, or student for any part of does not apply if you can show by clear and
the exempt individual's visa classification. more than 5 calendar years unless you es- convincing evidence that you took reasonable
Unmarried children are included only if they: tablish to the satisfaction of the IRS district actions to become aware of the filing re-
director that you do not intend to reside per- quirements and significant steps to comply
1) Are under 21 years of age, manently in the United States and you have with those requirements.
2) Reside regularly in the exempt individ- substantially complied with the requirements
ual's household, and of your visa. The facts and circumstances to Closer Connection
be considered in determining if you have to a Foreign Country
3) Are not members of another household. demonstrated an intent to reside permanently
in the United States include, but are not lim- Even if you meet the substantial presence
ited to: test, you can be treated as a nonresident al-
The immediate family of an exempt individual ien if you:
does not include attendants, servants, or 1) Whether you have maintained a closer
personal employees. 1) Are present in the United States for less
connection to a foreign country (dis-
Teachers and trainees. A teacher or than 183 days during the year,
cussed later), and
trainee is an individual, other than a student, 2) Maintain a tax home in a foreign country
who is temporarily in the United States under 2) Whether you have taken affirmative
during the year, and
a “J” or “Q” visa and substantially complies steps to change your status from non-
with the requirements of that visa. You are immigrant to lawful permanent resident 3) Have a closer connection during the year
considered to have substantially complied as discussed later under Closer Con- to one foreign country in which you have
with the visa requirements if you have not nection to a Foreign Country. a tax home than to the United States
engaged in activities that are prohibited by (unless you have a closer connection to
U.S. immigration laws and could result in the If you qualify to exclude days of presence two foreign countries, discussed next).
loss of your visa status. as a student, you must file a fully completed
Also included are immediate family mem- Form 8843 with the IRS. See Form 8843, Closer connection to two foreign coun-
bers of exempt teachers and trainees. See later. tries. You can demonstrate that you have a
the definition of immediate family, earlier, un- Professional athletes. A professional closer connection to two foreign countries
der Foreign government-related individuals. athlete who is temporarily in the United States (but not more than two) if you meet all of the
You will not be an exempt individual as a to compete in a charitable sports event is an following conditions:
teacher or trainee if you were exempt as a exempt individual. A charitable sports event
teacher, trainee, or student for any part of 2 is one that meets the following conditions: 1) You maintained a tax home beginning
of the 6 preceding calendar years. However, on the first day of the year in one foreign
you will be an exempt individual if you were 1) The main purpose is to benefit a qual- country,
exempt as a teacher, trainee, or student for ified charitable organization,
2) You changed your tax home during the
any part of 3 (or fewer) of the 6 preceding 2) The entire net proceeds go to charity, year to a second foreign country,
calendar years and: and
3) You continued to maintain your tax home
1) A foreign employer paid all your com- 3) Volunteers perform substantially all the in the second foreign country for the rest
pensation during the current year, and work. of the year,
2) A foreign employer paid all of your com- In figuring the days of presence in the 4) You had a closer connection to each
pensation during each of the preceding United States, you can exclude only the days foreign country than to the United States
6 years you were present in the United on which you actually competed in a sports for the period during which you main-
States as a teacher or trainee. event. You cannot exclude the days on which tained a tax home in that foreign country,
you were in the United States to practice for and
A foreign employer includes an office or place
of business of an American entity in a foreign the event, to perform promotional or other 5) You are subject to tax as a resident un-
country or a U.S. possession. activities related to the event, or to travel be- der the tax laws of either foreign country
If you qualify to exclude days of presence tween events. for the entire year or subject to tax as a
as a teacher or trainee, you must file a fully If you qualify to exclude days of presence resident in both foreign countries for the
completed Form 8843 with the IRS. See as a professional athlete, you must file a fully period during which you maintained a tax
Form 8843, later. completed Form 8843 with the IRS. See Form home in each foreign country.
8843, next.
Example. Carla was temporarily in the Tax home. Your tax home is the general
United States during the year as a teacher Form 8843. If you exclude days of presence area of your main place of business, em-
on a “J” visa. Her compensation for the year in the United States because you fall into any ployment, or post of duty, regardless of where
was paid by a foreign employer. Carla was of the following categories, you must file a you maintain your family home. Your tax
treated as an exempt teacher for the past 2 fully completed Form 8843. home is the place where you permanently or
Page 6 Chapter 1 Nonresident Alien or Resident Alien?
indefinitely work as an employee or a self- You cannot claim you have a closer con- nonresident alien. You must also attach a fully
employed individual. If you do not have a nection to a foreign country if either of the completed Form 8833. See Reporting Treaty
regular or main place of business because following applies: Benefits Claimed in chapter 9 for more infor-
of the nature of your work, then your tax home mation on reporting treaty benefits.
is the place where you regularly live. If you 1) You personally applied, or took other
do not fit either of these categories, you are steps during the year, to change your
considered an itinerant and your tax home is status to that of a permanent resident,
or
wherever you work.
For determining whether you have a
Dual Status Aliens
2) You had an application pending for ad- You can be both a nonresident alien and a
closer connection to a foreign country, your justment of status during the current
tax home must also be in existence for the resident alien during the same tax year. This
year. usually occurs in the year you arrive or depart
entire current year, and must be located in
the same foreign country for which you are Steps to change your status to that of a per- from the United States. Aliens who have dual
claiming to have a closer connection. manent resident include, but are not limited status should see chapter 6 for information
to, the filing of the following forms. on filing a return for a dual-status tax year.
Foreign country. In determining whether
Form I-508, Waiver of Rights, Privileges, Ex-
you have a closer connection to a foreign
emptions and Immunities First Year of Residency
country, the term “foreign country” means:
If you are a U.S. resident for any calendar
Form I-485, Application to Register Perma- year, but you were not a U.S. resident at any
1) Any territory under the sovereignty of the nent Residence or Adjust Status
United Nations or a government other time during the preceding calendar year, you
than that of the United States, Form I-130, Petition for Alien Relative, on are a U.S. resident only for the part of the
your behalf calendar year that begins on the residency
2) The territorial waters of the foreign starting date. You are a nonresident alien for
country (determined under U.S. law), Form I-140, Immigrant Petition for Alien the part of the year before that date.
Worker, on your behalf
3) The seabed and subsoil of those sub-
Form ETA-750, Application for Alien Employ- Substantial presence test. If you meet the
marine areas which are adjacent to the
ment Certification, on your behalf substantial presence test for a calendar year,
territorial waters of the foreign country
your residency starting date is generally the
and over which the foreign country has Form OF-230, Application for Immigrant Visa
first day you are present in the United States
exclusive rights under international law and Alien Registration
during that calendar year. However, you do
to explore and exploit natural resources,
not have to count up to 10 days of actual
and Form 8840. You must attach a fully com-
presence in the United States if on those days
pleted Form 8840 to your income tax return
4) Possessions and territories of the United you establish that:
if you have a closer connection to a foreign
States. country or countries. 1) You had a closer connection to a foreign
If you do not have to file a return, send the country than to the United States, and
Establishing a closer connection. You will form to the Internal Revenue Service Center,
be considered to have a closer connection to Philadelphia, PA 19255, by the due date for 2) Your tax home was in that foreign coun-
a foreign country than the United States if you filing an income tax return. The due date for try.
or the IRS establishes that you have main- filing is discussed later in chapter 7.
tained more significant contacts with the for- If you do not timely file Form 8840, you See Closer Connection to a Foreign
eign country than with the United States. In cannot claim a closer connection to a foreign Country, earlier.
determining whether you have maintained country or countries. This does not apply if In determining whether you can exclude
more significant contacts with the foreign you can show by clear and convincing evi- up to 10 days, the following rules apply.
country than with the United States, the facts dence that you took reasonable actions to
and circumstances to be considered include, 1) You can exclude days from more than
become aware of the filing requirements and one period of presence as long as the
but are not limited to, the following. significant steps to comply with those re- total days in all periods are not more
quirements. than 10.
1) The country of residence you designate
on forms and documents. 2) You cannot exclude any days in a period
2) The types of official forms and docu-
Effect of Tax Treaties of consecutive days of presence if all the
ments you file, such as Form 1078, The rules given here to determine if you are days in that period cannot be excluded.
Certificate of Alien Claiming Residence a U.S. resident do not override tax treaty de-
in the United States, or Form W-8, Cer- finitions of residency. If your residency is de-
3) Although you can exclude up to 10 days
tificate of Foreign Status. termined under a treaty and not under the
of presence in determining your resi-
rules discussed here, you must file a fully
3) The location of: dency starting date, you must include
completed Form 8833 if the payments or in-
those days when determining whether
come items reportable because of that deter-
a) Your permanent home, you meet the substantial presence test.
mination are more than $100,000. If you are
b) Your family, a dual resident taxpayer, you can still claim Example. Ivan Ivanovich is a citizen of
the benefits under an income tax treaty. A Russia. He came to the United States for the
c) Your personal belongings, such as dual resident taxpayer is one who is a resi-
cars, furniture, clothing, and jew- first time on January 6, 1998, to attend a
dent of both the United States and another business meeting and returned to Russia on
elry, country under each country's tax laws. The January 10, 1998. His tax home remained in
d) Your current social, political, cul- income tax treaty between the two countries Russia. On March 1, 1998, he moved to the
tural, or religious affiliations, must contain a provision that provides for United States and resided here for the rest
resolution of conflicting claims of residence. of the year. Ivan is able to establish a closer
e) Your business activities (other than If you are treated as a resident of a foreign connection to Russia for the period January
those that constitute your tax country under a tax treaty, you are treated as 6–10. Thus, his residency starting date is
home), a nonresident alien in figuring your U.S. in- March 1.
come tax. For purposes other than figuring
f) The jurisdiction in which you hold a
your tax, you will be treated as a U.S. resi- Statement required to exclude up to 10
driver's license, and
dent. For example, the rules discussed here days of presence. You must attach a
g) The jurisdiction in which you vote. do not affect your residency time periods as statement to your income tax return if you are
discussed later, under Dual Status Aliens. excluding up to 10 days of presence in the
It does not matter whether your permanent United States for purposes of your residency
home is a house, an apartment, or a furnished Information to be reported. If you are a starting date. You must sign and date this
room. It also does not matter whether you rent dual resident taxpayer and you claim treaty statement and include a declaration that it is
or own it. It is important, however, that your benefits, you must timely file a return (includ- made under penalties of perjury. The state-
home be available at all times, continuously, ing extensions) using Form 1040NR or Form ment must contain the following information
and not solely for short stays. 1040NR-EZ, and compute your tax as a (as applicable).
Chapter 1 Nonresident Alien or Resident Alien? Page 7
1) Your name, address, U.S. taxpayer 1) Be present in the United States for at 6) The date or dates of absence from the
identification number (if any), and U.S. least 31 days in a row in 1998, and United States during 1998 that you are
visa number (if any). treating as days of presence.
2) Be present in the United States for at
2) Your passport number and the name of least 75% of the number of days begin- You cannot file the form or statement until
the country that issued your passport. ning with the first day of the 31-day pe- you meet the substantial presence test for
riod and ending with the last day of 1998. 1999. If you have not met the test for 1999
3) The tax year for which the statement
For purposes of this 75% requirement, as of April 15, 1999, you can request an ex-
applies.
you can treat up to 5 days of absence tension of time for filing your 1998 Form 1040
4) The first day that you were present in the from the United States as days of pres- until a reasonable period after you have met
United States during the year. ence in the United States. that test. To request an extension to file, use
5) The dates of the days you are excluding Form 4868, Application for Automatic Exten-
When counting the days of presence in (1) sion of Time To File U.S. Individual Income
in figuring your first day of residency. and (2) above, do not count the days you Tax Return. You should pay with this form the
6) Sufficient facts to establish that you have were in the United States under any of the amount of tax you expect to owe for 1998
maintained your tax home in and a exceptions discussed earlier under Days of figured as if you were a nonresident alien the
closer connection to a foreign country Presence in the United States. entire year. You can use Form 1040NR or
during the period you are excluding. If you make the first-year choice, your Form 1040NR-EZ to figure the tax. Enter the
residency starting date for 1998 is the first day tax on Form 4868. If you do not pay the tax
If you are not required to file a return, send of the earliest 31-day period (described in (1) due, you will be charged interest on any tax
the statement to the Internal Revenue Service above) that you use to qualify for the choice. not paid by the regular due date of your re-
Center, Philadelphia, PA 19255, on or before You are treated as a U.S. resident for the rest turn, and you may be charged a penalty on
the due date for filing an income tax return. of the year. If you are present for more than the late payment. If you need more time after
The due date for filing is discussed in chapter one 31-day period and you satisfy condition filing Form 4868, file Form 2688, Application
7. (2) above for each of those periods, your for Additional Extension of Time To File U.S.
If you do not file the required statement residency starting date is the first day of the Individual Income Tax Return.
as explained above, you cannot claim that first 31-day period. If you are present for more Once you make the first-year choice, you
you have a closer connection to a foreign than one 31-day period but you satisfy con- may not revoke it without the approval of the
country or countries. Therefore, your first day dition (2) above only for a later 31-day period, Internal Revenue Service.
of residency will be the first day you are your residency starting date is the first day If you do not follow the procedures dis-
present in the United States. This does not of the later 31-day period. cussed here for making the first-year choice,
apply if you can show by clear and convincing you will be treated as a nonresident alien for
evidence that you took reasonable actions to Example 1. Juan DaSilva is a citizen of
the Philippines. He came to the United States all of 1998. However, this does not apply if
become aware of the requirements for filing you can show by clear and convincing evi-
the statement and significant steps to comply for the first time on November 1, 1998, and
was here on 31 consecutive days (from No- dence that you took reasonable actions to
with those requirements. become aware of the filing procedures and
vember 1 through December 1, 1998). Juan
returned to the Philippines on December 1 significant steps to comply with the proce-
Green card test. If you meet the green card dures.
test at any time during a calendar year, but and did not come back to the United States
do not meet the substantial presence test for until December 17, 1998. He stayed in the
United States for the rest of the year. During
that year, your residency starting date is the
1999, Juan was a resident of the United Choosing To Be Taxed as a
first day in the calendar year on which you
are present in the United States as a lawful States under the substantial presence test. Resident Alien for the Entire
Juan can make the first-year choice for 1998
permanent resident.
because he was in the United States in 1998 Tax Year
If you meet both the substantial presence
test and the green card test, your residency for a period of 31 days in a row (November If you are a dual-status alien, you can choose
starting date is the earlier of the first day 1 through December 1) and for at least 75% to be treated as a U.S. resident for the entire
during the year you are present in the United of the days following (and including) the first year if:
States under the substantial presence test or day of his 31-day period (46 total days of
presence in the United States divided by 61 1) You were a nonresident alien at the be-
as a lawful permanent resident.
days in the period from November 1 through ginning of the year,
December 31 equals 75.4%). If Juan makes
Residency during the preceding year. If 2) You are a resident alien or U.S. citizen
the first-year choice, his residency starting
you were a U.S. resident during any part of at the end of the year,
date will be November 1, 1998.
the preceding calendar year and you are a
U.S. resident for any part of the current year, 3) You are married to a U.S. citizen or res-
Example 2. The facts are the same as in ident alien at the end of the year, and
you will be considered a U.S. resident at the Example 1, except that Juan was absent from
beginning of the current year. This applies the United States on December 24, 25, 29, 4) Your spouse joins you in making the
whether you are a resident under the sub- 30, and 31. He can make the first-year choice choice.
stantial presence test or green card test. for 1998 because up to 5 days of absence
are considered days of presence for purposes This includes situations in which both you and
Example. Robert Bach is a citizen of
of the 75% requirement. your spouse were nonresident aliens at the
Switzerland. He came to the United States
beginning of the tax year and both of you are
as a U.S. resident for the first time on May Statement required to make the first- resident aliens at the end of the tax year.
1, 1997, and remained until November 5, year choice. You must attach a statement If you make this choice, you and your
1997, when he returned to Switzerland. to your income tax return to make the first- spouse are both treated as U.S. residents for
Robert came back to the United States on year choice. The statement must contain your the entire year for income tax purposes, and
March 5, 1998, as a lawful permanent resi- name and address and specify the following: you are both taxed on worldwide income.
dent and still resides here. In calendar year
Making the choice also means that you must
1998, Robert's U.S. residency is deemed to 1) That you are making the first-year file a joint return for the year of the choice.
begin on January 1, 1998, because he qual- choice, If you make this choice, neither you nor
ified as a resident in calendar year 1997.
2) That you were not a resident in 1997, your spouse can make this choice for any
later tax year, even if you are separated, di-
First-Year Choice 3) That you are a resident under the sub- vorced, or remarried.
If you do not meet either the green card test stantial presence test in 1999,
or the substantial presence test for 1997 or 4) The number of days of presence in the Making the choice. You should attach a
1998 and you did not choose to be treated United States during 1999, statement signed by both spouses to your
as a resident for part of 1997, but you meet joint return for the year of the choice that
the substantial presence test for 1999, you 5) The date or dates of your 31-day period contains the following information:
can choose to be treated as a U.S. resident of presence and the period of continuous
for part of 1998. To make this choice, you presence in the United States during 1) A declaration that you both qualify to
must: 1998, and make the choice and that you choose to
Page 8 Chapter 1 Nonresident Alien or Resident Alien?
be treated as U.S. residents for the en- 1) Your name, address, U.S. taxpayer 1998, Lola came to the United States for va-
tire tax year, and identification number (if any), and U.S. cation and stayed here until December 16,
visa number (if any). 1998, when she returned to Malta. She is able
2) The name, address, and taxpayer iden- to establish a closer connection to Malta for
tification number (SSN or ITIN) of each 2) Your passport number and the name of
the period December 12–16. Lola is not a
spouse. (If one spouse died, include the the country that issued your passport.
U.S. resident for tax purposes during 1999
name and address of the person who 3) The tax year for which the statement and can establish a closer connection to
makes the choice for the deceased applies. Malta for the rest of calendar year 1998. Lola
spouse.) is a U.S. resident under the substantial pres-
4) The last day that you were present in the ence test for 1998 because she was present
You generally make this choice when you United States during the year. in the United States for 183 days (178 days
file your joint return. However, you also can 5) Sufficient facts to establish you have for the period March 1 to August 25 plus 5
make the choice by filing Form 1040X. Attach maintained your tax home in and that days in December). Lola's residency termi-
Form 1040, Form 1040A, or Form 1040EZ you have a closer connection to a foreign nation date is August 25, 1998.
and write “Amended” across the top of the country following your last day of pres-
corrected return. If you make the choice with ence in the United States during the year Residency during the next year. If you are
an amended return, you and your spouse or following the abandonment or a U.S. resident during any part of 1999 and
must also amend any returns that you may rescission of your status as a lawful you are a resident during any part of 1998,
have filed after the year for which you made permanent resident during the year. you will be taxed as a resident through the
the choice. end of 1998. This applies whether you have
You generally must file the amended joint 6) The date that your status as a lawful
a closer connection to a foreign country than
return within 3 years from the date you filed permanent resident was abandoned or
the United States during 1998, and whether
your original U.S. income tax return or 2 years rescinded.
you are a resident under the substantial
from the date you paid your income tax for 7) Sufficient facts (including copies of rele- presence test or green card test.
that year, whichever is later. vant documents) to establish that your
A similar choice is available if, at the end status as a lawful permanent resident
of your tax year, you are a nonresident alien has been abandoned or rescinded.
married to a U.S. citizen or resident. See
Nonresident Spouse Treated as a Resident, 8) If you can exclude days under the de Nonresident Spouse
later. If you previously made that choice, and minimis presence rule, discussed later,
it is still in effect, you do not need to make the include the dates of the days you are Treated as a Resident
choice explained here. excluding and sufficient facts to establish If, at the end of your tax year, you are married
that you have maintained your tax home and one spouse is a U.S. citizen or a resident
If you file a joint return under this in and that you have a closer connection alien and the other spouse is a nonresident
! provision, the special instructions and
CAUTION restrictions for dual-status taxpayers
to a foreign country during the period you alien, you can choose to treat the nonresident
are excluding. spouse as a U.S. resident. This includes sit-
in chapter 6 do not apply to you. uations in which one spouse is a nonresident
If you are not required to file a return, send alien at the beginning of the tax year, but a
the statement to the Internal Revenue Service resident alien at the end of the year, and the
Last Year of Residency Center, Philadelphia, PA 19255, on or before other spouse is a nonresident alien at the end
the due date for filing an income tax return. of the year.
If you were a U.S. resident in 1998 but are The due date for filing is discussed in chapter
not a U.S. resident during any part of 1999, If you make this choice, you and your
7. spouse are treated for income tax purposes
you cease to be a U.S. resident on your res- If you do not file the required statement
idency termination date. Your residency as residents for your entire tax year. Neither
as explained above, you cannot claim that you nor your spouse can claim tax treaty
termination date is December 31, 1998. you have a closer connection to a foreign benefits as a resident of a foreign country for
country or countries. This does not apply if a tax year for which the choice is in effect.
