US income tax return
As a general rule, no income, gain, or loss from foreign sources will be treated as effectively connected with the conduct of a trade or business within the United States.However, three types of foreign-source income will be treated as effectively connected with a trade or business in the United States if the following requirements are satisfied :
1. The person has an office or other fixed place of business in the United States to which the income can be attributed.
2. The office or place of business is a material factor in the production of such income. An office or other place of business is a material factor in producing income if it significantly contributes to, and is an essential economic element in, the earning of the income.
3. The office or place of business regularly carries on activities of a type from which the income is derived.
The three types of foreign-source income that may be treated as effectively connected with a trade or business in the United States include :
1. " Rents and royalties for the use of, or for the privilege of using outside the United States, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar property, if the rents or royalties are derived in the active conduct of the trade or business that has an office or other fixed place of business within the United States.
2. Interest and dividends that either were derived from the active conduct of a banking, financing, or similar business within the United States or were received by a corporation whose principal business is trading in stocks or securities for its own account.
3. Income, gain, or loss from the sale or exchange through a U.S. office or fixed place of business, of stock in trade, property that would have been included in inventory if on hand at the close of the tax year, or property held primarily for sale to customers in the ordinary course of business.
Nonresident alien individuals must file a U.S. federal income tax return if any of the following applies to them.
1. They engaged, or are considered to have engaged, in a trade or business within the United States at any time during the tax year. They must file a return even though their income did not come from a trade or business conducted in the United States, they have no United States source income, or their income is tax exempt.
2. Insufficient tax was withheld from United States source income that they received.
3. They want to claim a refund for over with held or over paid tax.
4. They want to claim the benefit of any deductions or credits.
Nonresident alien individuals who are required to file a federal income tax return should file IRS Form 1040 NR, United States Nonresident Alien Income Tax Return, or, if they qualify, IRS Form 1040 NR-EZ, United States Income Tax Return for Certain Non resident Aliens with No Dependents.
Employees who receive wages subject to US income tax with holding have until the 15th day of the fourth month following the end of their tax year. Other non resident alien individuals must file their tax return by the 15th day of the sixth month after their tax year ends. To obtain the benefits of any allowable deductions or credits not including the credit for withheld taxes, a nonresident alien individual must file a return within 16 months after the due date for filing a return.
PROTECTIVE RETURN: Nonresident alien individuals may file a protective return to protect their right to receive the benefit of deductions and credits if it is later determined that some or all of their income is effectively connected with a US trade or business.
Foreign corporations must file a US income tax return if any of the following applies to them :
1. They engaged in a trade or business in the United States at any time during the tax year.They must file a return even though they did not have any income effectively connected with the conduct of a trade or business in the US, they have no US source income, or their income is tax-exempt.
2. They had income, gains, or losses treated as if they were effectively connected with a US trade or business.
3. They had any US source income.
4. They seek a refund of income tax that they over paid.
A foreign corporation does not have to file a US income tax return if any of the following applies to it :
1. It did not engage in a US trade or business during the tax year and all US tax required to be withheld at source was so withheld.
2 Its only income is interest and dividends not subject to US income taxation under Code.
3. " It is a beneficiary of an estate or trust engaged in a US trade or business but itself is not required to file a US income tax return.
A foreign corporation required to file a US income tax must file IRS Form 1120-F, US Income Tax Return of a Foreign Corporation.A foreign corporation that does not owe any US income tax because it is claiming a treaty exemption nevertheless must file IRS Form 1120-F to show that its income was exempted by treaty.
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