U.S. TAXATION OF NONRESIDENT ALIEN INDIVIDUALS

By Coleman Jackson, Attorney, CPA
Jan 23, 2015

U.S. TAXATION OF NONRESIDENT ALIEN INDIVIDUALS

A nonresident alien individual who at anytime during the tax year is engaged in business or trade within the United States of America is subject to a 30% flat tax on aggregate income or gains depicted in U.S. Treasury Regulation 1.871(a) (1), and paragraph (b) or (c) of Section 1.871.7 or gains associated with sale or trade of capital assets as depicted in Treasury Regulation 1.871 (a) (2).

The regulations and rules likewise applies to nonresident alien students or trainees in American institutions who are deemed under Internal Revenue Code Section 871 (c) and Treasury Regulation 1.871-9 as engaged in a trade or business in the United States .  If the student or trainee is deemed engaged in a trade or business under these regulations, aggregate income or gains are subject to a 30% flat tax.

Nonresident aliens who are not engaged in a U.S. trade or business are also subject to this 30% flat tax on the aggregate income or gains if they have an effective election under IRC 871(d) and Section 1.871-10 with respect to real estate income.

Segregation Rules:  Nonresident alien individuals who are subject to IRC 871 must segregate their income for the taxable year into two main categories as follows:

(a) The income which is effectively connected to the U.S. trade or business; and
(b) The income which is not effectively connected with the U.S. trade or business.

Failure to comply with these tax segregation rules or failure to properly report income or file tax returns could result in an IRS audit, violation of non-immigrant visa terms and other difficulties for nonresident alien individuals visiting, studying or otherwise enjoying a nonimmigrant status in the United States.

This tax blog is written by the Tax & Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel with respect to your particular set of circumstances.

Coleman Jackson, P.C. | Immigration & Tax Law Firm | www.cjacksonlaw.com | (214) 599-0431

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