Special residency termination date. Your you can show by clear and convincing evi- You must file a joint income tax return for the
residency termination date is: dence that you took reasonable actions to year you make the choice, but you and your
become aware of the requirements for filing spouse can file joint or separate returns in
1) The last day in 1998 that you are phys- the statement and significant steps to comply later years.
ically present in the United States, if you with those requirements.
met the substantial presence test, Example. Bob and Sharon Williams are
De minimis presence. If you are a U.S. married and both are nonresident aliens at
2) The first day in 1998 that you are no resident because of the substantial presence the beginning of the year. In June, Bob be-
longer a lawful permanent resident of the test and you qualify to use the special resi- came a resident alien and remained a resi-
United States, if you met the green card dency termination date discussed earlier, you dent for the rest of the year. Bob and Sharon
test, or can exclude up to 10 days of actual presence both choose to be treated as resident aliens
3) The later of (1) or (2), if you met both in the United States in determining your resi- by attaching a statement to their joint return.
tests. dency termination date. In determining Bob and Sharon must file a joint return for the
whether you can exclude up to 10 days, the year of election, but they can file either joint
You can use these dates only if, for the re- following rules apply. or separate returns for later years.
mainder of 1998, your tax home was in a 1) You can exclude days from more than
foreign country and you had a closer con-
nection to that foreign country. See Closer
one period of presence as long as the How To Make the Choice
total days in all periods are not more Attach a statement, signed by both spouses,
Connection to a Foreign Country, earlier. than 10. to your joint return for the first tax year for
A long-term resident who ceases to 2) You cannot exclude any days in a period which the choice applies. It should contain
! be a lawful permanent resident may
CAUTION be subject to special reporting re-
of consecutive days of presence if all the
days in that period cannot be excluded.
the following:
quirements and tax provisions. See 1) A declaration that one spouse was a
Expatriation Tax in chapter 4. nonresident alien and the other spouse
3) Although you can exclude up to 10 days a U.S. citizen or resident alien on the last
of presence in determining your resi- day of your tax year, and that you
Statement required to establish your resi- dency termination date, you must include choose to be treated as U.S. residents
dency termination date. You must attach a those days when determining whether for the entire tax year, and
statement to your income tax return to es- you meet the substantial presence test.
tablish your residency termination date. You 2) The name, address, and identification
must sign and date this statement and include Example. Lola Bovary is a citizen of number of each spouse. (If one spouse
a declaration that it is made under penalties Malta. She came to the United States for the died, include the name and address of
of perjury. The statement must contain the first time on March 1, 1998, and resided here the person making the choice for the
following information (as applicable). until August 25, 1998. On December 12, deceased spouse.)
Chapter 1 Nonresident Alien or Resident Alien? Page 9
You generally make this choice when you receives income. File the statement as
file your joint return. However, you can also follows:
make the choice by filing a joint amended
return on Form 1040X. Attach Form 1040, a) If the spouse revoking the choice 2.
Form 1040A, or Form 1040EZ and write must file a return, attach the state-
“Amended” across the top of the corrected
return. If you make the choice with an
ment to the return for the first year
the revocation applies, Source of
amended return, you and your spouse must
also amend any returns that you may have
filed after the year for which you made the
b) If the spouse revoking the choice
does not have to file a return, but
Income
choice. does file a return (for example, to
You generally must file the amended joint obtain a refund), attach the state-
return within 3 years from the date you filed ment to the return, or
your original U.S. income tax return or 2 years
from the date you paid your income tax for c) If the spouse revoking the choice Introduction
that year, whichever is later. does not have to file a return and After you have determined your alien status,
does not file a claim for refund, you must determine the source of your in-
If you file a joint return under this send the statement to the Internal come. This chapter will help you determine
! provision, the special instructions and
CAUTION restrictions for dual-status taxpayers
Revenue Service Center where you
filed the last joint return.
the source of different types of income you
may receive during the tax year. This chapter
in chapter 6 do not apply to you. also discusses special rules for married indi-
2) Death. The death of either spouse ends viduals who are domiciled in a country with
the choice, beginning with the first tax community property laws.
year following the year the spouse died.
Suspending the Choice However, if the surviving spouse is a
The choice to be treated as a resident alien U.S. citizen or resident and is entitled to Topics
does not apply to any tax year (after the tax the joint tax rates as a surviving spouse, This chapter discusses:
year you made the choice) if neither spouse the choice will not end until the close of
is a U.S. citizen or resident alien at any time the last year for which these joint rates • Income source rules
during the tax year. may be used. If both spouses die in the
same tax year, the choice ends on the • Community income
Example. Dick Brown was a resident al- first day after the close of the tax year in
ien on December 31, 1995, and married to which the spouses died.
Judy, a nonresident alien. They chose to treat Useful Items
Judy as a resident alien and filed joint 1995 3) Legal separation. A legal separation You may want to see:
and 1996 income tax returns. On January 10, under a decree of divorce or separate
1997, Dick became a nonresident alien. Judy maintenance ends the choice as of the
beginning of the tax year in which the Publication
had remained a nonresident alien throughout
the period. Dick and Judy could have filed legal separation occurs.
m 520 Scholarships and Fellowships
joint or separate returns for 1997. However,
since neither Dick nor Judy is a resident alien 4) Inadequate records. The Internal Rev- m 721 Tax Guide to U.S. Civil Service
at any time during 1998, their choice is sus- enue Service can end the choice for any Retirement Benefits
pended for that year. If either has U.S. source tax year that either spouse has failed to
keep adequate books, records, and See chapter 12 for information about get-
income or foreign source income effectively
other information necessary to determine ting these publications.
connected with a U.S. trade or business in
1998, they must file separate returns as non- the correct income tax liability, or to
resident aliens. If Dick becomes a resident provide adequate access to those rec-
alien again in 1998, their choice is no longer ords.
suspended.
If the choice is ended for any of these
Resident Aliens
reasons, neither spouse can make this choice A resident alien's income is generally subject
in any later tax year. to tax in the same manner as a U.S. citizen;
Ending the Choice that is, a resident alien is taxed on and must
Once made, the choice to be treated as a report income from all sources, including
resident applies to all later years unless sus- sources outside the United States.
pended (as explained above) or ended in one If you are a resident alien, you must report
of the following ways. all interest, dividends, wages, or other com-
Special Situations pensation for services, income from rental
property or royalties, and other types of in-
1) Revocation. Either spouse can revoke
If you are a nonresident alien from American come on your U.S. tax return. You must report
the choice for any tax year, provided he
Samoa, or Puerto Rico, you may be treated these amounts whether from sources within
or she makes the revocation by the due
as a resident alien. or outside the United States.
date for filing the tax return for that tax
If you are a nonresident alien in the United
year. The spouse who revokes must at-
States and a bona fide resident of American
tach a signed statement declaring that
Samoa or Puerto Rico during the entire tax
the choice is being revoked. The state-
year, you are taxed, with certain exceptions,
ment must include the name, address,
and identification number of each
according to the rules for resident aliens of Nonresident Aliens
the United States. For more information, see A nonresident alien usually is subject to U.S.
spouse. (If one spouse dies, include the
chapter 5. income tax only on U.S. source income. This
name and address of the person who is
If you are a nonresident alien from Amer- is income from sources within the United
revoking the choice for the deceased
ican Samoa or Puerto Rico who does not States and on certain income connected with
spouse.) The statement also must in-
qualify as a bona fide resident of American the conduct of a trade or business in the
clude a list of any states, foreign coun-
Samoa or Puerto Rico for the entire tax year, United States.
tries, and possessions that have com-
you are taxed as a nonresident alien. Table 2-1 gives the general rules for de-
munity property laws in which either
Resident aliens who formerly were bona termining U.S. source income that apply to
spouse is domiciled or where real prop-
fide residents of American Samoa or Puerto most nonresident aliens. The following dis-
erty is located from which either spouse
Rico are taxed according to the rules for res- cussions cover the general rules as well as
ident aliens. the exceptions to these rules.
Not all items of U.S. source income
TIP are taxable. See chapter 3.
Page 10 Chapter 2 Source of Income
with the close of its tax year preceding the cludes any container used in connection with
Interest declaration of dividends was effectively con- a vessel or aircraft.
Generally, income from U.S. sources includes nected with a trade or business in the United All income from transportation that begins
interest on bonds, notes, or other interest- States. If the corporation was formed less and ends in the United States is treated as
bearing obligations of U.S. residents or do- than 3 years before the declaration, use its derived from sources in the United States. If
mestic corporations. Interest from U.S. total gross income from the time it was the transportation begins or ends in the
sources also includes interest paid by a do- formed. Determine the part that is U.S. source United States, 50% of the transportation in-
mestic or foreign partnership or foreign cor- income by multiplying the dividend by the come is treated as derived from sources in
poration engaged in a U.S. trade or business following fraction: the United States.
at any time during the tax year. Interest in- Foreign corporation’s gross income For transportation income from personal
come also includes original issue discount. In services, 50% of the income is U.S. source
connected with a U.S. trade or
addition, all interest received by a nonresident income if the transportation is between the
alien individual from a state, the District of business for the 3-year period
United States and a U.S. possession. For
Columbia, or the U.S. Government during the Foreign corporation’s gross income nonresident aliens, this only applies to income
tax year is income from U.S. sources. from all sources for that period derived from, or in connection with, an air-
The place or manner of payment is im- craft.
material in determining the source of the in- For information on how U.S. source
come. transportation income is taxed, see chapter
A substitute interest payment made to the 4.
transferor of a security in a securities lending Personal Services
transaction or a sale-repurchase transaction All wages and any other compensation for
is treated the same as the interest on the services performed in the United States are Scholarships, Grants,
transferred security. considered to be from sources in the United
States. The only exception to this rule is dis- Prizes, and Awards
Exceptions. U.S. source interest income cussed in chapter 3, under Employees of Generally, the source of scholarships, fellow-
does not include the following items. foreign persons, organizations, or offices. ship grants, grants, prizes, and awards is the
If your compensation is for personal ser- residence of the payer regardless of who ac-
1) Interest paid by a resident alien or a do- vices performed both inside and outside the tually disburses the funds. However, see Ac-
mestic corporation if for the 3-year period United States, you must figure the amount of tivities to be performed outside the United
ending with the close of the payer's tax income that is for services performed in the States, later.
year preceding the interest payment at United States. You usually do this on a time For example, payments for research or
least 80% of the payer's total gross in- basis. That is, you must include in gross in- study in the United States made by the United
come: come as U.S. source income the amount that States, a noncorporate U.S. resident, or a
results from multiplying the total amount of domestic corporation, are from U.S. sources.
a) Is from sources outside the United Similar payments from a foreign government
compensation by the following fraction:
States, and or foreign corporation are foreign source
Number of days you performed
b) Is attributable to the active conduct services in the United States payments even though the funds may be
of a trade or business by the indi- disbursed through a U.S. agent.
Total number of days of service for Payments made by an entity designated
vidual or corporation in a foreign
country or a U.S. possession. which you receive payment as a public international organization under
the International Organizations Immunities
2) Interest paid by a foreign branch of a Act are from foreign sources.
domestic corporation or a domestic Example. Jean Blanc, a nonresident al-
partnership on deposits or withdrawable ien, is a professional hockey player with a
accounts with mutual savings banks, Activities to be performed outside the
U.S. hockey club. Under Jean's contract, he
cooperative banks, credit unions, do- United States. Scholarships, fellowship
received $98,500 for 242 days of play during
mestic building and loan associations, grants, targeted grants, and achievement
the year. This includes days spent at pre-
and other savings institutions chartered awards received by nonresident aliens for
season training camp, days during the regular
and supervised as savings and loan or activities performed, or to be performed, out-
season, and playoff game days. Of the 242
similar associations under federal or side the United States are not U.S. source
days, Jean spent 194 days performing ser-
state law if the interest paid or credited income.
vices in the United States and 48 days playing
can be deducted by the association. hockey in Canada. Jean's U.S. source in- These rules do not apply to amounts
3) Interest on deposits with a foreign
come is $78,963, figured as follows:
194
!
CAUTION
paid as salary or other compensation
for services.
branch of a domestic corporation or do- 3 $98,500 = $78,963
mestic partnership, but only if the branch 242
is in the commercial banking business.
Sale of personal property (other than Tax home of seller Intangible property. The general rule for
inventory property) determining the source of income from sales
of personal property applies to sales of in-
Sale of real property Where property is located tangibles. Intangible property includes pat-
ents, copyrights, secret processes or formu-
Sale of natural resources Allocation las, goodwill, trademarks, trade names, or
other like property. The general rule applies
only to the extent the payments for the prop-
of the nature of your work, then your tax home
Rents or Royalties is the place where you regularly live. If you
erty do not depend on the productivity, use,
Your U.S. source income includes rent and or disposition of the intangible. To the extent
do not fit either of these categories, you are
royalty income received during the tax year the payments for the intangible property do
considered an itinerant and your tax home is
from property located in the United States or depend on the productivity, use, or disposition
wherever you work.
from any interest in that property. of the property, their source is determined as
U.S. source income also includes rents though the payments were royalties, as dis-
or royalties for the use of, or for the privilege Inventory property. Inventory property is cussed earlier. If payments for goodwill do not
of using, in the United States, intangible personal property that is stock in trade or that depend on its productivity, use, or disposition,
property such as patents, copyrights, secret is held primarily for sale to customers in the their source is the country in which the
processes and formulas, goodwill, trade- ordinary course of your trade or business. goodwill was generated.
marks, franchises, and similar property. Income from the sale in the United States of To the extent gain from the sale of an in-
inventory property generally has its source tangible does not exceed its depreciation ad-
within the United States, regardless of where justments, treat the gain as if the intangible
Real Property you purchased the property. Income from the were depreciable personal property, dis-
sale of inventory property outside the United cussed earlier.
Real property is land and buildings and gen-
erally anything built on, growing on, or at- States (even though you purchased it within
tached to land. the United States) has its source outside the Sales through offices or fixed places of
Gross income from sources in the United United States. These rules apply even if your business. Despite any of the above rules, if
States includes gains, profits, and income tax home is not in the United States. you do not have a tax home in the United
from the sale or other disposition of real If you produce inventory property in the States, but you maintain an office or other
property located in the United States. United States and sell it outside the United fixed place of business in the United States,
States, or produce it outside the United States treat the income from any sale of personal
and sell it in the United States, your income property (including inventory property) that is
Natural resources. The income from the
from the sale is partly from sources in the attributable to that office or place of business
sale of products of any farm, mine, oil or gas
United States and partly from sources outside as being from U.S. sources. However, this
well, other natural deposit, or timber located
the United States. For information on making rule does not apply to sales of inventory
in the United States and sold in a foreign
this allocation, see section 1.863-3 of the In- property for use, disposition, or consumption
country, or located in a foreign country and
come Tax Regulations. outside the United States if an office or other
sold in the United States, is partly from
fixed place of business of the taxpayer out-
sources in the United States. For information
side the United States materially participated
on determining that part, see section Depreciable personal property. To deter- in the sale.
1.863-1(b) of the Income Tax Regulations. mine the source of any gain from the sale of If you have a tax home in the United
depreciable personal property, you must first States but maintain an office or other fixed
figure the part of the gain that is not more than place of business outside the United States,
Personal Property the total depreciation adjustments on the income from sales of personal property, other
Personal property is property, such as ma- property. You allocate this part of the gain to than inventory, depreciable property, or in-
chinery, equipment, or furniture, that is not sources in the United States based on the tangibles, that is attributable to that foreign
real property. ratio of U.S. depreciation adjustments to total office or place of business is treated as being
Income from the sale or exchange of per- depreciation adjustments. The rest of this part from sources outside the United States.
sonal property by a nonresident alien individ- of the gain is considered to be from sources However, this rule does not apply unless an
ual generally has its source in the United outside the United States. income tax of at least 10% of the income from
States if the individual has a tax home in the For this purpose, “U.S. depreciation ad- the sale is actually paid to a foreign country.
United States. If the individual does not have justments” are the depreciation adjustments
a tax home in the United States, the income to the basis of the property that are allowable
generally is considered to be from sources in figuring taxable income from sources within
outside the United States. the United States. However, if the property is
used predominantly in the United States dur- Community Income
Tax home. Your tax home is the general ing a tax year, all depreciation deductions al- Generally, if you are married and you or your
area of your main place of business, em- lowable for that year are treated as U.S. de- spouse are subject to the community property
ployment, or post of duty, regardless of where preciation adjustments. But there are some laws of a foreign country, a U.S. state, or a
you maintain your family home. Your tax exceptions for certain transportation, com- U.S. possession, you generally must follow
home is the place where you permanently or munications, and other property used inter- those laws to determine the income of your-
indefinitely work as an employee or a self- nationally. self and your spouse for U.S. tax purposes.
employed individual. If you do not have a Gain from the sale of depreciable property But you must disregard certain community
regular or main place of business because that is more than the total depreciation ad- property laws if:
Page 12 Chapter 2 Source of Income
1) Both you and your spouse are nonresi- • Scholarships and fellowship grants Government obligations. Interest on obli-
dent aliens, or gations of a state or political subdivision, the
• Gain from sale of home District of Columbia, or a U.S. possession,
2) One of you is a nonresident alien and the generally is not included in income. However,
other is a U.S. citizen or resident and interest on certain private activity bonds,
you do not both choose to be treated as
U.S. residents as explained in chapter
Useful Items arbitrage bonds, and certain bonds not in
You may want to see: registered form is included in income.
1.
In these cases, you and your spouse must Publication Portfolio interest. U.S. source interest in-
report community income as explained below. come that is not connected with a U.S. trade
m 54 Tax Guide for U.S. Citizens and or business and that is portfolio interest on
Earned income. Earned income of a Resident Aliens Abroad obligations issued after July 18, 1984, is ex-
spouse, other than trade or business income cluded from income. Portfolio interest is in-
m 523 Selling Your Home
and a partner's distributive share of partner- terest (including original issue discount) that
ship income, is treated as the income of the See chapter 12 for information about get- is paid on obligations:
spouse whose services produced the income. ting these publications.
That spouse must report all of it on his or her 1) Not in registered form (bearer obli-
separate return. gations) that are sold only to foreign in-
vestors, and the interest on which is
Trade or business income. Trade or busi-
ness income, other than a partner's distribu-
Resident Aliens payable only outside the United States
and its possessions, and that has on its
tive share of partnership income, is treated Resident aliens may be able to exclude the face a statement that any U.S. person
as the income of the person who exercises following items from their gross income. holding the obligation will be subject to
substantially all of the management and con- limitations under the U.S. income tax
trol over the trade or business. That spouse laws,
must report all of it on his or her separate
Foreign Earned Income and
2) In registered form that are targeted to
return. Housing Amount foreign markets and the interest on
If you are physically present in a foreign which is paid through financial insti-
Partnership income (or loss). A partner's country or countries for at least 330 full days tutions outside the United States, or
distributive share of partnership income is during any period of 12 consecutive months,
treated as the income (or loss) of the partner. you may qualify for the foreign earned income 3) In registered form that are not targeted
The partner must report all of it on his or her exclusion. For tax years beginning in 1998, to foreign markets, if you furnish the
separate return. the exclusion is $72,000. In addition, you payer of the interest (or the withholding
may be able to exclude or deduct certain for- agent) a statement that you are not a
Separate property income. Income derived eign housing amounts. You may also qualify U.S. person. You can make this state-
from the separate property of one spouse if you are a bona fide resident of a foreign ment on a Form W-8, Certificate of For-
(and which is not earned income, trade or country and you are a citizen or national of a eign Status, or on a substitute form sim-
business income, or partnership distributive country with which the United States has an ilar to Form W-8. In either case, the
share income) is treated as the income of that income tax treaty. For more information, see statement must be signed under penal-
spouse. That spouse must report all of it on Publication 54. ties of perjury, must certify that you are
his or her separate return. Use the appropri- not a U.S. citizen or resident, and must
ate community property law to determine include your name and address.
Foreign country. The term “foreign
what is separate property. country” means any territory under the sov- Portfolio interest does not include interest
ereignty of a government other than that of that you receive on an obligation issued by a
Other community income. All other com- the United States. The term also includes corporation of which you own, directly or in-
munity income is treated as provided by the territorial waters of the foreign country, the directly, 10% or more of the total voting power
applicable community property laws. airspace over the foreign country, and the of all classes of voting stock. Portfolio interest
seabed and subsoil of submarine areas ad- does not include interest that you receive on
jacent to the territorial waters of the foreign an obligation issued by a partnership of which
country. you own, directly or indirectly, 10% or more
of the capital or profits interests.
Portfolio interest does not include contin-
3. Nonresident Aliens
gent interest. Contingent interest is either of
the following:
Resident and nonresident aliens are allowed 1) Deposits (including certificates of de- c) Any change in value of any property
exclusions from gross income if they meet posit) with persons in the banking busi- of the debtor or a related person,
certain conditions. An exclusion from gross ness, or
income is generally income you receive that 2) Deposits or withdrawable accounts with d) Any dividend, partnership distribu-
is not included in your U.S. income and is not mutual savings banks, cooperative tions, or similar payments made by
subject to U.S. tax. This chapter covers some banks, credit unions, domestic building the debtor or a related person.
of the more common exclusions allowed to and loan associations, and other savings
resident and nonresident aliens. institutions chartered and supervised as 2) Any other type of contingent interest that
savings and loan or similar associations is identified by the Secretary of the
under federal or state law (if the interest Treasury in regulations.
Topics
This chapter discusses: paid or credited can be deducted by the
association), and For the definition of “related person” in con-
nection with any contingent interest, and for
• Nontaxable interest 3) Amounts held by an insurance company the exceptions that apply to interest described
• Certain compensation paid by a foreign under an agreement to pay interest on in item (1), see subparagraphs (B) and (C)
employer them. of Internal Revenue Code section 871(h)(4).
Chapter 3 Exclusions From Gross Income Page 13
Portfolio interest includes any contingent Example 2. The facts are the same as in If the annuity qualifies under condition (1)
interest paid or accrued on any indebtedness Example 1, except that Henry's total gross but not condition (2) above, you do not have
with a fixed term that was issued: salary for the services performed in the to include the amount in income if:
United States during 1998 was $4,500. He
1) On or before April 7, 1993, or received $2,875 in 1998, and $1,625 in 1999. 1) You are a resident of a country that gives
During 1998, he was engaged in a trade or a substantially equal exclusion to U.S.
2) After April 7, 1993, pursuant to a written business in the United States because the citizens and residents, or
binding contract in effect on that date compensation for his personal services in the 2) You are a resident of a beneficiary de-
and at all times thereafter before that United States was more than $3,000. veloping country under the Trade Act of
indebtedness was issued. 1974.
Crew members. Compensation for services
performed by a nonresident alien in con- If you are not sure whether the annuity is
Services Performed nection with the individual's temporary pres- from a qualified annuity plan or qualified trust,
ence in the United States as a regular mem- ask the person who made the payment.
for Foreign Employer ber of the crew of a foreign vessel engaged
If you were paid by a foreign employer, your in transportation between the United States Income affected by treaties. Income of any
U.S. source income may be exempt from U.S. and a foreign country or U.S. possession is kind that is exempt from U.S. tax under a
tax, but only if you meet one of the situations not U.S. source income and is exempt from treaty to which the United States is a party is
discussed next. U.S. tax. excluded from your gross income. Income on
which the tax is only limited by treaty, how-
Students and exchange visitors. Nonres- ever, is included in gross income. See
Employees of foreign persons, organiza-
ident alien students and exchange visitors chapter 9.
tions, or offices. If three conditions exist,
your performance of personal services in the present in the United States under section
United States during the time you are a non- 101(a)(15)(F), (J), (M), or (Q) of the Immi-
resident alien is not considered to be from gration and Nationality Act can exclude from
U.S. sources and is tax exempt. If you do not gross income pay received from a foreign Gain From the Sale of
meet any one of the conditions, your income employer.
from personal services performed in the This group includes bona fide students, Your Main Home
United States is considered to be from U.S. scholars, trainees, teachers, professors, re- If you sold your main home, you may be able
sources and is taxed according to the rules search assistants, specialists, or leaders in a to exclude $250,000 of the gain on the sale
in chapter 4. field of specialized knowledge or skill, or per- of your home. If you are married and file a
The three conditions are: sons of similar description. It also includes the joint return, you may be able to exclude
alien's spouse and minor children if they $500,000. For information on the require-
1) You perform personal services as an come with the alien or come later to join the ments for this exclusion, see Publication 523.
employee of or under a contract with a alien.
A nonresident alien temporarily present in This exclusion does not apply to
nonresident alien individual, foreign
partnership, or foreign corporation, not the United States under section 101(a)(15)(J) ! nonresident aliens who are subject to
CAUTION the expatriation tax rules discussed in
engaged in a trade or business in the of the Immigration and Nationality Act in-
cludes an alien individual entering the United chapter 4.
United States; or you work for an office
or place of business maintained in a States as an exchange visitor under the
foreign country or possession of the Mutual Educational and Cultural Exchange
United States by a U.S. corporation, a Act of 1961.
U.S. partnership, or a U.S. citizen or Foreign employer. A foreign employer
resident, is: Scholarships and
2) You perform these services while you 1) A nonresident alien individual, foreign Fellowship Grants
are a nonresident alien temporarily partnership, or foreign corporation, or If you are a candidate for a degree, you may
present in the United States for a period 2) An office or place of business main- be able to exclude from your income part or
or periods of not more than a total of 90 tained in a foreign country or in a U.S. all of the amounts you receive as a qualified
days during the tax year, and possession by a domestic corporation, scholarship. The rules discussed here apply
a domestic partnership, or an individual to both resident and nonresident aliens.
3) Your pay for these services is not more
than $3,000. who is a citizen or resident of the United If a nonresident alien receives a grant
States.
TIP that is not from U.S. sources, it is not
If your pay for these services is more than The term “foreign employer” does not in- subject to U.S. tax. See Scholarships,
$3,000, the entire amount is income from a clude a foreign government. Pay from a for- Grants, Prizes, and Awards in chapter 2 to
trade or business within the United States. eign government that is exempt from U.S. in- determine whether your grant is from U.S.
To find if your pay is more than $3,000, do come tax is discussed in chapter 10. sources.
not include any amounts you get from your
employer for advances or reimbursements of Qualified scholarship. A qualified scholar-
business travel expenses, if you were re- Income from certain annuities. Do not in- ship is any amount you receive as a scholar-
quired to and did account to your employer clude in income any annuity received under ship or fellowship grant that you use accord-
for those expenses. If the advances or re- a qualified annuity plan, or from a qualified ing to the conditions of the grant for:
imbursements are more than your expenses, trust exempt from U.S. income tax if:
include the excess in your pay for these ser- 1) Tuition and fees required to enroll in, or
1) You receive the annuity only because to attend, an educational institution, or
vices. of personal services performed outside
A day means a calendar day during any the United States while you were a non- 2) Fees, books, supplies, and equipment
part of which you are physically present in the resident alien; or personal services per- that the educational institution requires
United States. formed inside the United States while for the courses of instruction.
you were a nonresident alien that meets
Example 1. During 1998, Henry Smythe, the three conditions described in Em- Amounts you receive from a scholarship or
a nonresident alien from a nontreaty country, ployees of foreign persons, organiza- fellowship that you use for other expenses,
worked for an overseas office of a domestic tions, or offices, earlier, and such as room and board or travel, are not
partnership. Henry, who uses the calendar excludable from income.
year as his tax year, was temporarily present 2) At the time the first amount is paid as Terms of grant. Your scholarship or fel-
in the United States for 60 days during 1998 an annuity under the plan (or by the lowship can still qualify as tax-free even if the
performing personal services for the overseas trust), 90% or more of the employees for terms do not provide that it only be used for
office of the partnership. That office paid him whom contributions or benefits are pro- tuition and course-related expenses. It will
a total gross salary of $2,800 for those ser- vided under the annuity plan (or under qualify if you use the grant proceeds for tuition
vices. During 1998, he was not engaged in a the plan of which the trust is a part) are and course-related expenses. However, if the
trade or business in the United States. citizens or residents of the United States. terms of the grant require its use for other
Page 14 Chapter 3 Exclusions From Gross Income
purposes, such as room and board, or specify Useful Items Personal Services
that the grant cannot be used for tuition or You may want to see: If you perform personal services in the United
course-related expenses, the amounts re-
States at any time during the tax year, you
ceived under the grant cannot be excluded
Publication usually are considered engaged in a trade or
from income.
business in the United States.
m 544 Sales and Other Dispositions of
Candidate for a degree. The term candidate Assets Certain compensation paid to a non-
for a degree means a student (whether full TIP resident alien by a foreign employer
or part-time) who: m 1212 List of Original Issue Discount In- is not included in gross income. For
struments more information, see Services Performed for
1) Attends a primary or secondary school Foreign Employer in chapter 3.
or is pursuing a degree at a college or Form (and Instructions)
university, or
Other Trade or Business
2) Attends an educational institution that is m 6251 Alternative Minimum
Tax—Individuals
Activities
authorized and accredited to provide a
program that is acceptable for full credit Other examples of being engaged in a trade
m W-8 Certificate of Foreign Status or business in the United States follow.
toward a bachelor's or higher degree, or
to provide a program of training to pre- m Schedule D (Form 1040) Capital Gains
pare students for gainful employment in and Losses Students and trainees. You are considered
a recognized occupation. engaged in a trade or business in the United
See chapter 12 for information about get- States if you are temporarily present in the
ting these publications and forms. United States as a nonimmigrant under sub-
Payment for services. You cannot exclude
from income the portion of any scholarship paragraphs (F), (J), (M), or (Q) of section
or fellowship, including any tuition reduction, 101(a)(15) of the Immigration and Nationality
that represents payment for teaching, re- Act. Subparagraph (J) includes a nonresident
alien individual admitted to the United States
search, or other services that the grantor re-
quires as a condition for receiving the schol-
Resident Aliens as an exchange visitor under the Mutual
arship or fellowship. This is true even if all Resident aliens are generally taxed in the Educational and Cultural Exchange Act of
candidates for a degree are required to per- same way as U.S. citizens. This means that 1961. The taxable part of any scholarship or
form the services as a condition for receiving their worldwide income is subject to U.S. tax fellowship grant that is U.S. source income
the degree. and must be reported on their U.S. tax return. is treated as effectively connected with a
Income of resident aliens is subject to the trade or business in the United States.
Example. On January 7, Maria Gomez is graduated tax rates that apply to U.S. citi-
notified of a scholarship of $2,500 for the zens. Resident aliens use the Tax Table and Business operations. If you own and oper-
spring semester. As a condition for receiving Tax Rate Schedules located in the Form 1040 ate a business in the United States selling
the scholarship, Maria must serve as a part- instructions, which apply to U.S. citizens. services, products, or merchandise, you are,
time teaching assistant. Of the $2,500 schol- with certain exceptions, engaged in a trade
arship, $1,000 represents payment for her or business in the United States.
services. Assuming that Maria meets all other
conditions, she can exclude no more than
$1,500 from income as a qualified scholar- Nonresident Aliens Partnerships. If you are a member of a
partnership that at any time during the tax
ship. A nonresident alien's income that is subject year is engaged in a trade or business in the
to U.S. income tax must be divided into two United States, you are considered to be en-
categories: gaged in a trade or business in the United
States.
1) Income that is effectively connected with
a trade or business in the United States, Beneficiary of an estate or trust. If you are
and the beneficiary of an estate or trust that is
4. 2) Income that is not effectively connected
engaged in a trade or business in the United
States, you are treated as being engaged in
with a trade or business in the United
the same trade or business.
States (discussed under The 30% Tax,
How Income of later).
Trading in stocks, securities, and com-
Aliens Is Taxed The difference between these two cate-
gories is that effectively connected income,
modities. If your only U.S. business activity
is trading in stocks, securities, or commodities
after allowable deductions, is taxed at grad- (including hedging transactions) through a
uated rates. These are the same rates that U.S. resident broker or other agent, you are
apply to U.S. citizens and residents. Income not engaged in a trade or business in the
United States.
Introduction that is not effectively connected is taxed at a
flat 30% (or lower treaty) rate. For transactions in stocks or securities,
Resident and nonresident aliens are taxed in this applies to any nonresident alien, including
different ways. Resident aliens are generally If you were formerly a U.S. citizen or a dealer or broker in stocks and securities.
taxed in the same way as U.S. citizens.
Nonresident aliens are taxed based on the
! resident alien, these rules may not
CAUTION apply. See Expatriation Tax, later in
For transactions in commodities, this ap-
plies to commodities that are usually traded
source of their income and whether or not this chapter. on an organized commodity exchange and to
their income is effectively connected with a transactions that are usually carried out at
U.S. trade or business. The following dis- such an exchange.
cussions will help you determine if income Trade or Business This discussion does not apply if you have
you receive during the tax year is effectively a U.S. office or other fixed place of business
connected with a U.S. trade or business and in the United States at any time during the tax year through which,
how it is taxed. Generally, you must be engaged in a trade or by the direction of which, you carry out your
or business during the tax year to be able to transactions in stocks, securities, or com-
treat income received in that year as effec- modities.
Topics tively connected with that trade or business. Trading for a nonresident alien's own
This chapter discusses:
Whether you are engaged in a trade or busi- account. You are not engaged in a trade or
ness in the United States depends on the business in the United States if trading for
• Income that is effectively connected with nature of your activities. The discussions that your own account in stocks, securities, or
a U.S. trade or business
follow will help you determine whether you commodities is your only U.S. business ac-
• Income that is not effectively connected are engaged in a trade or business in the tivity. This applies even if the trading takes
with a U.S. trade or business United States. place while you are present in the United
Chapter 4 How Income of Aliens Is Taxed Page 15
States or is done by your employee or your receivable or note receivable arising 2) At least 90% of your U.S. source trans-
broker or other agent. from that trade or business), or portation income is attributable to regu-
This does not apply to trading for your own larly scheduled transportation.
account if you are a dealer in stocks, securi- 3) Otherwise held to meet the present
ties, or commodities. This does not neces- needs of the trade or business in the “Regularly scheduled transportation” means
sarily mean, however, that as a dealer you United States and not its anticipated fu- that a ship or aircraft follows a published
are considered to be engaged in a trade or ture needs. schedule with repeated sailings or flights at
business in the United States. Determine that regular intervals between the same points for
Generally, stock of a corporation is not voyages or flights that begin or end in the
based on the facts and circumstances in each
treated as an asset used in, or held for use United States. This definition applies to both
case or under the rules given above in Trad-
in, a trade or business in the United States. scheduled and chartered air transportation.
ing in stocks, securities, and commodities.
“Fixed place of business” generally means a
Business-activities test. This test usually place, site, structure, or other similar facility
Effectively applies when income, gain, or loss comes through which you engage in a trade or busi-
directly from the active conduct of the trade ness.
Connected Income or business. The business-activities test is If you do not meet the two conditions
If you are engaged in a U.S. trade or busi- most important when: above, the income is not effectively con-
ness, all income, gain, or loss for the tax year nected and different rules apply. See Trans-
that you get from sources within the United 1) Dividends or interest are received by a portation Tax, later in this chapter.
States (other than certain investment income) dealer in stocks or securities,
is treated as effectively connected income. 2) Royalties are received in the trade or
This applies whether or not there is any con- Business Profits and Losses
business of licensing patents or similar
nection between the income and the trade or property, or and Sales Transactions
business being carried on in the United States All profits or losses from U.S. sources that are
during the tax year. 3) Service fees are earned by a servicing from the operation of a business in the United
Two tests, described later, determine business. States are effectively connected with a trade
whether certain items of investment income or business in the United States. For exam-
(such as interest, dividends, and royalties) are Under this test, if the conduct of the U.S. ple, profit from the sale in the United States
treated as effectively connected with that trade or business was a material factor in of inventory property purchased either in this
business. producing the income, the income is consid- country or in a foreign country is effectively
In limited circumstances, some kinds of ered effectively connected. connected trade or business income. A share
foreign source income may be treated as ef- of U.S. source profits or losses of a partner-
fectively connected with a trade or business Personal Service Income ship that is engaged in a trade or business in
in the United States. For a discussion of these the United States is also effectively connected
rules, see Foreign Income, later. You usually are engaged in a U.S. trade or
business when you perform personal services with a trade or business in the United States.
in the United States. Personal service income
Investment Income you receive in a tax year in which you are Real Property Gain or Loss
Investment income from U.S. sources that engaged in a U.S. trade or business is effec- Gains and losses from the sale or exchange
may or may not be treated as effectively tively connected with a U.S. trade or busi- of U.S. real property interests (whether or not
connected with a U.S. trade or business ness. Income received in a year other than they are capital assets) are taxed as if you
generally falls into three categories: the year you performed the services is also are engaged in a trade or business in the
effectively connected if it would have been United States. You must treat the gain or loss
1) Fixed or determinable income (interest, effectively connected if received in the year as effectively connected with that trade or
dividends, rents, royalties, premiums, you performed the services. Personal service business.
annuities, etc.), income includes wages, salaries, commis-
sions, fees, per diem allowances, and em-
2) Certain gains (some of which are con- ployee allowances and bonuses. The income U.S. real property interest. This is any in-
sidered capital gains), and may be paid to you in the form of cash, ser- terest in real property located in the United
vices, or property. States or the Virgin Islands or any interest in
3) Capital gains (and losses). a domestic corporation that is a U.S. real
If you engaged in a U.S. trade or business
only because you perform personal services property holding corporation. Real property
Use the two tests, described next, to de-
in the United States during the tax year, in- includes:
termine whether an item of U.S. source in-
come falling in one of the three categories come and gains from assets, and gains and
1) Land and unsevered natural products of
above and received during the tax year is ef- losses from the sale or exchange of capital
the land, such as growing crops, timber,
fectively connected with your U.S. trade or assets are generally not effectively connected
mines, wells, and other natural deposits,
business. If the tests indicate that the item of with your trade or business. However, if there
income is effectively connected, you must in- is a direct economic relationship between
clude it with your other effectively connected your holding of the asset and your trade or 2) Improvements on land, including
income. If the item of income is not effectively business of performing personal services, the buildings, other permanent structures,
connected, include it with all other income income, gain, or loss is effectively connected. and structural components of these, and
discussed under The 30% Tax, later in this
chapter. Pensions. If you were engaged in a U.S.
trade or business in a tax year because you 3) Personal property associated with the
performed personal services in the United use of real property, such as farming,
Asset-use test. This test usually applies to mining, forestry, or construction equip-
income that is not directly produced by trade States, and you later receive a pension or
retirement pay as a result of these services, ment or property used in lodging facilities
or business activities. Under this test, if an or rented office space, unless the per-
item of income is from assets (property) used the retirement pay is effectively connected
income in each year you receive it. This is sonal property is:
in, or held for use in, the trade or business in
the United States, it is considered effectively true whether or not you are engaged in a U.S. a) Disposed of more than one year
connected. trade or business in the year you receive the before or after the disposition of the
An asset is used in, or held for use in, the retirement pay. real property, or
trade or business in the United States if the
asset is: b) Separately sold to persons unre-
Transportation Income lated either to the seller or to the
1) Held for the principal purpose of pro- Transportation income is effectively con- buyer of the real property.
moting the conduct of a trade or busi- nected if you meet the following two condi-
ness in the United States, tions: A corporation is a U.S. real property
holding corporation if the fair market value of
2) Acquired and held in the ordinary course 1) You had a fixed place of business in the the corporation's U.S. real property interests
of the trade or business conducted in the United States involved in earning the in- are at least 50% of the total fair market value
United States (for example, an account come, and of:
Page 16 Chapter 4 How Income of Aliens Is Taxed
1) The corporation's U.S. real property in- which is trading in stocks or securities for Fixed or Determinable Income
terests, plus its own account. A substitute dividend
The 30% (or lower treaty) rate applies to the
or interest payment received under a
2) The corporation's interests in real prop- gross amount of U.S. source fixed or deter-
securities lending transaction or a sale-
erty located outside the United States, minable annual or periodic gains, profits, or
repurchase transaction is treated the
plus income.
same as the amounts received on the
Income is fixed when it is paid in amounts
3) The corporation's other assets that are transferred security.
known ahead of time. Income is determina-
used in, or held for use in, a trade or ble whenever there is a basis for figuring the
3) Income, gain, or loss from the sale out-
business. amount to be paid. Income can be periodic
side the United States, through the U.S.
office or other fixed place of business, if it is paid from time to time. It does not have
You generally are subject to tax on the to be paid annually or at regular intervals. In-
sale of the stock in any domestic corporation of stock in trade, property that would be
included in inventory if on hand at the come can be determinable or periodic even
unless you establish that the corporation is if the length of time during which the pay-
not a U.S. real property holding corporation. end of the tax year, or property held pri-
marily for sale to customers in the ordi- ments are made is increased or decreased.
A U.S. real property interest does not in- Items specifically included as fixed or de-
clude a class of stock of a corporation that is nary course of business. This will not
apply if you sold the property for use, terminable income are interest (other than
regularly traded on an established securities original issue discount), dividends, rents,
market, unless you hold more than 5% of the consumption, or disposition outside the
United States and an office or other fixed premiums, annuities, salaries, wages, and
fair market value of that class of stock. An other compensation. A substitute dividend
interest in a foreign corporation owning U.S. place of business in a foreign country
was a material factor in the sale. or interest payment received under a securi-
real property generally is not a U.S. real ties lending transaction or a sale-repurchase
property interest unless the corporation transaction is treated the same as the
chooses to be treated as a domestic corpo- Tax on Effectively amounts received on the transferred security.
ration. Other items of income, such as royalties, also
Connected Income
may be subject to the 30% tax.
Alternative minimum tax. There may be a Income you receive during the tax year that
minimum tax on your net gain from the dis- is effectively connected with your trade or Some fixed or determinable income
position of U.S. real property interests. Figure business in the United States is, after allow- TIP may be exempt from U.S. tax. See
the amount of this tax, if any, on Form 6251. able deductions, taxed at the rates that apply chapter 3 if you are not sure whether
to U.S. citizens and residents. the income is taxable.
Generally, you can receive effectively
Withholding of tax. If you dispose of a U.S.
connected income only if you are a nonresi- Original issue discount. If you sold, ex-
real property interest, the buyer may have to
dent alien engaged in trade or business in the changed, or received a payment on a bond
withhold tax. See the discussion of Tax
United States during the tax year. However, or other debt instrument that was issued at a
Withheld on Real Property Sales, in chapter
income you receive from the sale or ex- discount after March 31, 1972, all or part of
8.
change of property, the performance of ser- the original issue discount (OID) (other than
vices, or any other transaction in another tax portfolio interest) may be subject to the 30%
Foreign Income year is treated as effectively connected in that tax. The amount of OID is the difference be-
Under limited circumstances, you must treat year if it would have been effectively con- tween the stated redemption price at maturity
three kinds of foreign source income as ef- nected in the year the transaction took place and the issue price of the debt instrument.
fectively connected with a trade or business or you performed the services. The 30% tax applies in the following circum-
in the United States. These circumstances stances:
are: Example. Ted Richards, a nonresident
alien, entered the United States in August 1) You received a payment on an obli-
1) You have an office or other fixed place 1997, to perform personal services in the U.S. gation. In this case, the amount of OID
of business in the United States to which office of his overseas employer. He worked subject to tax is the OID that accrued
the income can be attributed, in the U.S. office until December 25, 1997, while you held the obligation minus the
but did not leave this country until January OID previously taken into account. But
2) That office or place of business is a 11, 1998. On January 7, 1998, he received the tax on the OID cannot be more than
material factor in producing the income, his final paycheck for services performed in the payment minus the tax on the inter-
and the United States during 1997. All of Ted's est payment on the obligation.
income during his stay here is U.S. source
3) The income is produced in the ordinary 2) You sold or exchanged the obligation.
income.
course of the trade or business carried The amount of OID subject to tax is the
During 1997, Ted was engaged in the
on through that office or other fixed place OID that accrued while you held the ob-
trade or business of performing personal
of business. ligation minus the amount already taxed
services in the United States. Therefore, all
in (1) above.
amounts paid to him in 1997 for services
An office or other fixed place of business
performed in the United States during 1997 Report on your return the amount of OID
is a material factor if it significantly contrib-
are effectively connected with that trade or shown on Form 1042-S if you bought the debt
utes to, and is an essential economic element
business during 1997. instrument at original issue. However, you
in, the earning of the income.
The salary payment Ted received in Jan- must recompute your proper share of OID
The three kinds of foreign source income
uary 1998 is U.S. source income to him in shown on Form 1042-S if any of the following
are:
1998. It is effectively connected with a trade apply:
1) Rents and royalties for the use of, or for or business in the United States because he
the privilege of using, intangible personal was engaged in a trade or business in the 1) You bought the obligation at a premium
property located outside the United United States during 1997 when he per- or paid an acquisition premium.
States or from any interest in such formed the services that earned the income.
2) The obligation is a stripped bond or a
property. Included are rents or royalties stripped coupon (including zero coupon
for the use, or for the privilege of using, Real property income. You may be able to instruments backed by U.S. Treasury
outside the United States, patents, choose to treat all income from real property securities).
copyrights, secret processes and formu- as effectively connected. See Income From
las, goodwill, trademarks, trade brands, Real Property, later in this chapter. 3) You receive a Form 1042-S as a nomi-
franchises, and similar properties if the nee recipient.
rents or royalties are from the active
For the definition of premium and acquisi-
conduct of a trade or business in the The 30% Tax tion premium and instructions on how to re-
United States.
Tax at a 30% (or lower treaty) rate applies to compute OID, get Publication 1212.
2) Dividends or interest from the active certain items of income or gains from U.S. If you held a bond or other debt instrument
conduct of a banking, financing, or simi- sources but only if the items are not effec- that was issued at a discount before April 1,
lar business in the United States, or from tively connected with your U.S. trade or busi- 1972, write to the IRS for further information.
a corporation the principal business of ness. See chapter 12.
Chapter 4 How Income of Aliens Is Taxed Page 17
Social Security Benefits To determine the excess of gains over This choice stays in effect for all later tax
losses, you cannot take the deduction for a years unless you revoke it with the consent
A nonresident alien must include 85% of any capital loss carryover into account. of the Internal Revenue Service.
U.S. social security benefit (and the social Losses from sales or exchanges of capital
security equivalent part of a tier 1 railroad assets that exceed similar gains are not al-
retirement benefit) in U.S. source fixed or
determinable annual or periodic income. This
lowed. Transportation Tax
If you are not engaged in a trade or busi- If you have transportation income that is not
income is exempt under some tax treaties. ness in the United States and have not es- effectively connected (see Transportation In-
tablished a tax year for a prior period, your tax come, earlier in this chapter), a 4% tax rate
year will be the calendar year for purposes applies. If you receive transportation income
Sales or Exchanges of the 183-day rule. Also, you must file your
of Capital Assets subject to the 4% tax, you should figure the
tax return on a calendar-year basis. tax and show it on line 51 of Form 1040NR.
These rules apply only to those capital gains If you have been in the United States for Attach a statement to your return that in-
and losses from sources in the United States less than 183 days during the tax year, cludes the following information (if applica-
that are not effectively connected with a trade capital gains (other than gains listed earlier) ble):
or business in the United States. These rules are tax exempt unless they are effectively
apply even if you are engaged in a trade or connected with a trade or business in the 1) Your name, taxpayer identification num-
business in the United States. These rules United States during your tax year. ber, and tax year,
do not apply to the sale or exchange of a U.S.
real property interest or to the sale of any Reporting. You cannot offset losses that are 2) A description of the types of services
property that is effectively connected with a not effectively connected against effectively performed (whether on or off board),
trade or business in the United States. See connected gains. Report your gains and
losses from the sales or exchanges of capital 3) Names of vessels or registration num-
Real Property Gain or Loss, earlier, under
assets that are not connected with a trade or bers of aircraft on which you performed
Effectively Connected Income.
business in the United States on page 4 of the services,
A capital asset is everything you own
except: inventory, business accounts or notes Form 1040NR. Report gains and losses from 4) Amount of U.S. source transportation
receivable, depreciable property used in a sales or exchanges of capital assets (includ- income derived from each type of service
trade or business, real property used in a ing real property) that are connected with a for each vessel or aircraft for the calen-
trade or business, certain copyrights, literary trade or business in the United States on a dar year, and
or musical or artistic compositions, letters or separate Schedule D (Form 1040), Capital
memoranda, or similar property, and certain Gains and Losses, and attach it to Form 5) Total amount of U.S. source transporta-
U.S. Government publications. 1040NR. tion income derived from all types of
A capital gain is a gain on the sale or services for the calendar year.
exchange of a capital asset. A capital loss
is a loss on the sale or exchange of a capital Income from Real Property This 4% tax applies to your U.S. source
asset. If you are a nonresident alien and during the gross transportation income. This only in-
You may want to read Publication 544. tax year you have income from real property cludes transportation income that is treated
However, use Publication 544 only to deter- located in the United States that you own or as derived from sources in the United States
mine what is a sale or exchange of a capital have an interest in and hold for the production if the transportation begins or ends in the
asset, or what is treated as such. Specific tax of income, you can choose to treat all income United States. For transportation income from
treatment that applies to U.S. citizens or res- from that property as income effectively con- personal services, the transportation must be
idents generally does not apply to you. nected with a trade or business in the United between the United States and a U.S. pos-
The following gains are subject to the 30% States. The choice applies to all income from session. For personal services of a nonresi-
(or lower treaty) rate without regard to the real property located in the United States and dent alien, this only applies to income derived
183-day rule, discussed next. held for the production of income and to all from, or in connection with, an aircraft.
income from any interest in such property.
1) Gains on the disposal of timber, coal, or This includes income from rents, royalties
domestic iron ore with a retained eco- from mines, oil or gas wells, or other natural Expatriation Tax
nomic interest. resources. It also includes gains from the sale The expatriation tax provisions apply to U.S.
or exchange of real property. citizens who have renounced their citizenship
2) Gains on contingent payments received You can make this choice only for real and long-term residents who have ended their
from the sale or exchange of patents, property income that is not otherwise con- residency, if one of the principal purposes of
copyrights, and similar property after nected with your U.S. trade or business. the action is the avoidance of U.S. taxes. The
October 4, 1966. If you make the choice, you can claim expatriation tax applies to the 10-year period
deductions attributable to the real property following the date of the action.
3) Gains on certain transfers of all sub- income and only your net income from real If you expatriated in 1998, you are pre-
stantial rights to, or an undivided interest property is taxed. sumed to have tax avoidance as a principal
in, patents if the transfers were made This choice does not treat a nonresident purpose if:
before October 5, 1966. alien, who is not otherwise engaged in a U.S.
trade or business, as being engaged in a 1) Your average annual net income tax for
4) Gains on the sale or exchange of original
trade or business in the United States during the last five tax years ending before the
issue discount obligations.
the year. date of the action is more than $109,000,
or
183-day rule. If you have been in the United Making the choice. Make the initial choice
States for 183 days or more during the tax by attaching a statement to your return, or 2) Your net worth on the date of the action
year, your capital gains from U.S. sources amended return, for the year of the choice. is $543,000 or more.
(other than gains listed earlier) that are more Include in your statement:
than your capital losses from U.S. sources Ruling request. If you are presumed to have
are taxed at a 30% (or lower treaty) rate. This 1) A complete list of all your real property, tax avoidance as a principal purpose because
rule applies even if any of the transactions or any interest in real property, located you meet either of the previous tests, you may
occur while you are not in the United States. in the United States, be eligible to request a ruling from the IRS
To determine the excess of gains over 2) The extent of your ownership in the that you did not expatriate to avoid U.S. taxes.
losses, consider only the amount of your property, You must request this ruling within one year
gains and losses that would be recognized from the date of expatriation. For information
and taken into account if effectively con- 3) The location of the property, that must be included in your ruling request,
nected with your trade or business in the 4) A description of any major improvements see section IV of Notice 97–19, 1997–1 C.B.
United States during the tax year. Take into to the property, and 394, and Notice 98–34, 1998–27 I.R.B.
account, in arriving at your net gain, all gains Former U.S. citizen. If you are a former
and losses treated under U.S. tax laws as 5) Details of any previous choices and re- U.S. citizen, you are eligible to request a rul-
gains or losses from the sales or exchanges vocations of the real property income ing if you are in one of the following catego-
of properties that are capital assets. choice. ries:
Page 18 Chapter 4 How Income of Aliens Is Taxed
1) You became at birth a U.S. citizen and gations of U.S. persons or of the United 1) You were a U.S. resident for a period
a citizen of another country and continue States, a state or political subdivision thereof, that includes at least 3 consecutive cal-
to be a citizen of that other country, or the District of Columbia. endar years,
It also includes any income or gain derived
2) You become (within a reasonable period from stock in certain controlled foreign cor- 2) You were a resident for at least 183 days
after loss of U.S. citizenship) a citizen porations if you owned, or were considered in each of those years,
of the country in which you, your spouse, to own, at any time during the 2-year period 3) You ceased to be treated as a U.S. res-
or one of your parents were born, ending on the date of expatriation, more than ident, and
50% of (1) the total combined voting power
3) You were present in the United States 4) You then again became a U.S. resident
of all classes of that corporation's stock, or (2)
for no more than 30 days during each before the end of the third calendar year
the total value of the stock. Any exchange of
year of the 10-year period ending on the after the period described in (1) above.
property is treated as a sale of the property
date of expatriation, or
at its fair market value on the date of the ex-
change and any gain is treated as U.S. Under this special rule, you are subject to
4) You lost your U.S. citizenship before tax on your U.S. source gross income and
reaching age 181/2. source gross income in that tax year unless
you enter into a gain recognition agreement gains on a net basis at the graduated rates
under Notice 97–19. applicable to individuals (with allowable de-
Former long-term resident. If you are a ductions), unless you would be subject to a
former long-term resident, you are eligible to higher tax under the 30% tax (discussed
request a ruling if you are in one of the fol- Other information. For more information on earlier) on income not connected with a U.S.
lowing categories: the expatriation tax provisions, including ex- trade or business.
ceptions to the tax and special U.S. source
1) You become (within a reasonable period rules, see section 877 of the Internal Revenue Example. John Willow, a citizen of New
after your expatriation) a resident fully Code. Zealand, entered the United States on April
liable to income tax in one of the follow- 1, 1993, as a lawful permanent resident. On
ing countries: August 1, 1995, John ceased to be a lawful
permanent resident and returned to New
a) The country in which you were Reporting Requirements Zealand. During his period of residence, he
born, If you lost your U.S. citizenship, you must file was present in the United States for at least
Form 8854, Expatriation Information State- 183 days in each of three consecutive years
b) The country where your spouse ment, with the Department of State, a (1993, 1994, and 1995). He returned to the
was born, or consular office, or a federal court at the time United States on October 5, 1998, as a lawful
c) The country where either of your of loss of citizenship. If you end your long- permanent resident. He became a resident
parents was born. term residency, you must file Form 8854 with before the close of the third calendar year
the Internal Revenue Service when you file (1998) beginning after the end of his first pe-
2) You were present in the United States your tax return for the year your residency riod of residence (August 1, 1995). Therefore,
for no more than 30 days during each ends. he is subject to tax under the special rule for
year of the 10-year period prior to the period of nonresidence (August 2, 1995,
expatriation, or through October 4, 1998) if it is more than the
Penalties. If you fail to file Form 8854, you tax that would normally apply to him as a
3) You ceased to be a long-term resident may have to pay a penalty equal to the nonresident alien.
before reaching age 181/2. greater of 5% of the expatriation tax or
$1,000. The penalty will be assessed for
Reporting requirements. If you are subject
You will not qualify under category (1) if each year during which such failure continues
to this tax for any year in the period you were
you are not domiciled in that country unless for the 10-year period. The penalty will not
a nonresident alien, you must file Form
your income is taxed in the same manner as be imposed if you can show that such failure
1040NR for that year. The return is due by the
a resident domiciled in that country. is due to reasonable cause and not willful
due date (including extensions) for filing your
neglect.
U.S. income tax return for the year that you
Long-term residents. You are a long-term again become a U.S. resident. If you had filed
resident if you were a lawful permanent resi- Expatriation tax return. If you are subject returns for that period, you must file amended
dent of the United States in at least 8 of the to the expatriation tax, you must file Form returns. You must attach a statement to your
last 15 tax years ending with the year your 1040NR for each year of the 10-year period return that identifies the source of all of your
residency ends. In determining if you meet following expatriation. Complete line “P” on U.S. and foreign gross income and the items
the 8-year requirement, do not count any year page 5 of Form 1040NR. See Special Rules of income subject to this special rule.
that you are treated as a resident of a foreign For Former U.S. Citizens And Former Long-
country under a tax treaty and do not waive Term U.S. Residents in the instructions for
treaty benefits. Form 1040NR. You must attach a statement
Your U.S. residency is considered to have to Form 1040NR listing, by category (divi-
ended when you cease to be a lawful per- dends, interest, etc.), all items of United
manent resident or you commence to be
treated as a resident of another country under
States and foreign source income, whether
or not taxable in the United States. If you are 5.
a tax treaty and do not waive treaty benefits. a former citizen and you have not filed Form
Chapter 6
2 Married filing joint return (even if only one had income) Married
© filing 44 Education credits. Attach Form 8863 44
3 Married filing separate return. Enter spouse’s social security no. above and full name here.
separately: 45
4 Head of household (with qualifying person). (See page 18.) If the qualifying person is a child but not your dependent, $3,550 45 Adoption credit. Attach Form 8839
Check only
enter this child’s name here. © 46 Foreign tax credit. Attach Form 1116 if required 46
one box.
5 Qualifying widow(er) with dependent child (year spouse died © 19 ). (See page 18.)
Line 40
47 Other. Check if from a Form 3800 b Form 8396
%
Tax from
6a X Yourself. If your parent (or someone else) can claim you as a dependent on his or her tax No. of boxes c Form 8801 d Form (specify) 47
Table-- $2,531;
Exemptions return, do not check box 6a checked on
6a and 6b
1 Tax from Form48 Add lines 41 through 47. These are your total credits 48
1040NR $36 49 Subtract line 48 from line 40. If line 48 is more than line 40, enter -0- © 49 2,567
b Spouse No. of your
c Dependents: (3) Dependent’s (4) if qualifying children on 6c 50 Self-employment tax. Attach Schedule SE 50
(2) Dependent’s
(1) First name Last name social security number relationship to child for child tax who: Other 51
you credit (see page 19) 51 Alternative minimum tax. Attach Form 6251
● lived with you Taxes 52
● did not live with 52 Social security and Medicare tax on tip income not reported to employer. Attach Form 4137
If more than six you due to divorce 53
53 Tax on IRAs, other retirement plans, and MSAs. Attach Form 5329 if required
dependents, or separation
see page 19. (see page 19) 54 Advance earned income credit payments from Form(s) W-2 54
Dependents on 6c 55 Household employment taxes. Attach Schedule H 55
not entered above 56 Add lines 49 through 55. This is your total tax © 56 2,567
Add numbers 57 2,736
57 Federal income tax withheld from Forms W-2 and 1099
d Total number of exemptions claimed
entered on
lines above ©
1 Payments 58
58 1998 estimated tax payments and amount applied from 1997 return
7 Wages, salaries, tips, etc. Attach Form(s) W-2 7 28,300 Attach 59a Earned income credit. Attach Schedule EIC if you have a qualifying Line 57
Income Forms W-2
8a Taxable interest. Attach Schedule B if required 8a 395 and W-2G child b Nontaxable earned income: amount ©
b Tax-exempt interest. DO NOT include on line 8a 8b on the front. and type © 59a Includes
Attach Also attach
Copy B of your 9 Ordinary dividends. Attach Schedule B if required 9 120 60 Additional child tax credit. Attach Form 8812 60 $36 from
Form 1099-R
Forms W-2, 10 if tax was 61 Amount paid with Form 4868 (request for extension) 61 Form 1040NR
10 Taxable refunds, credits, or offsets of state and local income taxes (see page 21)
W-2G, and withheld. 62
1099-R here. 11 Alimony received 11 62 Excess social security and RRTA tax withheld (see page 43)
12 63 Other payments. Check if from a Form 2439 b Form 4136 63
12 Business income or (loss). Attach Schedule C or C-EZ
64 Add lines 57, 58, 59a, and 60 through 63. These are your total payments © 64 2,736
If you did not 13 Capital gain or (loss). Attach Schedule D 13
get a W-2, 65 169
see page 20. 14 Other gains or (losses). Attach Form 4797 14 Refund 65 If line 64 is more than line 56, subtract line 56 from line 64. This is the amount you OVERPAID
15a Total IRA distributions 15a b Taxable amount (see page 22) 15b 66a Amount of line 65 you want REFUNDED TO YOU © 66a 169
Have it
Enclose, but do 16a Total pensions and annuities 16a b Taxable amount (see page 22) 16b directly
not staple, any deposited! © b Routing number © c Type: Checking Savings
17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17
payment. Also, See page 44
18 © d Account number
please use 18 Farm income or (loss). Attach Schedule F and fill in 66b,
66c, and 66d. 67 Amount of line 65 you want APPLIED TO YOUR 1999 ESTIMATED TAX © 67
Form 1040-V. 19 Unemployment compensation 19
20a Social security benefits 20a b Taxable amount (see page 24) 20b Amount 68 If line 56 is more than line 64, subtract line 64 from line 56. This is the AMOUNT YOU OWE.
21 For details on how to pay, see page 44 © 68
21 Other income. List type and amount—see page 24 You Owe 69 Estimated tax penalty. Also include on line 68
22 Add the amounts in the far right column for lines 7 through 21. This is your total income © 22 28,815 69
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and
23 IRA deduction (see page 25) 23 Sign belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Adjusted 24 Student loan interest deduction (see page 27) 24 Here
©
Your signature Date Your occupation Daytime telephone
Gross 25 Medical savings account deduction. Attach Form 8853 25 Joint return? number (optional)
Income 26 Moving expenses. Attach Form 3903 26 8,300
See page 18. Sam R. Brown 3-16-99 R&D Specialist
Keep a copy Spouse’s signature. If a joint return, BOTH must sign. Date Spouse’s occupation
27 One-half of self-employment tax. Attach Schedule SE 27 for your
If line 33 is under records. ( )
$30,095 (under 28 Self-employed health insurance deduction (see page 28) 28
$10,030 if a child
did not live with
29 Keogh and self-employed SEP and SIMPLE plans
30
29 Paid Preparer’s
signature © Date
Check if
self-employed
Preparer’s social security no.
30 Penalty on early withdrawal of savings Preparer’s
©
you), see EIC Firm’s name (or yours EIN
Alimony paid b Recipient’s SSN © 31a
inst. on page 36. 31a Use Only if self-employed) and
address ZIP code
32 Add lines 23 through 31a 32 8,300
33 Subtract line 32 from line 22. This is your adjusted gross income © 33 20,515
For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 51. Cat. No. 11320B Form 1040 (1998)
SCHEDULES A&B OMB No. 1545-0074 Dual Status STATEMENT
Schedule A—Itemized Deductions
(Form 1040)
(Schedule B is on back) 1998
1040NR
OMB No. 1545-0089
Department of the Treasury
Internal Revenue Service (99) © Attach to Form 1040. © See Instructions for Schedules A and B (Form 1040).
Attachment
Sequence No. 07 U.S. Nonresident Alien Income Tax Return
Form
Name(s) shown on Form 1040
Sam R. Brown
Your social security number
000 00 0000
Department of the Treasury
Internal Revenue Service beginning
For the year January 1–December 31, 1998, or other tax year
, 1998, and ending , 19 1998
Your first name and initial Last name Identifying number (see page 6 of inst.)
Medical Caution: Do not include expenses reimbursed or paid by others. Sam R. Brown 000-00-0000
and 1 Medical and dental expenses (see page A-1) 1
$
page A-3.)
%
3 Married resident of Canada or Mexico, or a married U.S. national If you check box 7b, enter your spouse’s
4 Married resident of Japan or the Republic of Korea identifying number ©
%
24 IRA deduction (see page 10) 24
Itemized NO. Your deduction is not limited. Add the amounts in the far right column
for lines 4 through 27. Also, enter on Form 1040, line 36, the larger of 922 25 Student loan interest deduction (see page xx) 25
Deductions © 28
this amount or your standard deduction. 26 Medical savings account deduction. Attach Form 8853 26
Adjustments
YES. Your deduction may be limited. See page A-6 for the amount to enter. 27 Moving expenses. Attach Form 3903 27
28
Chapter 6
For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11330X Schedule A (Form 1040) 1998
28 Self-employed health insurance deduction
29 Keogh and self-employed SEP and SIMPLE plans 29
30 Penalty on early withdrawal of savings 30
31 Scholarship and fellowship grants excluded 31
32 Add lines 24 through 31. These are your total adjustments 32 -0-
33 Subtract line 32 from line 23. Enter here and on line 34. This is your adjusted gross income © 33
Cat. No. 11364D Form 1040NR (1998)
Page 30
Form 1040NR (1998) Page 2 Form 1040NR (1998) Page 3
Page 31
34
Tax Computation
34 Amount from line 33 (adjusted gross income) Schedule A—Itemized Deductions (See pages 14 and 15.) 07
35 Itemized deductions from page 3, Schedule A, line 17 35 195
36 Subtract line 35 from line 34. If line 35 is more than line 34, enter -0- 36
37 Exemptions (see page 10) 37 State and 1 State income taxes 1 195
38 Taxable income. Subtract line 37 from line 36. If line 37 is more than line 36, enter -0- 38 Local
39 Tax. See instructions. Check if total includes any tax from a Form(s) 8814 Income 2 Local income taxes 2
© Taxes
43 Foreign tax credit. Attach Form 1116 if required 43 Charities 4 Gifts by cash or check. If you made any gift of $250 or
44 Other. Check if from a Form 3800 b Form 8396 more, see page 14 4
c Form 8801 d Form (specify) 44 5 Other than cash or check. If you made any gift of $250
45 Add lines 40 through 44 45 or more, see page 14. If over $500, you MUST attach
46 Subtract line 45 from line 39. If line 45 is more than line 39, enter -0- © 46 Form 8283 5
47 Alternative minimum tax (see page 11). Attach Form 6251 47
48 Tax on income not effectively connected with a U.S. trade or business from page 4, line 82 48 36 6 Carryover from prior year 6
Other Taxes
49 Social security and Medicare tax on tip income not reported to employer. Attach Form 4137 49
Chapter 6
50 Tax on qualified retirement plans (including IRAs) and MSAs. Attach Form 5329 if 7 Add lines 4 through 6 7
required 50 Casualty and
51 Transportation tax (see page 12) 51 Theft Losses 8 Casualty or theft loss(es). Attach Form 4684 8
52 Household employment taxes. Attach Schedule H (Form 1040) 52
©
Job 9 Unreimbursed employee expenses—job travel, union
53 Add lines 46 through 52. This is your total tax 53 Expenses dues, job education, etc. You MUST attach Form 2106
54 Federal income tax withheld from Forms W-2, 1099, 1042-S, etc. 54 345 and Most or Form 2106-EZ, if required. See page 15 ©
55 1998 estimated tax payments and amount applied from 1997 return 55 Other 9
56 Additional child tax credit. Attach Form 8812 56 Miscellaneous
57 Amount paid with Form 4868 (extension request) 57 Deductions 10 Tax preparation fees 10
58 Excess social security and RRTA tax withheld (see page 13) 58 11 Other expenses. See page 15 for expenses to deduct
59 Other payments. Check if from a Form 2439 b Form 4136 59 here. List type and amount ©
Payments
page 13 and fill in 65b, c, and d © 65a Other 16 Other—certain expenses of disabled employees, estate tax on income of decedent,
Miscellaneous etc. List type and amount ©
b Routing number c Type: Checking Savings
Deductions
d Account number
66 Amount of line 64 you want APPLIED TO YOUR 1999
ESTIMATED TAX © 66
You Owe
Amount
67 If line 53 is more than line 63, subtract line 63 from line 53. This is the AMOUNT YOU
OWE. For details on how to pay, including what to write on your payment, see page 13 © 67
16
68 Estimated tax penalty (see page 13). Also include on line 67 68 Total 17 Is Form 1040NR, line 34, over $124,500 (over $62,250 if you checked filing status
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and
%
Sign belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. Itemized box 3, 4, or 5 on page 1 of Form 1040NR)?
Here Deductions No. Your deduction is not limited. Add the amounts in the far right column
Your signature Date Your occupation in the United States 195
© 17
©
Keep a copy for lines 3 through 16. Enter the total here and on Form 1040NR, line 35.
of this
return for Yes. Your deduction may be limited. See page 15 for the amount to enter
your records. here and on Form 1040NR, line 35.
©
Date Preparer’s social security no.
Paid Preparer’s
Check if
signature
Pre- self-employed
parer’s
Use Only
Firm’s name (or
yours if self-employed)
and address
© EIN
ZIP code
4
If (d) is more
Other Information (If an item does not apply to you, enter “N/A.”)
(g) GAIN
from (d)
(e) Other (specify)
36
A What country issued your passport? United Kingdom
M If you are claiming the benefits of a U.S. income tax treaty
with a foreign country, give the following information. See
)
than (d), subtract (d)
B Were you ever a U.S. citizen? Yes X No page 16 for additional information.
85
82
%
Enter amount of income under the appropriate rate of tax (see page 15)
If (e) is more
(f) LOSS
from (e)
C Give the purpose of your visit to the United States ©
Tax on income not effectively connected with a U.S. trade or business. Add columns (b)–(e) of line 81. Enter the total here and on Form
©
©
● Type and amount of effectively connected income exempt
Capital gain. Combine columns (f) and (g) of line 84. Enter the net gain here and on line 77 above (if a loss, enter -0-)
from tax. Also, identify the applicable tax treaty article. Do
Temporary assignment
not enter exempt income on lines 8–15, 16b, and 17b–21
84 (
D Type of entry visa and visa number © H-1 For 1998 (also, include this exempt income on
© Permanent
basis
of change
Tax on Income Not Effectively Connected With a U.S. Trade or Business
(c) 15%
States this year? Yes No ● Type and amount of income not effectively connected that
is exempt from or subject to a reduced rate of tax. Also,
240
240
36
G Dates you entered and left the United States during the
year. Residents of Canada or Mexico entering and leaving identify the applicable tax treaty article:
the United States at frequent intervals, give name of country For 1998 ©
only. © Entered -- March 18, 1998 Additional income of $240 taxed at 15% under Article 10
(b) 10%
(c) Date
© N/A
sold
H Give number of days (including vacation and nonwork For 1997
days) you were present in the United States during:
1996 0 , 1997 0 , and 1998 182 .
I If you are a resident of Canada, Mexico, ● Were you subject to tax in that country
80
81
Japan, or the Republic of Korea, or a U.S. on any of the income you claim is entitled
at source
withheld
national, did your spouse contribute to the
acquired
(b) Date
support of any child claimed on Form ● Did you have a permanent establishment
1040NR, line 7c? Yes No
or fixed base (as defined by the tax treaty)
36
36
If “Yes,” enter amount © $ N/A in the United States at any time during
1998? Yes X No
If you were a resident of Japan or the Republic of Korea
70b
69a
70a
70c
71
72
73
74
75
76
77
78
79
for any part of the tax year, enter in the space below your N If you file this return to report community income, give your
total foreign source income not effectively connected with spouse’s name, address, and identifying number.
©
lines 69a through 78. Enter the total here and on Form
Other royalties (copyrights, recording, publishing, etc.)
Real property income and natural resources royalties
the exemption for your spouse and dependents residing in N/A
the United States (if applicable) may be allowed in
accordance with Article 4 of the income tax treaties O If you file this return for a trust, does the
Nature of income
J Did you file a U.S. income tax return for P Is this an “expatriation return” (see
any year before 1998? Yes X No page 16)? Yes X No
83
84
85
information statement (see page 16) OR
Foreign corporations
not submitting that statement.
U.S.
business. Do not include a gain
or loss on disposing of a U.S.
real property interest. Report
these gains and losses on
a
L Have you excluded any gross income other
permanent resident status in the United
with
with
Mortgage
States or have an application pending to
Interest:
connected with a U.S. trade or business? X Yes No adjust your status to that of a lawful
Other
If “Yes,” show the amount, nature, and source of the permanent resident of the United States? Yes No
connected
connected
excluded income. Also, give the reason it was excluded.
(Do not include amounts shown in item M.) © ©
c
b
b
If “Yes,” explain
a
70
71
72
73
74
75
76
77
78
79
80
81
82
69
$93 U.S. bank interest not effectively connected with
a U.S. trade or business
Page 32
5) You do not claim any itemized de-
ductions (other than for state and local
7. Nonresident Aliens income taxes).
Nonresident aliens who are required to file 6) You had only wages, salaries, tips, tax-
an income tax return should use Form able refunds of state and local income
What, When, and 1040NR or, if qualified, Form 1040NR-EZ.
You must file a return if you are:
taxes, and scholarship or fellowship
grants. (If you had taxable interest or
Where To File 1) A nonresident alien individual engaged
dividend income, you cannot use this
form.)
or considered to be engaged in a trade
or business in the United States during 7) You are not claiming any adjustments to
1998. income other than scholarship and fel-
You must file even if: lowship grants excluded.
Introduction a) Your income did not come from a 8) You are not claiming any credits.
What return you must file, as well as when trade or business conducted in the
and where you file that return, depends on 9) You do not have any “other taxes” (other
United States, than social security and Medicare tax on
your status at the end of the tax year as a
resident or a nonresident alien. b) You have no income from U.S. tip income not reported to employer or
sources, or household employment taxes).
Topics c) Your income is exempt from tax. If you do not qualify to file Form
This chapter discusses: 1040NR-EZ, you must file Form 1040NR.
2) A nonresident alien individual not en-
• Forms aliens must file gaged in a trade or business in the
• When and where to file United States with U.S. income on which When and Where To File
the tax liability was not satisfied by the If you are an employee and you receive
• Amended returns and claims for refund withholding of tax at the source, wages subject to U.S. income tax withholding,
• Transportation of currency or monetary 3) A representative or agent responsible for file by the 15th day of the 4th month after your
instruments filing the return of an individual described tax year ends. If you file for the 1998 calendar
in (1) or (2), or year, your return is due April 15, 1999.
If you are not an employee who receives
Useful Items 4) A fiduciary for a nonresident alien estate wages subject to U.S. income tax withholding,
You may want to see: or trust. you must file by the 15th day of the 6th month
after your tax year ends. For the 1998 calen-
Note. If you were a nonresident alien stu- dar year, file your return by June 15, 1999.
Forms (and Instructions)
dent or trainee who was temporarily present For information on when and where to make
m 1040 U.S. Individual Income Tax Return in the United States under an “F,” “J,” “M,” or estimated tax payments, see chapter 8.
“Q” visa, you are considered engaged in a
m 1040AU.S. Individual Income Tax Return trade or business in the United States. You File Form 1040NR-EZ and Form
m 1040EZ Income Tax Return for Single must file Form 1040NR (or Form 1040NR-EZ) 1040NR with the:
and Joint Filers With No Depen- only if you have income that is subject to tax
dents under Section 871, such as wages, tips,
scholarship and fellowship grants, etc. Internal Revenue Service Center
m 1040NR U.S. Nonresident Alien Income Philadelphia, PA 19255.
Tax Return You must also file if you want to:
m 1040NR-EZ U.S. Income Tax Return for
1) Claim a refund of overwithheld or over-
Certain Nonresident Aliens With When to file for deductions and credits.
paid tax, or
No Dependents To get the benefit of any allowable deductions
m 4868 Application for Automatic Exten- 2) Claim the benefit of any deductions or or credits, you must timely file a true and ac-
sion of Time To File U.S. Indi- credits. For example, if you have no U.S. curate return. For this purpose, a return is
vidual Income Tax Return business activities but have income from timely if it is filed within 16 months of the due
real property that you choose to treat as date just discussed. However, if you did not
See chapter 12 for information about get- effectively connected income (discussed file a 1997 tax return and 1998 is not the first
ting these forms. in chapter 4), you must timely file a true year for which you are required to file one,
and accurate return to take any allow- your 1998 return is timely for this purpose if
able deductions against that income. For it is filed by the earlier of:
information on what is timely, see When
Resident Aliens to file for deductions and credits, later, 1) The date that is 16 months after the due
under When and Where To File. date for filing your 1998 return, or
Resident aliens should file Form 1040EZ,
1040A, or 1040 at the address shown in the 2) The date the IRS notifies you that your
instructions for that form. The due date for Even if you have left the United States
1998 return has not been filed and that
filing the return and paying any tax due is ! and filed a Form 1040-C on depar-
CAUTION ture, you still must file an annual U.S.
you cannot claim certain deductions and
April 15 of the year following the year for credits.
which you are filing a return. income tax return. If you are married and both
You are allowed an automatic extension you and your spouse are required to file, you The allowance of the following credits is not
to June 15 to file if your main place of busi- must each file a separate form. affected by this time requirement:
ness and the home you live in are outside the
United States and Puerto Rico on April 15. 1) Credit for withheld taxes,
You can get an extension of time to August Form 1040NR-EZ
2) Credit for excise tax on certain uses of
15 to file your return if you file Form 4868 by You can use Form 1040NR-EZ if all of the gasoline and special fuels, and
April 15 (June 15 if you qualify for the June following conditions are met.
15 extension). See the instructions for the 3) Credit for tax paid by a regulated in-
form you are filing for more information. 1) You do not claim any dependents. vestment company on capital gains.
If the due date for filing falls on a 2) You cannot be claimed as a dependent Protective return. If your activities in the
TIP Saturday, Sunday, or legal holiday, on someone else's return. United States were limited and you do not
the due date is the next day which is 3) If you were married, you cannot claim believe that you had any gross income effec-
not a Saturday, Sunday, or legal holiday. an exemption for your spouse. tively connected with a U.S. trade or business
You may be able to file your return elec- during the year, you can file a protective re-
tronically. See IRS e-file in your form in- 4) Your taxable income is less than turn (Form 1040NR) by the deadline ex-
structions. $50,000. plained above. By filing a protective return,
Chapter 7 What, When, and Where To File Page 33
you protect your right to receive the benefit Penalties. The law imposes penalties for fil- any port of entry or departure, or by mail with
of deductions and credits in the event it is ing your tax return late or for late payment of the:
later determined that some or all of your in- any tax due. However, a penalty is not
come is effectively connected. You are not charged if you can show that there was rea- Commissioner of Customs
required to report any effectively connected sonable cause for your filing or paying late. Attention: Currency Transportation
income or any deductions on the protective You may be subject to additional penalties Reports
return, but you must give the reason the re- for: 1301 Constitution Ave., N.W.
turn is being filed. Washington, DC 20229.
If you believe some of your activities re- 1) Not supplying a taxpayer identification
Shippers or mailers. If the currency or
sulted in effectively connected income, file number when required,
other monetary instrument does not accom-
your return reporting that income and related
2) Filing a frivolous income tax return, or pany the person entering or departing the
deductions by the regular due date. To pro-
United States, Customs Form 4790 can be
tect your right to claim deductions or credits 3) Not including a tax shelter identification filed by mail with the Commissioner of Cus-
resulting from other activities, attach a state- number on a return when required. toms at the above address, on or before the
ment to that return explaining that you wish
date of entry, departure, mailing, or shipping.
to protect your right to claim deductions and
Travelers. Travelers must file Customs
credits if it is later determined that the other Amended Returns Form 4790 with the Customs officer in charge
activities produced effectively connected in-
and Claims for Refund at any Customs port of entry or departure,
come.
when entering or departing the United States.
You can follow the same procedure if you If you find changes in your income, de-
believe you have no U.S. tax liability because ductions, or credits after you mail your return, Penalties. Civil and criminal penalties are
of a U.S. tax treaty. Be sure to also complete file Form 1040X, Amended U.S. Individual provided for failure to file a report, or if the
items L and M on page 5 of Form 1040NR. Income Tax Return. Attach Form 1040NR report contains material omissions or mis-
showing the changes to your original return statements and for structuring the transpor-
Aliens from the Virgin Islands. and write “Amended” across the top. Ordi- tation of currency or monetary instruments to
narily, an amended return claiming a refund avoid filing a report. Also, the entire amount
If you are a bona fide resident of the must be filed within 3 years from the date your
Virgin Islands and work temporarily in of the currency or monetary instrument may
return was filed or within 2 years from the time be subject to seizure and forfeiture.
the United States, you must pay your the tax was paid, whichever is later. A return
income taxes to the Virgin Islands and file More information regarding the filing of
filed before the final due date is considered Customs Form 4790 can be found in the in-
your income tax returns with the: to have been filed on the due date. structions on the back of the form.
Virgin Islands Bureau of Internal Revenue
9601 Estate Thomas
Charlotte Amalie, St. Thomas Transportation of Currency
U.S. Virgin Islands 00802. or Monetary Instruments
Customs Form 4790, Report of International
Report all income from U.S. sources, as Transportation of Currency or Monetary In-
struments, must be filed by each person who
8.
well as income from other sources, on your
return. For information on filing Virgin Islands physically transports, mails, or ships, or
returns, contact the Virgin Islands Bureau of causes to be physically transported, mailed,
or shipped, currency or other monetary in-
Paying Tax
Internal Revenue.
Chapter 8 discusses withholding from U.S.
wages of Virgin Islanders.
struments in a total amount of more than
$10,000 at one time from the United States Through
Aliens from Guam or the Commonwealth
to any place outside the United States, or into
the United States from any place outside the Withholding or
United States. The filing requirement also
of the Northern Mariana Islands. If you are
a resident of Guam or the Commonwealth of
applies to each person who attempts to
transport, mail, or ship the currency or mon-
Estimated Tax
the Northern Mariana Islands (CNMI) on the
etary instruments or attempts to cause them
last day of your tax year, you must file your
to be transported, mailed, or shipped.
return and pay any tax due to Guam or the
The term “monetary instruments” means
CNMI. Report all income, including income
from U.S. sources, on your return. It is not
coin or currency of the United States or of any
other country, travelers' checks in any form,
Important Change
necessary to file a separate U.S. income tax
money orders, investment securities in bearer
return. New forms. If your withholding agent is in
form or otherwise in such form that title to
compliance with the new withholding regu-
Guam residents should file their them passes upon delivery, and negotiable
lations, you may be asked to complete new
Guam returns with the: instruments (except warehouse receipts or
forms. For information, see Important
bills of lading) in bearer form or other in such
Changes at the beginning of this publication.
form that title to them passes upon delivery.
Department of Revenue and Taxation The term includes bank checks and money
Government of Guam orders which are signed but on which the
P.O. Box 23607 name of the payee has been omitted, but
GMF, GU 96921. does not include bank checks, travelers' Introduction
checks, or money orders made payable to the This chapter discusses how to pay your U.S.
Residents of the CNMI should file order of a named person which have not been income tax as you earn or receive income
their CNMI income tax returns with the: endorsed or which contain restrictive during the year. In general, the federal in-
endorsements. come tax is a pay as you go tax. There are
Division of Revenue and Taxation
A transfer of funds through normal bank- two ways to pay as you go.
Commonwealth of the Northern Mariana
Islands ing procedures (wire transfer) that does not
involve the physical transportation of currency 1) Withholding. If you are an employee,
P.O. Box 5234 CHRB your employer probably withholds in-
Saipan, MP 96950. or bearer monetary instruments is not re-
quired to be reported on Customs Form 4790. come tax from your pay. Tax may also
be withheld from certain other
income—including pensions, bonuses,
Filing requirements for Customs Form 4790
commissions, and gambling winnings. In
If you are a resident of the United States are the following.
each case, the amount withheld is paid
on the last day of your tax year, you should Recipients. Each person who receives to the United States Treasury in your
file your return with, and pay any balance of currency or other monetary instruments from
name.
your tax due on income derived from all a place outside the United States must file
sources to the Internal Revenue Service Customs Form 4790 within 15 days after re- 2) Estimated tax. If you do not pay your
Center, Philadelphia, PA 19255. ceipt, with the Customs officer in charge at tax through withholding, or do not pay
Page 34 Chapter 8 Paying Tax Through Withholding or Estimated Tax
enough tax that way, you might have to If you are a resident alien under the rules Students and business apprentices from
pay estimated tax. People who are in discussed in chapter 1, you should file Form India. If you are eligible for the benefits of
business for themselves generally will 1078 with your employer. If you are a non- Article 21(2) of the United States-India In-
have to pay their tax this way. You may resident alien under those rules, you do not come Tax Treaty, you may claim additional
have to pay estimated tax if you receive have to file a form, but it would be helpful if withholding allowances for the standard de-
income such as dividends, interest, rent, you told your employer that you are a non- duction and your spouse. You may also claim
and royalties. Estimated tax is used to resident alien. an additional withholding allowance for each
pay not only income tax, but self- If you are a resident alien and you receive of your dependents not admitted to the United
employment tax and alternative mini- income other than wages (such as dividends States on “F-2,” “J-2,” or “M-2” visas if they
mum tax as well. and royalties) from sources within the United meet the same rules that apply to U.S. citi-
States, you should file Form 1078 with the zens. You do not have to request additional
withholding agent (generally, the payer of the withholding.
income) so the agent will not withhold tax on
Topics the income at the 30% (or lower treaty) rate.
This chapter discusses: If you receive such income as a nonresident
alien, it is usually subject to withholding at the
Withholding on Pensions
30% (or lower treaty) rate. If you receive a pension as a result of per-
• How to notify your employer of your alien sonal services performed in the United
status States, the pension income is treated as ef-
• Income subject to withholding of income fectively connected with a U.S. trade or busi-
tax ness. This income will be subject to gradu-
• Exemptions from withholding
Withholding ated withholding under the pension
withholding rules that apply to U.S. citizens
• Social security and Medicare taxes from Compensation and resident aliens.
The following discussion generally applies You must fill out a Form W-4P, Withhold-
• Estimated tax rules ing Certificate for Pension or Annuity Pay-
only to nonresident aliens. Tax is withheld
from resident aliens in the same manner as ments, using the following guidelines. Check
U.S. citizens. only “Single” marital status, and claim only
Useful Items Wages and other compensation paid to a one withholding allowance unless you are a
You may want to see: nonresident alien for services performed as resident of Canada, Mexico, Japan, or South
an employee are usually subject to graduated Korea, or a U.S. national.
Publication withholding at the same rates as resident al- A nonresident alien who receives periodic
iens and U.S. citizens. Therefore, your com- pension payments or nonperiodic pension
m 515 Withholding of Tax on Nonresi- pensation, unless it is specifically excluded distributions outside of the United States can
dent Aliens and Foreign Corpo- from the term “wages” by law, or is exempt choose to not have tax withheld under the
rations from tax by treaty, is subject to graduated graduated withholding rules. However, if you
withholding. make this choice, the 30% (or lower treaty
m 533 Self-Employment Tax rate) withholding tax will apply.
m 901 U.S. Tax Treaties
Withholding on Wages
Form (and Instructions) If you are an employee and you receive Withholding on Tip Income
wages subject to graduated withholding, you Tips you receive during the year for services
m W-4 Employee's Withholding Allow- will be required to fill out a Form W-4, Em- performed in the United States are subject to
ance Certificate ployee's Withholding Allowance Certificate. U.S. income tax. Include them in taxable in-
m W-4P Withholding Certificate for Pen- Nonresident aliens should use the following come. In addition, tips received while working
sion or Annuity Payments instructions instead of the instructions on the for one employer, amounting to $20 or more
Form W-4. in a month, are subject to graduated with-
m W-8 Certificate of Foreign Status Because of the restrictions on a nonresi- holding.
m 1040-ES(NR) U.S. Estimated Tax for dent alien's filing status, the limited number
Nonresident Alien Individuals of personal exemptions a nonresident alien is
The statement can be in any form, but it Reduced Withholding Form W-4. Complete lines 1 through 4 of
must be dated and signed by the employee
and must include a written declaration that it
on Scholarships Form W-4. Sign and date the form and give
it with the Personal Allowances Worksheet to
is made under the penalties of perjury. and Fellowship Grants your withholding agent.
There is no withholding on a qualified If you file a Form W-4 to reduce or elimi-
scholarship received by a candidate for a nate the withholding on your scholarship or
Certain Residents degree. See chapter 3. grant, you must file an annual U.S. income
of Puerto Rico If you are a nonresident alien student or tax return to be allowed the exemptions and
If you are a nonresident alien employee who grantee with an “F,” “J,” “M,” or “Q” visa and deductions you claimed on that form. If you
is a resident of Puerto Rico, wages for ser- you receive a U.S. source grant or scholar- are in the United States during more than one
vices performed in Puerto Rico are generally ship that is not fully exempt, the withholding tax year, you must attach a statement to your
not subject to withholding unless you are an agent (usually the payer of the scholarship) yearly Form W-4 indicating that you have filed
employee of the United States or any of its withholds tax at 14% (or lower treaty rate) of a U.S. income tax return for the previous year.
agencies in Puerto Rico. the taxable part of the grant or scholarship. If you have not been in the United States long
However, if you are not a candidate for a de- enough to be required to file a return, you
gree and the grant does not meet certain re- must attach a statement to your Form W-4
Residents of quirements, tax will be withheld at the 30% saying you will file a U.S. income tax return
(or lower treaty) rate. when required.
the U.S. Virgin Islands To reduce the amount subject to the 14% After the withholding agent has accepted
Nonresident aliens who are bona fide resi- rate, you should fill out Form W-4 and the your Form W-4, tax will be withheld on your
dents of the Virgin Islands are not subject to Personal Allowances Worksheet (attached to scholarship or grant as if it were wages. The
withholding of U.S. tax on income earned Form W-4) every year and give it to the with- gross amount of the income is reduced by the
while temporarily employed in the United holding agent. Use the following procedures amount on line H of the worksheet and the
States. This is because those persons pay to complete the worksheet. withholding tax is figured on the remainder.
Chapter 8 Paying Tax Through Withholding or Estimated Tax Page 37
You will receive a Form 1042-S from the sation to which it relates. Include a declara- 2) The property disposed of is an interest
withholding agent (usually the payer of your tion that you make the statement under the in a domestic corporation if any class of
grant) showing the gross amount of your penalties of perjury. stock of the corporation is regularly
scholarship or fellowship grant less the with- traded on an established securities mar-
holding allowance amount, the tax rate, and Special events and promotions. Withhold- ket.
the amount of tax withheld. Use this form to ing at the full 30% rate is required for pay-
file your annual U.S. income tax return. 3) The property disposed of is an interest
ments made to a nonresident alien or foreign in a corporation that is not regularly
corporation for gate receipts (or television or traded on an established market if you
other receipts) from rock music festivals, give the buyer a copy of a statement is-
boxing promotions, and other entertainment sued by the corporation certifying that
Income Entitled or sporting events, unless the withholding
agent has been specifically advised otherwise
the interest is not a U.S. real property
interest.
to Tax Treaty by letter from the IRS. This is true even if the
4) You (the seller) give the buyer a certif-
income may be exempt from taxation by pro-
Benefits visions of a tax treaty. One reason for this is ication stating, under penalties of per-
that the partial or complete exemption is jury, that you are not a foreign person,
If a tax treaty between the United States and
usually based on factors that cannot be de- and containing your name, U.S. taxpayer
your country provides an exemption from, or
termined until after the close of the tax year. identification number, and home address
a reduced rate of, withholding for certain
(or office address, in the case of an en-
items of income, you should notify the payer The required letter should be re- tity).
of the income (the withholding agent) of your quested from the:
foreign status to claim the benefits of the 5) The buyer receives a withholding certif-
treaty. Generally, you do this by filing Form icate from the Internal Revenue Service.
1001, Ownership, Exemption, or Reduced Internal Revenue Service
Rate Certificate, with the withholding agent. 6) You give the buyer written notice that
Assistant Commissioner (International)
However, do not use Form 1001 for dividends you are not required to recognize any
Attn: OP:IN:D:C:SS:TS
or compensation for personal services. For gain or loss on the transfer because of
950 L'Enfant Plaza South, S.W.
dividends, the payor can rely on your address a nonrecognition provision in the Internal
Washington, DC 20024.
of record as the basis for allowing you the Revenue Code or a provision in a U.S.
benefit of the treaty. The rules that apply to tax treaty. The buyer must file a copy of
compensation for personal services are dis- the notice with the: Director, Philadelphia
Entertainers and athletes can also apply
cussed next. Service Center, 11601 Roosevelt Blvd.,
for reduced withholding on the basis of their
Philadelphia, PA 19255 Attn: Drop Point
net income after expenses. See Central
543X.
Independent contractors. If you perform withholding agreements, earlier, under With-
personal services as an independent con- holding from Compensation. 7) The amount you realize on the transfer
tractor (rather than an employee) and you can of a U.S. real property interest is zero.
claim an exemption from withholding on that You will be required to pay U.S. tax,
personal service income because of a tax ! at the time of your departure from the
CAUTION United States, on any income for
8) The property is acquired by the United
States, a U.S. state or possession, a
treaty, submit Form 8233 to each withholding
agent from whom amounts will be received. which you incorrectly claimed a treaty ex- political subdivision, or the District of
emption. For more details on treaty provisions Columbia.
Students, teachers, and researchers. Alien that apply to compensation, see Publication
901. The certifications in (3) and (4) must be
students, teachers, and researchers who disregarded by the buyer if the buyer has
perform dependent personal services (as actual knowledge, or receives notice from a
employees) can also use Form 8233 to claim seller's or buyer's agent, that they are false.
exemption from withholding of tax on com- The tax required to be withheld on a dis-
pensation for services that is exempt from position can be reduced or eliminated under
U.S. tax under a U.S. tax treaty.
Attach the appropriate statement shown
Tax Withheld a withholding certificate issued by the IRS.
Either you or the buyer can request a with-
in Appendix A (for students) or Appendix B
(for teachers and researchers) at the end of
on Real Property holding certificate.
A withholding certificate can be issued due
this publication to the Form 8233 and give it Sales to any of the following.
to the withholding agent. For newly ratified
If you are a nonresident alien and you dispose
treaties not listed in the appendices, attach a 1) A determination by the IRS that reduced
of a U.S. real property interest, the transferee
statement in a format similar to those for other withholding is appropriate because ei-
(buyer) of the property generally must with-
treaties. ther:
hold a tax equal to 10% of the amount real-
ized on the disposition. Withholding is also a) The amount required to be withheld
Employees. If you are not a student, required on certain distributions and other
teacher, or researcher, but you perform ser- would be more than the transferor's
transactions by domestic or foreign corpo- maximum tax liability, or
vices as an employee and your pay is exempt rations, partnerships, trusts, and estates.
from U.S. income tax under a tax treaty, you These rules are covered in Publication 515 b) Withholding of the reduced amount
can avoid having tax withheld from your under U.S. Real Property Interest. would not jeopardize collection of
wages. Give a statement to your employer, in If you are a partner in a domestic part- the tax.
duplicate, for the tax year giving your name, nership, and the partnership disposes of a
address, taxpayer identification number, and 2) The exemption from U.S. tax of all gain
U.S. real property interest at a gain, tax will realized by the transferor.
country of which you are a resident, and cer- be withheld by the partnership on the amount
tifying that: of gain allocable to its foreign partners. Your 3) An agreement for the payment of tax
share of the income and tax withheld will be providing security for the tax liability,
1) You are not a citizen or resident of the
reported to you on Form 8805, Foreign Part- entered into by the transferee or trans-
United States, and
ner's Information Statement of Section 1446 feror.
2) Your compensation is exempt from U.S. Withholding Tax, or Form 1042-S, Foreign
income tax and why it is exempt. Person's U.S. Source Income Subject to Get Publication 515 and Form 8288-B for
Withholding (in the case of a publicly traded information on procedures to request a with-
The statement should indicate the tax partnership). holding certificate.
treaty and provision under which you claim Withholding is not required in the following
the exemption and should show the facts you situations. Credit for tax withheld. The buyer must
rely on to prove you meet the requirements report and pay over the withheld tax within
of a treaty provision. These can be found in 1) The property is acquired by the buyer for 20 days after the transfer using Form 8288,
the applicable tax treaty article. use as a residence and the amount re- U.S. Withholding Tax Return for Dispositions
Date and sign the statement. Identify the alized (purchase price) is not more than by Foreign Persons of U.S. Real Property In-
tax year to which it applies and the compen- $300,000. terests. This form is filed with the IRS with two
Page 38 Chapter 8 Paying Tax Through Withholding or Estimated Tax
copies of Form 8288-A, Statement of With- Nonresident Alien Students Social security and Medicare taxes are not
holding on Dispositions by Foreign Persons withheld on pay for services of an exchange
If you are a nonresident alien admitted to the
of U.S. Real Property Interests. Copy B of visitor who has been given permission to work
United States as a student, you generally are
this statement will be stamped received by and who possesses or obtains a letter of au-
not permitted to work for a wage or salary or
the IRS and returned to you (the seller). You thorization from the sponsor unless the ex-
to engage in business while you are in the
must file Copy B with your tax return to take change visitor is considered a resident alien.
United States. In some cases, a student, ad-
credit for the tax withheld. In all other cases, services performed by
mitted to the United States in“ F-1,” “M-1,” or
an exchange visitor are not considered as
“J-1” status, is granted permission to work
performed to carry out the purpose for which
and it is so noted on the student's copy of
the visitor was admitted to the United States.
Immigration Form I-94, Arrival-Departure
Social security and Medicare taxes are with-
Record. Social security and Medicare taxes
Social Security are not withheld from pay for the work unless
held from pay for the services unless the pay
is exempt under the Internal Revenue Code.
the student is considered a resident alien.
and Medicare Taxes If you are a “J-1” visa holder, your spouse
or child may be permitted to work in the
Any student who is enrolled and reg-
If you work as an employee in the United United States with the prior approval of the
TIP ularly attending classes at a school
States, you must pay social security and INS and issuance of Form I-688B or Form
may be exempt from social security
Medicare taxes in most cases. Your pay- I-766.
and Medicare taxes on pay for services per-
ments of these taxes contribute to your cov- Nonresident aliens admitted to the United
formed for that school.
erage under the U.S. social security system. States as participants in cultural exchange
Social security coverage provides retirement programs under section 101(a)(15)(Q) of the
benefits and medical insurance (Medicare) The Immigration and Naturalization Ser-
vice (INS) permits on-campus work for stu- Immigration and Nationality Act may be ex-
benefits to individuals who meet certain eligi- empt from social security and Medicare taxes.
bility requirements. dents in “F-1” status if it does not displace a
U.S. resident. On-campus work means work Aliens with “Q” visas are aliens whose em-
In most cases, the first $68,400 of taxable ployment or training affords the opportunity
wages received in 1998 for services per- performed on the school's premises. On-
campus employment includes work per- for culture-sharing with the American public.
formed in the United States is subject to so- They are allowed to work in the United States
cial security tax. All taxable wages are subject formed at an off-campus location that is edu-
cationally affiliated with the school. for a specific employer in an approved cultural
to Medicare tax. Your employer deducts these exchange program. The employer must be
taxes from each wage payment. Your em- On-campus work under the terms of a schol-
arship, fellowship, or assistantship is consid- the petitioner through whom the alien ob-
ployer must deduct these taxes even if you tained the “Q” visa. Social security and
do not expect to qualify for social security or ered part of the academic program of a stu-
dent taking a full course of study and is Medicare taxes are not withheld from pay for
Medicare benefits. You can claim a credit for this work unless the alien is considered a
excess social security tax on your income tax permitted by the INS. In this case, the edu-
cational institution endorses the Form I-20. resident alien. Aliens with “Q” visas are not
return if you have more than one employer permitted to engage in employment outside
and the amount deducted from your com- Social security and Medicare taxes are not
withheld from pay for this work unless the the exchange program activities.
bined wages for 1998 is more than $4,240.80.
Use the worksheet in chapter 3 of Publication student is considered a resident alien.
505 to figure your credit. Employment due to severe economic ne- Refund of Taxes Withheld in Error
If any one employer deducted more than cessity and for optional practical training is If social security or Medicare taxes were
$4,240.80, you cannot claim a credit for that sometimes permitted for students in “F-1” withheld in error from pay you receive that is
amount. Ask your employer to refund the ex- status. Students granted permission to work not subject to these taxes, contact the em-
cess. due to severe economic necessity or for op- ployer who withheld the taxes for reimburse-
In general, U.S. social security and Medi- tional practical training will be issued Form ment. If you are unable to get a full refund
care taxes apply to payments of wages for I-688B or Form I-766 by INS. Social security of the amount from your employer, file a claim
services performed as an employee in the and Medicare taxes are not withheld from pay for refund with the Internal Revenue Service
United States, regardless of the citizenship for this work unless the student is considered on Form 843, Claim for Refund and Request
or residence of either the employee or the a resident alien. for Abatement, and attach a copy of your
employer. In limited situations, these taxes Students in “M-1” status who have com- Form W-2, Wage and Tax Statement, to
apply to wages for services performed outside pleted a course of study can accept employ- prove the amount of social security and
the United States. Your employer should be ment or practical training for up to six months Medicare taxes withheld. Also attach a copy
able to tell you if social security and Medicare and must have a Form I-688B or Form I-766 of your visa (if not stamped on Form I-94),
taxes apply to your wages. You cannot make issued by INS. Social security and Medicare INS Form I-94, Arrival/Departure Record, and
voluntary payments if no taxes are due. taxes are not withheld from “M-1” students' INS Form I-538, Application by Nonimmigrant
pay for these services unless the student is Student (FI) for Extension to Stay, School
considered a resident alien. Transfer or Permission to Accept or Continue
In all other cases, any services performed Employment. You must also attach a state-
Students by a nonresident alien student are not con- ment from your employer indicating the
and Exchange Visitors sidered as performed to carry out the purpose amount of the reimbursement your employer
for which the student was admitted to the provided and the amount of the credit or re-
Generally, services performed by you as a United States. Social security and Medicare fund your employer claimed or you authorized
nonresident alien temporarily in the United taxes will be withheld from pay for the ser- your employer to claim. If you cannot obtain
States as a nonimmigrant under subpara- vices unless the pay is exempt under the this statement from your employer, you must
graph (F), (J), (M), or (Q) of section Internal Revenue Code. provide this information on your own state-
101(a)(15) of the Immigration and Nationality ment and explain why you are not attaching
Act are not covered under the social security a statement from your employer.
program if the services are performed to carry Exchange Visitors
File the claim for refund (with attachments)
out the purpose for which you were admitted Nonresident aliens are admitted to the United with the IRS office where your employer's
to the United States. This means that there States as nonimmigrant exchange visitors returns were filed. If you do not know where
will be no withholding of social security or under section 101(a)(15)(J) of the Immi- your employer's returns were filed, file your
Medicare taxes from the pay you receive for gration and Nationality Act through the spon- claim with the Internal Revenue Service
these services. These types of services are sorship of approved organizations and insti- Center, Philadelphia, PA 19255.
very limited, and generally include only on- tutions that are responsible for establishing a
campus work, practical training, and eco- program for the exchange visitor and for any
nomic hardship employment. later modification of that program. Generally, International Social
However, you are covered under the so- an exchange visitor who has the permission
cial security program for these services if you of the sponsor can work for the same reasons Security Agreements
are considered a resident alien as discussed as the students discussed above. In these The United States has entered into social
in chapter 1, even though your nonimmigrant cases, permission is granted by a letter from security agreements with foreign countries to
classification (“F,” “J,” “M,” or “Q”) remains the the exchange visitor's sponsor or by coordinate social security coverage and tax-
same. Social security and Medicare taxes will endorsement from the program sponsor on ation of workers employed for part or all of
be withheld from your pay. Form IAP-66, Certificate of Eligibility. their working careers in one of the countries.
Chapter 8 Paying Tax Through Withholding or Estimated Tax Page 39
These agreements are commonly referred to strumentality of a foreign government is sub- Checks should be made payable to the
as totalization agreements. Agreements with ject to the self-employment tax on income "United States Treasury."
Austria, Belgium, Canada, Finland, France, earned in the United States, a resident alien
Germany, Greece, Ireland, Italy, Luxembourg, employed by such an organization or gov-
the Netherlands, Norway, Portugal, Spain, ernment does not have to pay self- How to estimate your tax for 1999. If you
Sweden, Switzerland, and the United employment tax. filed a 1998 return on Form 1040NR or Form
Kingdom are in effect. Other agreements are If you are self-employed in both the United 1040NR-EZ and expect your income, number
also expected to enter into force in the future. States and in a country with which the United of exemptions, and total deductions for 1998
Under these agreements dual coverage and States has a social security agreement (as to be nearly the same, you should use your
dual contributions (taxes) for the same work discussed above), or you temporarily transfer 1998 return as a guide to complete the Esti-
are eliminated. The agreements will generally your business activity to or from one of these mated Tax Worksheet in the Form
make sure that social security taxes are paid countries, you may be exempt from self- 1040-ES(NR) instructions. If you did not file
only to one country. employment tax as a result of the agreement. a return for 1998, or if your income, ex-
Generally, under these agreements, you To establish your exemption, you should write emptions, deductions, or credits will be dif-
will be subject to social security taxes only in to the foreign agency to which you pay your ferent for 1999, you must estimate these
the country where you are working. However, foreign social security tax if you are in the amounts. Figure your estimated tax liability
if you are temporarily sent to work in another foreign country. If you are in the United using the Tax Rate Schedule in the 1999
country and your pay would normally be States, write to the Social Security Adminis- Form 1040-ES(NR) instructions for your filing
subject to social security taxes in both coun- tration, Office of International Programs, P.O. status.
tries, the agreement may provide that you can Box 17741, Baltimore, MD 21235, for a de-
remain covered only by the social security termination of your social security tax liability Note. If you expect to be a resident of
system of the country from which you were under the agreement. Puerto Rico during the entire year, use Form
sent. More information on any specific Self-employment income you receive 1040-ES.
agreement can be obtained by contacting the while you are a resident alien is subject to
U.S. Social Security Administration. self-employment tax even if it was paid for When to pay estimated tax. Make your first
To establish that your pay is subject only services you performed as a nonresident al- estimated tax payment by the due date for
to foreign social security taxes and is exempt ien. filing the previous year's Form 1040NR or
from U.S. social security taxes (including the Form 1040NR-EZ. If you have wages subject
Medicare tax) as a result of an agreement, Example. Bill Jones is an author engaged
in the business of writing books. Bill had to the same withholding rules that apply to
you or your employer should request a state- U.S. citizens, you must file Form 1040NR or
ment from the appropriate agency of the for- several books published in a foreign country
while he was a citizen and resident of that Form 1040NR-EZ and make your first esti-
eign country. This will usually be the same mated tax payment by April 15, 1999. If you
agency to which you or your employer pay country. During 1998, Bill entered the United
States as a resident alien. After becoming a do not have wages subject to withholding, file
your foreign social security taxes. The foreign your income tax return and make your first
agency will be able to tell you what informa- U.S. resident, he continued to receive royal-
ties from his foreign publisher. Bill reports his estimated tax payment by June 15, 1999.
tion is needed for them to issue the state- If your first estimated tax payment is due
ment. Your employer should keep a copy of income and expenses on the cash basis (he
reports income on his tax return when re- April 15, 1999, you can pay your estimated
the statement because it may be needed to tax in full at that time, or in equal installments
show why you are exempt from U.S. social ceived and deducts expenses when paid).
Bill's 1998 self-employment income includes by April 15, 1999, June 15, 1999, September
security taxes. 15, 1999, and January 17, 2000. If your first
You or your employer will need to request the royalties received after he became a U.S.
resident even though the books were pub- payment is not due until June 15, 1999, you
a statement from the foreign agency if you can pay your estimated tax in full at that time,
are working in a foreign country and would lished while he was a nonresident alien.
or 1/2 of your estimated tax by June 15, 1999,
normally be subject to U.S. social security 1/4 of the tax by September 15, 1999, and 1/4
taxes, but are exempt as a result of an Deduction for one-half of self-employment by January 17, 2000.
agreement. However, some of the countries tax. If you must pay self-employment tax, you Fiscal year. If your return is not on a
with which the United States has agreements can deduct one-half of the self-employment calendar year basis, your due dates are the
will not issue statements in these cases. tax paid in figuring your adjusted gross in- 15th day of the 4th, 6th, and 9th months of
come. Get Publication 533 for more informa- your fiscal year, and the 1st month of the fol-
If the foreign agency refuses to issue tion.
the necessary statement, either you lowing fiscal year. If any date falls on a Sat-
or your employer should request a urday, Sunday, or legal holiday, use the next
statement that your wages are not covered day that is not a Saturday, Sunday, or legal
by the U.S. social security system from the: holiday.
8833 if you claim the following treaty benefits. Employees of foreign governments (in- Certification. To qualify for the exemption
cluding foreign municipalities) have two ways under U.S. tax law, the foreign government
1) A reduction or modification in the taxa- to get exemption of their governmental wages for which you work must certify to the De-
tion of gain or loss from the disposition from U.S. income tax: partment of State that you are their employee
of a U.S. real property interest based on and that you perform services similar to those
a treaty. performed by employees of the United States
1) By a provision in a tax treaty or consular
2) A change to the source of an item of in- convention between the United States in your country. However, see the following
come or a deduction based on a treaty. and their country, or discussion that may affect your qualifying for
this exemption.
2) By meeting the requirements of U.S. tax
3) A credit for a specific foreign tax for law.
which foreign tax credit would not be al- Aliens who file the waiver provided by sec-
lowed by the Internal Revenue Code. tion 247(b) of the Immigration and Nationality
Employees of international organizations Act to keep their immigrant status no longer
You must also file Form 8833 if you re- can only exempt their wages by meeting the qualify for the exemption from U.S. tax under
ceive payments or income items totaling more requirements of U.S. tax law. U.S. tax law from the date of filing the waiver
than $100,000 and you determine your The exemption discussed in this chapter with the Attorney General.
country of residence under a treaty and not applies only to pay received for services per- However, aliens who are exempt from
under the rules for residency discussed ear- formed for a foreign government or interna- U.S. tax by an income tax treaty, consular
lier in this publication. tional organization. Other U.S. income re- agreement, or international agreement be-
These are the more common situations for ceived by persons who qualify for this tween the United States and their country do
which Form 8833 is required. exemption may be fully taxable or given fa- not lose the exemption if they sign the waiver.
vorable treatment under an applicable tax If the international agreement creating the
Exceptions. You do not have to file Form treaty provision. The proper treatment of this international organization for which you work
8833 for any of the following situations. kind of income (interest, dividends, etc.) is provides that alien employees are exempt
discussed earlier in this publication. from U.S. income tax, your exemption is not
1) You claim a reduced rate of withholding affected by the filing of a section 247(b)
tax under a treaty on interest, dividends, waiver. Two international organizations that
rent, royalties, or other fixed or determi- have such a provision are the International
nable annual or periodic income ordi- Monetary Fund (IMF) and the International
narily subject to the 30% rate. Exemption Bank for Reconstruction and Development
(World Bank).
2) You claim a treaty reduces or modifies
the taxation of income from dependent
Under Tax Treaty Only employees of international or-
personal services, pensions, annuities,
social security and other public pen-
If you are from a country that has a tax treaty
with the United States, you should first look
! ganizations and foreign governments
CAUTION who are not U.S. citizens qualify for
sions, or income of artists, athletes, stu- at the treaty to see if there is a provision that the exemption of wages under U.S. tax law.
dents, trainees, or teachers. This in- exempts your income. The income of U.S. The one exception to this rule is a U.S. citizen
cludes taxable scholarship and citizens and resident aliens working for for- who is also a citizen of the Philippines. In
fellowship grants. eign governments usually is not exempt. addition, the statutory exception applies only
However, in a few instances, the income of to current employees and not to former em-
3) You claim a reduction or modification of a U.S. citizen with dual citizenship may qual-
taxation of income under an International ployees. Pensions received by former em-
ify. Often the exemption is limited to the in- ployees living in this country do not qualify for
Social Security Agreement or a Diplo- come of persons who also are nationals of the
matic or Consular Agreement. exemption.
foreign country involved.
4) You are a partner in a partnership or a
beneficiary of an estate or trust and the An international organization is an organ-
partnership, estate, or trust reports the Resident aliens from France. The United ization designated by the President of the
required information on its return. States and France have come to an agree- United States through Executive Order to
ment to relieve double taxation of U.S. per- qualify for the privileges, exemptions, and
5) The payments or items of income that manent residents who receive wages and immunities provided in the International Or-
are otherwise required to be disclosed pensions for governmental services per- ganizations Immunities Act.
total no more than $10,000. formed for the government of France. Gen- Aliens should find out if they have been
erally, this income is taxable in the United made known to, and have been accepted by,
Penalty for failure to provide required in- States and France. However, the United the Secretary of State as officers or employ-
formation on Form 8833. If you are required States will allow a credit for taxes paid to ees of that organization, or if they have been
to report the treaty benefits but do not, you France on this income. designated by the Secretary of State, before
Page 42 Chapter 10 Employees of Foreign Governments and International Organizations
formal notification and acceptance, as pro- 1) Allowances to cover expenses incident
spective officers or employees. to study or training in the United States,
Employees of an international organiza- Aliens Required To such as expenses for travel, mainte-
tion claiming exemption should know the nance, and tuition,
number of the Executive Order covering their Obtain Sailing or
organization and should have some written 2) The value of any services or food and
evidence of their acceptance or designation Departure Permits lodging connected with this study or
by the Secretary of State. You generally must pay all U.S. income tax training,
The exemption is denied when, because due on your income subject to U.S. tax during 3) Income from employment authorized by
the Secretary of State determines the alien's the tax year up to the date you leave when the Immigration and Naturalization Ser-
presence in the United States is no longer you file for your sailing or departure permit. vice (INS), or
desirable, an employee leaves the United Any taxes due for past years will also have
States (or after a reasonable time allowed for to be paid. However, in some situations, if 4) Certain interest income that is not effec-
leaving the United States). The exemption is you can demonstrate to the Internal Revenue tively connected with a U.S. trade or
also denied when a foreign country does not Service that your departure does not endan- business. (See Interest in chapter 3.)
allow similar exemptions to U.S. citizens. ger the collection of tax, you can receive a
Then the Secretary of State can withdraw the sailing or departure permit without paying tax (4) Alien students, including their spouses
privileges, exemptions, and immunities from at that time. and children, who enter on an “M-1” or “M-2”
the nationals of that foreign country. If you try to leave the United States with- visa only and who receive no income from
out a sailing or departure permit, and cannot U.S. sources while in the United States on
show that you qualify to leave without it, you those visas, other than:
may be subject to an income tax examination
by an IRS employee at the point of departure. 1) Income from employment authorized by
You must then complete the necessary in- the Immigration and Naturalization Ser-
come tax returns and statements and, ordi- vice (INS), or
narily, pay any taxes due.
2) Certain interest income that is not effec-
11. tively connected with a U.S. trade or
business. (See Interest in chapter 3.)
Departing Aliens Aliens Not Required (5) Certain other aliens temporarily in the
United States who have received no taxable
and the Sailing To Obtain Sailing income during the tax year up to and including
the date of departure or during the preceding
or Departure or Departure Permits tax year. If the IRS has reason to believe that
If you are included in one of the following an alien has received income subject to tax
Permit categories, you do not have to get a sailing
or departure permit before leaving the United
and that the collection of income tax is jeop-
ardized by departure, it may then require the
States. alien to obtain a sailing or departure permit.
(1) Representatives of foreign govern- Aliens covered by this paragraph are:
ments with diplomatic passports, whether ac-
credited to the United States or other coun- 1) Alien military trainees who enter the
United States for training under the
Introduction tries, members of their households, and
servants accompanying them. sponsorship of the Department of De-
Before leaving the United States, all aliens Servants who are leaving, but not with a fense and who leave the United States
(except those listed under Aliens Not Re- person with a diplomatic passport, must get on official military travel orders,
quired To Obtain Sailing or Departure Per- a sailing or departure permit. However, they 2) Alien visitors for business on a “B-1”
mits) must obtain a certificate of compliance. can get a sailing or departure permit on Form visa, or both a “B-1” visa and a“ B-2”
This document, also popularly known as the 2063 without examination of their income tax visa, who do not remain in the United
sailing permit or departure permit, is part liability by presenting a letter from the chief States or a U.S. possession for more
of the income tax form you must file before of their diplomatic mission certifying that: than 90 days during the tax year,
leaving. You will receive a sailing or departure
permit after filing a Form 1040-C or Form 1) Their name appears on the “White List” 3) Alien visitors for pleasure on a “B-2” visa,
2063. These forms are discussed in this (a list of employees of diplomatic
chapter. missions), and 4) Aliens in transit through the United
States or any of its possessions on a
2) They do not owe to the United States “C-1” visa, or under a contract, such as
Topics any income tax, and will not owe any tax a bond agreement, between a transpor-
This chapter discusses: up to and including the intended date of tation line and the Attorney General, and
departure.
5) Aliens who enter the United States on a
• Who needs a sailing permit The statement must be presented to an border-crossing identification card; or for
IRS office. whom passports, visas, and border-
• How to get a sailing permit (2) Employees of international organiza- crossing identification cards are not re-
tions and foreign governments (other than quired, if they are visitors for pleasure,
• Forms you file to get a sailing permit or visitors for business who do not re-
diplomatic representatives exempt under cat-
egory (1)) and members of their households: main in the United States or a U.S. pos-
session for more than 90 days during the
1) Whose compensation for official services tax year; or if they are in transit through
Useful Items is exempt from U.S. tax under U.S. tax the United States or any of its pos-
You may want to see: laws (described in chapter 10), and sessions.
Form (and Instructions) 2) Who receive no other income from U.S. (6) Alien residents of Canada or Mexico
sources. who frequently commute between that coun-
try and the United States for employment, and
m 1040-C U.S. Departing Alien Income Tax
(3) Alien students, industrial trainees, and whose wages are subject to the withholding
Return
exchange visitors, including their spouses of U.S. tax.
m 2063 U.S. Departing Alien Income Tax and children, who enter on an “F-1,” “F-2,” If you are in one of these categories and
Statement “H-3,” “H-4,” “J-1,” “J-2,” or “Q” visa only and do not have to get a sailing or departure per-
who receive no income from U.S. sources mit, you must be able to support your claim
See chapter 12 for information about get- while in the United States under those visas for exemption with proper identification or give
ting these forms. other than: the authority for the exemption.
Chapter 11 Departing Aliens and the Sailing or Departure Permit Page 43
Exceptions. If you are an alien in category 9) Documents indicating you qualify for any form, check the yes box on line A, sign it, and
(1) or (2), above, who filed the waiver under special tax treaty benefits claimed. attach the letter. The IRS office where you
section 247(b) of the Immigration and submit the form will then issue your sailing
Nationality Act, you must get a sailing or de- or departure permit.
parture permit.
If you are an alien in category (1) or (2), Returning to the United States. If you fur-
whose income is exempt from U.S. tax be- nish the IRS with information showing, to the
cause of an income tax treaty or international Forms To File satisfaction of the IRS, that you intend to re-
agreement, you do not lose this tax ex- turn to the United States and that your de-
If you must get a sailing or departure permit,
emption by signing the section 247(b) waiver. you must file Form 2063 or Form 1040-C. parture does not jeopardize the collection of
But you must get a sailing or departure permit income tax, you can get a sailing or departure
Employees in the IRS office can assist in filing
even though your income is exempt. permit by filing Form 1040-C without having
these forms. Both forms have a “certificate
of compliance” section. When the certificate to pay the tax shown on it. You must, how-
of compliance is signed by an agent of the ever, file all income tax returns that have not
District Director, it certifies that your U.S. tax yet been filed as required, and pay all income
Getting a Sailing obligations have been satisfied according to
available information. Your Form 1040-C
tax that is due on these returns.
Your Form 1040-C must include all in-
or Departure Permit copy of the signed certificate, or the one de-
tached from Form 2063, is your sailing or
come received and reasonably expected to
be received during the entire year of depar-
The following discussion covers when and departure permit. ture. The sailing or departure permit issued
where to get your sailing permit. with this Form 1040-C can be used for all
departures during the current year. However,
Form 2063. This is a short form that asks the Service may cancel the sailing or depar-
Where to get a sailing or departure permit. for certain information but does not include a
It is advisable for aliens who have been ture permit for any later departure if the pay-
tax computation. The following departing al- ment of income tax appears to be in jeopardy.
working in the United States to get the permit iens can get their sailing or departure permits
from an IRS office in the area of their em- by filing Form 2063.
ployment, but it also can be obtained from an Joint return on Form 1040-C. Departing
IRS office in the area of their departure. 1) Aliens, whether resident or nonresident, husbands and wives who are nonresident al-
who have had no taxable income for the iens cannot file joint returns. However, if both
When to get a sailing or departure permit. tax year up to and including the date of spouses are resident aliens, they can file a
You should get your sailing or departure per- departure and for the preceding year, if joint return on Form 1040-C if:
mit at least 2 weeks before you plan to leave. the period for filing the income tax return
You cannot apply earlier than 30 days before for that year has not expired. 1) Both spouses can reasonably be ex-
your planned departure date. Do not wait until pected to qualify to file a joint return at
the last minute in case there are unexpected 2) Resident aliens who have received tax- the normal close of their tax year, and
problems. able income during the tax year or pre-
ceding year and whose departure will not 2) The tax years of the spouses end at the
hinder the collection of any tax. How- same time.
Papers to submit. Getting your sailing or ever, if the IRS has information indicating
departure permit will go faster if you bring to that the aliens are leaving to avoid pay-
the IRS office papers and documents related ing their income tax, they must file a
to your income and your stay in the United Form 1040-C.
States. Bring the following records with you
if they apply.
Aliens in either of these categories who
Bond or Employer
1) Your passport and alien registration card
have not filed an income tax return or paid Letter To Ensure
income tax for any tax year must file the re-
or visa. turn and pay the income tax before they can Payment
2) Copies of your U.S. income tax returns be issued a sailing or departure permit on Usually, you must pay the tax shown as due
filed for the past 2 years. If you were in Form 2063. on Form 1040-C when you file it. However, if
the United States for less than 2 years, The sailing or departure permit detached you pay all taxes due that you owe for prior
bring the income tax returns you filed for from Form 2063 can be used for all depar- years, you can furnish a bond or an employer
that period. tures during the current year. However, the letter guaranteeing payment instead of paying
IRS may cancel the sailing or departure per- the income taxes shown as due on the Form
3) Receipts for income taxes paid on these mit for any later departure if they believe the 1040-C or the tax return for the preceding
returns. collection of income tax is jeopardized by that year if the period for filing that return has not
later departure. expired.
4) Receipts, bank records, canceled
checks, and other documents that prove The bond must equal the tax due plus in-
your deductions, business expenses, Form 1040-C. If you must get a sailing or terest to the date of payment as figured by the
and dependents claimed on your returns. departure permit and you do not qualify to file IRS. Information about the form of bond and
Form 2063, you must file Form 1040-C. security on it can be obtained from your IRS
Ordinarily, all income received or reason- office.
5) A statement from each employer show- ably expected to be received during the tax
ing wages paid and tax withheld from year up to and including the date of departure
January 1 of the current year to the date must be reported on Form 1040-C and the tax
of departure if you were an employee. If on it must be paid. When you pay any tax
you were self-employed, you must bring shown as due on the Form 1040-C, and you Paying Taxes and
a statement of income and expenses up
to the date you plan to leave.
file all returns and pay all tax due for previous
years, you will receive a sailing or departure Obtaining Refunds
permit. However, the IRS may permit you to Except when a bond or an employer letter is
6) Proof of estimated tax payments for the furnish a bond or an employer letter guaran- furnished, or the IRS is satisfied that your
past year and this year. teeing payment instead of paying the taxes departure does not jeopardize the collection
7) Documents showing any gain or loss for certain years. See Bond or Employer Let- of income tax, you must pay all tax shown as
from the sale of personal property, in- ter To Ensure Payment, discussed later. The due on the Form 1040-C at the time of filing
cluding capital assets and merchandise. sailing or departure permit issued under the it. If the tax computation on Form 1040-C re-
conditions in this paragraph is only for the sults in an overpayment, there is no tax to pay
specific departure for which it is issued. at the time you file that return. However, the
8) Documents relating to scholarship or If you submit an employer letter guaran- IRS cannot provide a refund at the time of
fellowship grants including verification of teeing payment of tax with your Form 1040-C, departure. If you are due a refund, you must
the grantor, source, and purpose of the you do not need to fill out the form in detail. file either Form 1040NR or Form 1040NR-EZ
grant. Just fill out the identifying information on the at the end of the tax year.
Page 44 Chapter 11 Departing Aliens and the Sailing or Departure Permit
• Comments & Help to e-mail us with not keep a record of any taxpayer's name
comments about the site or with tax or tax identification number.
Filing Annual U.S. questions. • We sometimes record telephone calls to
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to receive our electronic newsletters on
evaluate IRS assistors objectively. We
hold these recordings no longer than one
Form 1040-C is not an annual U.S. income hot tax issues and news. week and use them only to measure the
tax return. If an income tax return is required quality of assistance.
by law, that return must be filed even though You can also reach us with your computer
a Form 1040-C has already been filed. • We value our customers' opinions.
using any of the following. Throughout this year, we will be survey-
Chapters 5 and 7 discuss filing an annual
U.S. income tax return. The tax paid with ing our customers for their opinions on
• Telnet at iris.irs.ustreas.gov
Form 1040-C should be taken as a credit our service.
against the tax liability for the entire tax year
• File Transfer Protocol at
ftp.irs.ustreas.gov
on your annual U.S. income tax return.
• Direct dial (by modem) 703–321–8020 Mail. You can send your order for
forms, instructions, and publications
to the Distribution Center nearest to
you and receive a response 7 to 15 workdays
TaxFax Service. Using the phone after your request is received. Find the ad-
12. attached to your fax machine, you can
receive forms, instructions, and tax
dress that applies to your part of the country.
This appendix contains the postgraduate or professional de- States as a recipient of a grant,
statements nonresident alien
People's Republic gree from a recognized educa- allowance, or award from
students must file with Form of China tional institution. [insert the name of the
8233, Exemption From With- I was a resident of the People's nonprofit organization or govern-
holding on Compensation for In- Republic of China on the date of ment institution providing the
dependent (and Certain De- my arrival in the United States. I Egypt grant, allowance, or award].
pendent) Personal Services of a am not a U.S. citizen. I have not I was a resident of Egypt on the I will receive compensation
Nonresident Alien Individual, to been lawfully accorded the privi- date of my arrival in the United for dependent personal services
claim a tax treaty exemption from lege of residing permanently in States. I am not a U.S. citizen. I performed in the United States.
withholding of tax on compen- the United States as an immi- have not been lawfully accorded This compensation qualifies for
sation for dependent personal grant. the privilege of residing perma- exemption from withholding of
services. See chapter 8 for more I am present in the United nently in the United States as an federal income tax under the tax
information on withholding. States solely for the purpose of immigrant. treaty between the United States
my education or training. I am temporarily present in and the Federal Republic of
I will receive compensation the United States for the primary Germany in an amount not in
for personal services performed purpose of studying at excess of $5,000 for any tax
Belgium, Iceland, in the United States. This com- [insert the name of the university year, provided that such services
Japan, Korea, pensation qualifies for exemption or other recognized educational are performed for the purpose
from withholding of federal in- institution at which you study]. of supplementing funds other-
Norway, Poland, come tax under the tax treaty I will receive compensation wise available for my mainte-
and Romania between the United States and for personal services performed nance, education, or training.
the People's Republic of China in the United States. This com- I arrived in the United States
I was a resident of [insert in an amount not in excess of pensation qualifies for exemption on [insert the date of
the name of the country under $5,000 for any tax year. from withholding of federal in- your last arrival in the United
whose treaty you claim I arrived in the United States come tax under the tax treaty States before beginning study at
exemption] on the date of my on [insert the date of between the United States and the U.S. educational institution].
arrival in the United States. I am your last arrival in the United Egypt in an amount not in excess The treaty exemption is available
not a U.S. citizen. I have not States before beginning study or of $3,000 for any tax year. I have only for compensation paid dur-
been lawfully accorded the privi- training]. I am claiming this ex- not previously claimed an in- ing a period of four tax years
lege of residing permanently in emption only for such period of come tax exemption under that beginning with the tax year that
the United States as an immi- time as is reasonably necessary treaty for income received as a includes my arrival date.
grant. to complete the education or teacher, researcher, or student
I am temporarily present in training. before the date of my arrival in
the United States for the primary the United States. Indonesia
purpose of studying at I will be present in the United I was a resident of Indonesia on
[insert the name of the university Cyprus States only for such period of the date of my arrival in the
or other recognized educational time as may be reasonably or
institution at which you study]. I was a resident of Cyprus on the United States. I am not a U.S.
date of my arrival in the United customarily required to citizen. I have not been lawfully
I will receive compensation effectuate the purpose of this
for personal services performed States. I am not a U.S. citizen. I accorded the privilege of residing
have not been lawfully accorded visit. permanently in the United States
in the United States. This com- I arrived in the United States
pensation qualifies for exemption the privilege of residing perma- as an immigrant.
nently in the United States as an on [insert the date of I am temporarily present in
from withholding of federal in- your last arrival in the United
come tax under the tax treaty immigrant. the United States solely for the
I am temporarily present in States before beginning study at purpose of study at
between the United States and the U.S. educational institution].
[insert the name of the the United States for the primary [insert the name of the university
purpose of studying at The treaty exemption is available or other accredited educational
country under whose treaty you only for compensation paid dur-
claim exemption] in an amount [insert the name of the university institution at which you study];
or other recognized educational ing a period of five tax years be- or, I am temporarily present in
not in excess of $2,000 for any ginning with the tax year that in-
tax year. I have not previously institution at which you study]. the United States as a recipient
I will receive compensation cludes my arrival date, and for of a grant, allowance or award
claimed an income tax ex- such period of time as is neces-
emption under this treaty for in- for personal services performed from [insert the name of
in the United States. This com- sary to complete, as a full-time the nonprofit organization or
come received as a teacher, re- student, educational require-
searcher, or student before the pensation qualifies for exemption government institution providing
from withholding of federal in- ments as a candidate for a post- the grant, allowance, or award]
date of my arrival in the United graduate or professional degree
States. come tax under the tax treaty for the primary purpose of study,
between the United States and from a recognized educational research, or training.
I will be present in the United institution.
States only for such period of Cyprus in an amount not in ex- I will receive compensation
time as may be reasonably or cess of $2,000 for any tax year. for services performed in the
I have not previously claimed an United States. This compen-
customarily required to
income tax exemption under that Germany sation qualifies for exemption
effectuate the purpose of this
visit. treaty for income received as a I was a resident of the Federal from withholding of federal in-
I arrived in the United States student before the date of my Republic of Germany on the date come tax under the tax treaty
on [insert the date of arrival in the United States. of my arrival in the United States. between the United States and
your last arrival in the United I arrived in the United States I am not a U.S. citizen. I have Indonesia in an amount not in
States before beginning study at on [insert the date of not been lawfully accorded the excess of $2,000 for my tax year,
the U.S. educational institution]. your last arrival in the United privilege of residing permanently provided such services are per-
The treaty exemption is available States before beginning study at in the United States as an immi- formed in connection with my
only for compensation paid dur- the U.S. educational institution]. grant. studies or are necessary for my
ing a period of five tax years be- The treaty exemption is available I am temporarily present in maintenance.
ginning with the tax year that in- only for compensation paid dur- the United States as a student I arrived in the United States
cludes my arrival date. ing a period of five tax years be- or business apprentice for the on [insert the date of
ginning with the tax year that in- purpose of full-time study or your last arrival in the United
cludes my arrival date, and for training at [insert the States before beginning study at
such additional period of time as name of the accredited univer- the U.S. educational institution].
is necessary to complete, as a sity, college, school or other ed- The treaty exemption is available
full-time student, educational re- ucational institution]; or, I am only for compensation paid dur-
quirements as a candidate for a temporarily present in the United ing a period of five tax years be-
Page 46
ginning with the tax year that in- pensation qualifies for exemption I am temporarily present in for any tax year. I have not pre-
cludes my arrival date. from withholding of federal in- the United States for the primary viously claimed an income tax
come tax under the tax treaty purpose of studying or training exemption under this treaty for
between the United States and at [insert the name of the income received as a teacher,
Pakistan in an amount not in ex- university or other accredited researcher, or student before the
Morocco cess of $5,000 for any tax year. educational institution at which date of my arrival in the United
I was a resident of Morocco on you study or train]; or, I am tem- States.
porarily present in the United I will be present in the United
the date of my arrival in the Philippines States as a recipient of a grant, States only for such period of
United States. I am not a U.S. I was a resident of the
citizen. I have not been lawfully allowance, or award from time as may be reasonably or
Philippines on the date of my [insert the name of the customarily required to
accorded the privilege of residing arrival in the United States. I am
permanently in the United States nonprofit organization or govern- effectuate the purpose of this
not a U.S. citizen. I have not ment institution providing the visit.
as an immigrant. been lawfully accorded the privi-
I am temporarily present in grant, allowance, or award]. I arrived in the United States
lege of residing permanently in I will receive compensation on [insert the date of
the United States for the primary the United States as an immi-
purpose of studying at for services performed in the your last arrival in the United
grant. United States. This compen- States before beginning study at
[insert the name of the university I am temporarily present in
or other recognized educational sation qualifies for exemption the U.S. educational institution].
the United States for the primary from withholding of federal in- The treaty exemption is available
institution at which you study]. purpose of studying at
I will receive compensation come tax under the tax treaty only for compensation paid dur-
[insert the name of the university between the United States and ing a period of five tax years.
for personal services performed or other recognized educational
in the United States. This com- Spain in an amount not in excess
institution at which you study]. of $5,000 for any tax year.
pensation qualifies for exemption I will receive compensation
from withholding of federal in- I arrived in the United States
come tax under the tax treaty
for personal services performed on [insert the date of Tunisia
in the United States. This com- your last arrival in the United
between the United States and pensation qualifies for exemption I was a resident of Tunisia on the
Morocco in an amount not in ex- States before beginning study at date of my arrival in the United
from withholding of federal in- the U.S. educational institution].
cess of $2,000 for any tax year. come tax under the tax treaty States. I am not a U.S. citizen. I
I have not previously claimed an The treaty exemption is available have not been lawfully accorded
between the United States and only for compensation paid dur-
income tax exemption under that the Philippines in an amount not the privilege of residing perma-
treaty for income received as a ing a period of five tax years be- nently in the United States as an
in excess of $3,000 for any tax ginning with the tax year that in-
student before the date of my year. I have not previously immigrant.
arrival in the United States. cludes my arrival date. I am temporarily present in
claimed an income tax ex-
I arrived in the United States emption under that treaty for in- the United States for the purpose
on [insert the date of come received as a teacher, re- of full-time study, training, or re-
your last arrival in the United search at [insert the
States before beginning study at
searcher, or student before the Trinidad and name of the university or other
date of my arrival in the United
the U.S. educational institution]. States. Tobago accredited educational institution
The treaty exemption is available I will be present in the United at which you study, train, or per-
I was a resident of Trinidad and
only for compensation paid dur- States only for such period of form research].
Tobago on the date of my arrival
ing a period of five tax years, time as may be reasonably or I will receive compensation
in the United States. I am not a
beginning with the tax year that customarily required to for services performed in the
U.S. citizen. I have not been
includes my arrival date. effectuate the purpose of this United States. This compen-
lawfully accorded the privilege
visit. sation qualifies for exemption
of residing permanently in the
I arrived in the United States from withholding of federal in-
United States as an immigrant.
on [insert the date of come tax under the tax treaty
Pakistan I am temporarily present in
your last arrival in the United between the United States and
the United States for the primary
I am a resident of Pakistan. I am States before beginning study at Tunisia in an amount not in ex-
purpose of studying at
not a U.S. citizen. I have not the U.S. educational institution]. cess of $4,000 for any tax year.
[insert the name of the university
been lawfully accorded the privi- The treaty exemption is available I arrived in the United States
or other accredited educational
lege of residing permanently in only for compensation paid dur- on [insert the date of
institution at which you study].
the United States as an immi- ing a period of five tax years be- your last arrival in the United
I will receive compensation
grant. ginning with the tax year that in- States before beginning study at
for personal services performed
I am temporarily present in cludes my arrival date. the U.S. educational institution].
in the United States. This com-
the United States solely as a The treaty exemption is available
pensation qualifies for exemption
student at [insert the only for compensation paid dur-
from withholding of federal in-
name of the recognized univer- Spain come tax under the tax treaty
ing a period of five tax years be-
sity, college, or school in the I was a resident of Spain on the ginning with the tax year that in-
between the United States and
United States at which you date of my arrival in the United cludes my arrival date.
Trinidad and Tobago in an
study]. States. I am not a U.S. citizen. I amount not in excess of $2,000
I will receive compensation have not been lawfully accorded
for personal services performed the privilege of residing perma-
in the United States. This com- nently in the United States as an
immigrant.
Page 47
Appendix B
This appendix contains the educational institution in the previously claimed an income tax the research is conducted on the
statements nonresident alien United States, to come to the exemption under that treaty for basis of intergovernmental
teachers and researchers must United States for the purpose of income received as a teacher, agreements on cooperation.
file with Form 8233, Exemption teaching or engaging in research lecturer, researcher, or student I arrived in the United States
From Withholding on Compen- at [insert the name of the before the date of my arrival in on [insert the date of
sation for Independent (and educational institution], which is the United States. your last arrival in the United
Certain Dependent) Personal a recognized educational institu- Any research I perform will States before beginning the
Services of a Nonresident Alien tion. I will receive compensation be undertaken in the public in- teaching, research, or confer-
Individual, to claim a tax treaty for my teaching or research ac- terest and not primarily for the ence services for which ex-
exemption from withholding of tivities. private benefit of a specific per- emption is claimed]. The treaty
tax on compensation for de- The teaching or research son or persons. exemption is available only for
pendent personal services. See compensation received during I arrived in the United States compensation received during a
chapter 8 for more information the entire tax year (or during the [insert the date of your period of two years beginning on
on withholding. portion of the year from last arrival in the United States that date.
to ) qualifies for exemption before beginning your teaching,
from withholding of federal tax lecturing, or research activities].
Denmark and under the tax treaty between the The treaty exemption is available
Egypt, Hungary,
United States and [insert only for compensation received
Pakistan the name of the country under during a maximum aggregate Korea,
I am a resident of [insert whose treaty you claim period of three years.
the name of the country under exemption]. I have not previously
Philippines, Poland,
whose treaty you claim claimed an income tax ex- and Romania
exemption]. I am not a U.S. citi- emption under this treaty for in-
zen. I have not been lawfully ac- come received as a teacher, re-
Commonwealth of I was a resident of [insert
the name of the country under
corded the privilege of residing searcher, or student before the Independent States whose treaty you claim
permanently in the United States date of my arrival in the United I am a resident of [insert exemption] on the date of my
as an immigrant. States. name of C.I.S. member]. I am not arrival in the United States. I am
I am a professor or teacher Any research I perform will a U.S. citizen. I have not been not a U.S. citizen. I have not
visiting the United States for the be undertaken in the public in- lawfully accorded the privilege been lawfully accorded the privi-
purpose of teaching at terest and not primarily for the of residing permanently in the lege of residing permanently in
[insert the name of the educa- private benefit of a specific per- United States as an immigrant. the United States as an immi-
tional institution at which you son or persons. I have accepted an invitation grant.
teach], which is a recognized I arrived in the United States by a governmental agency or in- I have accepted an invitation
educational institution. I will re- on [insert the date of stitution in the United States, or by the U.S. government (or by a
ceive compensation for my your last arrival in the United by an educational or scientific political subdivision or local au-
teaching activities. States before beginning the research institution in the United thority thereof), or by a university
The teaching compensation teaching or research services for States, to come to the United or other recognized educational
received during the entire tax which the exemption is claimed]. States for the purpose of teach- institution in the United States for
year (or during the period from The treaty exemption is available ing, engaging in research, or a period not expected to exceed
to ) qualifies for ex- only for compensation received participating in scientific, techni- two years for the purpose of
emption from withholding of fed- during a period of two years be- cal, or professional conferences teaching or engaging in research
eral tax under the tax treaty be- ginning on that date. at [insert the name of the at [insert the name of the
tween the United States and
governmental agency or institu- educational institution], which is
[insert the name of the tion, educational or scientific in- a recognized educational institu-
country under whose treaty you
claim exemption]. I have not People's Republic stitution, or organization spon- tion. I will receive compensation
soring a professional for my teaching or research ac-
previously claimed an income tax of China conference], which is a govern- tivities.
exemption under this treaty for
I was a resident of the People's mental agency or institution, an The teaching or research
income received as a teacher or
Republic of China on the date of educational or scientific institu- compensation received during
student before the date of my
my arrival in the United States. I tion, or an organization sponsor- the entire tax year (or for the
arrival in the United States.
am not a U.S. citizen. I have not ing a professional conference. I portion of the year from
I arrived in the United States
been lawfully accorded the privi- will receive compensation for my to ) qualifies for exemption
on [insert the date of lege of residing permanently in teaching, research, or confer- from withholding of federal tax
your last arrival into the United the United States as an immi- ence activities. under the tax treaty between the
States before beginning the grant. The teaching, research, or United States and [insert
teaching services for which ex- I am visiting the United States conference compensation re- the name of the country under
emption is claimed]. The treaty for the purpose of teaching, giv- ceived during the entire tax year whose treaty you claim
exemption is available only for
ing lectures, or conducting re- (or during the period from exemption]. I have not previously
compensation paid during a pe-
search at [insert the to ) qualifies for exemption claimed an income tax ex-
riod of two years beginning on
name of the educational institu- from withholding of federal tax emption under this treaty for in-
that date.
tion or scientific research institu- under the tax treaty between the come received as a teacher, re-
tion at which you teach, lecture, United States and the former searcher, or student before the
or conduct research], which is Union of Soviet Socialist Repub- date of my arrival in the United
Belgium and Japan an accredited educational insti- lics. I have not previously States.
I was a resident of [insert tution or scientific research insti- claimed an income tax ex- Any research I perform will
the name of the country under tution. I will receive compen- emption under that treaty for in- be undertaken in the public in-
whose treaty you claim the sation for my teaching, lecturing, come received as a teacher, re- terest and not primarily for the
exemption] on the date of my or research activities. searcher, conference participant, private benefit of a specific per-
arrival in the United States. I am The teaching, lecturing, or or student before the date of my son or persons.
not a U.S. citizen. I have not research compensation received arrival in the United States. I arrived in the United States
been lawfully accorded the privi- during the entire tax year (or Any research I perform will on [insert the date of
lege of residing permanently in during the period from not be undertaken primarily for your last arrival in the United
the United States as an immi- to ) qualifies for exemption the benefit of a private person States before beginning the
grant. from withholding of federal tax or commercial enterprise of the teaching or research services for
I have accepted an invitation under the tax treaty between the United States or a foreign trade which exemption is claimed]. The
by the U.S. government, or by a United States and the People's organization of [insert treaty exemption is available only
university or other recognized Republic of China. I have not name of C.I.S. member], unless for compensation received dur-
Page 48
ing a period of two years begin- The teaching compensation ing a period of two years begin-
ning on that date. received during the entire tax
India ning on that date.
year (or during the period from I was a resident of India on the Any research I perform will
to ) qualifies for ex- date of my arrival in the United be undertaken in the public in-
States. I am not a U.S. citizen. I
Germany emption from withholding of fed-
have not been lawfully accorded
terest and not primarily for the
eral tax under the tax treaty be- private benefit of a specific per-
I am a resident of the Federal tween the United States and the privilege of residing perma- son or persons.
Republic of Germany. I am not Greece. I have not previously nently in the United States as an
a U.S. citizen. I have not been claimed an income tax ex- immigrant.
lawfully accorded the privilege emption under that treaty for in- I am visiting the United States Italy
of residing permanently in the come received as a teacher or for the purpose of teaching or I was a resident of Italy on the
United States as an immigrant. student before the date of my conducting research at date of my arrival in the United
I am a professor or teacher arrival in the United States. [insert the name of the university, States. I am not a U.S. citizen. I
visiting the United States for the I arrived in the United States college, or other recognized ed- have not been accorded the
purpose of advanced study, on [insert the date of ucational institution]. I will re- privilege of residing permanently
teaching, or research at your last arrival in the United ceive compensation for my in the United States as an immi-
[insert the name of the accred- States before beginning the teaching or study activities. grant.
ited university, college, school, teaching services for which ex- The teaching or research I am a professor or teacher
or other educational institution, emption is claimed]. The treaty compensation received during visiting the United States for the
or a public research institution exemption is available only for the entire tax year (or during the purpose of teaching or perform-
or other institution engaged in compensation received during a period from to ) ing research at [insert
research for the public benefit]. I period of three years beginning for these activities qualifies for the name of the educational in-
will receive compensation for my on that date. exemption from withholding of stitution or medical facility at
teaching, research, or study ac- federal tax under the tax treaty which you teach or perform
tivities. between the United States and research], which is an educa-
The compensation received India. tional institution or a medical fa-
during the entire tax year (or Iceland and Norway Any research I perform will cility primarily funded from gov-
during the period from be undertaken in the public in-
I was a resident of [insert ernmental sources. I will receive
to ) for these activities terest and not primarily for the
the name of the country under compensation for my teaching
qualifies for exemption from private benefit of a specific per-
whose treaty you claim or research activities.
withholding of federal tax under son or persons.
exemption] on the date of my The compensation received
the tax treaty between the United I arrived in the United States
arrival in the United States. I am during the entire tax year (or
States and the Federal Republic on [insert the date of
not a U.S. citizen. I have not during the period from
of Germany. I have not previ- your last arrival into the United
been lawfully accorded the privi- to ) qualifies for exemption
ously claimed an income tax ex- States before beginning the ser-
lege of residing permanently in from withholding of federal tax
emption under that treaty for in- vices for which the exemption is
the United States as an immi- under the tax treaty between the
come received as a student, claimed]. The treaty exemption
grant. United States and Italy. I have
apprentice, or trainee during the is available only for compen-
I have accepted an invitation not previously claimed an in-
immediately preceding period. sation paid during a period of two
by the U.S. government, or by a come tax exemption under that
(If, however, following the period years beginning on that date.
university or other recognized treaty for income received as a
in which the alien claimed bene-
educational institution in the teacher, researcher, or student
fits as a student, apprentice, or
United States for a period not before the date of my arrival in
trainee, that person returned to
expected to exceed two years for Indonesia the United States.
the Federal Republic of Germany
the purpose of teaching or en- I was a resident of Indonesia on Any research I perform will
and resumed residence and
gaging in research at the date of my arrival in the be undertaken in the general in-
physical presence before return-
[insert the name of the educa- United States. I am not a U.S. terest and not primarily for the
ing to the United States as a
tional institution], which is a rec- citizen. I have not been lawfully private benefit of a specific per-
teacher or researcher, that per-
ognized educational institution. I accorded the privilege of residing son or persons.
son may claim the benefits of this
will receive compensation for my permanently in the United States I arrived in the United States
treaty.)
teaching or research activities. as an immigrant. on [insert the date of
Any research I perform will
The teaching or research I have accepted an invitation your last arrival in the United
be undertaken in the public in-
compensation qualifies for ex- by [insert the name of States before beginning the
terest and not primarily for the
emption from withholding of fed- the university, college, school, teaching or research services for
private benefit of a specific per-
eral tax under the tax treaty be- or other similar educational which exemption is claimed]. The
son or persons.
tween the United States and institution] to come to the United treaty exemption is available only
I arrived in the United States
[insert the name of the States solely for the purpose of for compensation received dur-
on [insert the date of
country under whose treaty you teaching or engaging in research ing a period of two years begin-
your last arrival into the United
claim exemption]. I have not at that educational institution. I ning on that date.
States before beginning the ser-
vices for which the exemption is previously claimed an income tax will receive compensation for my
claimed]. The treaty exemption exemption under this treaty for teaching or research activities.
is available only for compen- income received as a teacher, The teaching or research Jamaica
sation paid during a period of two researcher, or student before the compensation received during I was a resident of Jamaica on
years beginning on that date. date of my arrival in the United the entire tax year (or during the the date of my arrival in the
States. period from to ) United States. I am not a U.S.
Any research I perform will qualifies for exemption from citizen. I have not been lawfully
not be undertaken primarily for withholding of federal tax under accorded the privilege of residing
Greece the private benefit of a specific the tax treaty between the United permanently in the United States
I am a resident of Greece. I am person or persons. States and Indonesia. I have not as an immigrant.
not a U.S. citizen. I have not I arrived in the United States previously claimed an income tax I am visiting the United States
been lawfully accorded the privi- on [insert the date of exemption under that treaty for for the purpose of teaching or
lege of residing permanently in your last arrival in the United income received as a teacher or conducting research for a period
the United States as an immi- States before beginning the researcher before the date not expected to exceed two
grant. teaching or research services for specified in the next paragraph. years at [insert the name
I am a professor or teacher which exemption is claimed]. The I arrived in the United States of the educational institution at
visiting the United States for the treaty exemption is available only on [insert the date of which you teach or conduct
purpose of teaching at for compensation received dur- your arrival into the United research], which is a recognized
[insert the name of the other ed- ing a period of two years begin- States before beginning the educational institution. I will re-
ucational institution at which you ning on that date. teaching or research services for ceive compensation for my
teach], which is an educational which the exemption is claimed]. teaching or research activities.
institution. I will receive compen- The treaty exemption is available The teaching or research
sation for my teaching activities. only for compensation paid dur- compensation received during
Page 49
the entire tax year (or during the holding of federal tax under the education authority. No agree- I am a professor or teacher
period from to ) qual- tax treaty between the United ment exists between the gov- visiting the United States for a
ifies for exemption from with- States and Luxembourg. I have ernment of the United States and period of not more than two
holding of federal tax under the not previously claimed an in- the government of Trinidad and years for the purpose of teaching
tax treaty between the United come tax exemption under that Tobago for the provision of my or engaging in research at
States and Jamaica. I have not treaty for income received as a services. I will receive compen- [insert the name of the
previously claimed an income tax teacher, researcher, or student sation for my teaching or re- educational institution], which is
exemption under that treaty for before the date of my arrival in search services. a recognized educational institu-
income received as a teacher, the United States. The teaching or research tion. I will receive compensation
researcher, or student before the Any research I perform will compensation received during for my teaching or research ac-
date of my arrival in the United not be carried on for the benefit the entire tax year (or for the tivities.
States. of any person using or dissem- period from to ) qual- The teaching or research
I arrived in the United States inating the results for purposes ifies for exemption from with- compensation received during
on [insert the date of of profit. holding of federal tax under the the entire tax year (or during the
your last arrival in the United I arrived in the United States tax treaty between the United period from to ) qual-
States before beginning the on [insert the date of States and Trinidad and Tobago. ifies for exemption from with-
teaching or research services for your last arrival in the United I have not previously claimed an holding of federal tax under the
which exemption is claimed]. The States before beginning the income tax exemption under that tax treaty between the United
treaty exemption is available only teaching or research services for treaty for income received as a States and the United Kingdom.
for compensation paid during a which exemption is claimed]. The teacher, researcher, or student I have not previously claimed an
period of two years beginning on treaty exemption is available only before the date of my arrival in income tax exemption under that
that date. for compensation received dur- the United States. treaty for income received as a
ing a period of two years begin- Any research I perform will teacher, researcher, or student
ning on that date. be undertaken in the public in- before the date of my arrival in
Luxembourg terest and not primarily for the the United States.
I am a resident of Luxembourg. private benefit of a specific per- Any research I perform will
I am not a U.S. citizen. I have Trinidad and son or persons. be undertaken in the public in-
not been lawfully accorded the I arrived in the United States terest and not primarily for the
privilege of residing permanently Tobago on [insert the date of benefit of any private person or
in the United States as an immi- I was a resident of Trinidad and your last arrival in the United persons.
grant. Tobago on the date of my arrival States before beginning the I arrived in the United States
I have accepted an invitation in the United States. I am not a teaching or research services for on [insert the date of
by [insert the name of U.S. citizen. I have not been which exemption is claimed}. your last arrival in the United
the educational institution where lawfully accorded the privilege The treaty exemption is available States before beginning the
you teach or engage in of residing permanently in the only for compensation received teaching or research services for
research], which is a recognized United States as an immigrant. during a period of two years be- which exemption is claimed]. The
educational institution, to come I have accepted an invitation ginning on that date. treaty exemption is available only
to the United States for the pur- by the U.S. government, or by a for compensation received dur-
pose of teaching or engaging in university or other educational ing a period of two years begin-
research at that institution. I will institution in the United States, United Kingdom ning on that date. The entire
receive compensation for my to come to the United States for I was a resident of the United treaty exemption is lost
teaching or research activities. the purpose of teaching or en- Kingdom on the date of my ar- retroactively if my stay in the
The teaching or research gaging in research at rival in the United States. I am United States exceeds two
compensation received during [insert the name of the educa- not a U.S. citizen. I have not years.
the entire tax year (or during the tional institution], which is an been accorded the privilege of
period from to ) qual- educational institution approved residing permanently in the
ifies for exemption from with- by an appropriate governmental United States as an immigrant.
Page 50
Index
Page 51