26 U.S.C. § 871 : US Code - Section 871: Tax on nonresident alien individuals

Search 26 U.S.C. § 871 : US Code - Section 871: Tax on nonresident alien individuals

(a) Income not connected with United States business - 30 percent
tax
(1) Income other than capital gains
Except as provided in subsection (h), there is hereby imposed
for each taxable year a tax of 30 percent of the amount received
from sources within the United States by a nonresident alien
individual as -
(A) interest (other than original issue discount as defined
in section 1273), dividends, rents, salaries, wages, premiums,
annuities, compensations, remunerations, emoluments, and other
fixed or determinable annual or periodical gains, profits, and
income,
(B) gains described in section 631(b) or (c), and gains on
transfers described in section 1235 made on or before October
4, 1966,
(C) in the case of -
(i) a sale or exchange of an original issue discount
obligation, the amount of the original issue discount
accruing while such obligation was held by the nonresident
alien individual (to the extent such discount was not
theretofore taken into account under clause (ii)), and
(ii) a payment on an original issue discount obligation, an
amount equal to the original issue discount accruing while
such obligation was held by the nonresident alien individual
(except that such original issue discount shall be taken into
account under this clause only to the extent such discount
was not theretofore taken into account under this clause and
only to the extent that the tax thereon does not exceed the
payment less the tax imposed by subparagraph (A) thereon),
and
(D) gains from the sale or exchange after October 4, 1966, of
patents, copyrights, secret processes and formulas, good will,
trademarks, trade brands, franchises, and other like property,
or of any interest in any such property, to the extent such
gains are from payments which are contingent on the
productivity, use, or disposition of the property or interest
sold or exchanged,
but only to the extent the amount so received is not effectively
connected with the conduct of a trade or business within the
United States.
(2) Capital gains of aliens present in the United States 183 days
or more
In the case of a nonresident alien individual present in the
United States for a period or periods aggregating 183 days or
more during the taxable year, there is hereby imposed for such
year a tax of 30 percent of the amount by which his gains,
derived from sources within the United States, from the sale or
exchange at any time during such year of capital assets exceed
his losses, allocable to sources within the United States, from
the sale or exchange at any time during such year of capital
assets. For purposes of this paragraph, gains and losses shall be
taken into account only if, and to the extent that, they would be
recognized and taken into account if such gains and losses were
effectively connected with the conduct of a trade or business
within the United States, except that such gains and losses shall
be determined without regard to section 1202 and such losses
shall be determined without the benefits of the capital loss
carryover provided in section 1212. Any gain or loss which is
taken into account in determining the tax under paragraph (1) or
subsection (b) shall not be taken into account in determining the
tax under this paragraph. For purposes of the 183-day requirement
of this paragraph, a nonresident alien individual not engaged in
trade or business within the United States who has not
established a taxable year for any prior period shall be treated
as having a taxable year which is the calendar year.
(3) Taxation of social security benefits
For purposes of this section and section 1441 -
(A) 85 percent of any social security benefit (as defined in
section 86(d)) shall be included in gross income
(notwithstanding section 207 of the Social Security Act), and
(B) section 86 shall not apply.
For treatment of certain citizens of possessions of the
United States, see section 932(c).(!1)
(b) Income connected with United States business - graduated rate
of tax
(1) Imposition of tax
A nonresident alien individual engaged in trade or business
within the United States during the taxable year shall be taxable
as provided in section 1 or 55 on his taxable income which is
effectively connected with the conduct of a trade or business
within the United States.
(2) Determination of taxable income
In determining taxable income for purposes of paragraph (1),
gross income includes only gross income which is effectively
connected with the conduct of a trade or business within the
United States.
(c) Participants in certain exchange or training programs
For purposes of this section, a nonresident alien individual who
(without regard to this subsection) is not engaged in trade or
business within the United States and who is temporarily present in
the United States as a nonimmigrant under subparagraph (F), (J),
(M), or (Q) of section 101(a)(15) of the Immigration and
Nationality Act, as amended (8 U.S.C. 1101(a)(15)(F), (J), (M), or
(Q)), shall be treated as a nonresident alien individual engaged in
trade or business within the United States, and any income
described in the second sentence of section 1441(b) which is
received by such individual shall, to the extent derived from
sources within the United States, be treated as effectively
connected with the conduct of a trade or business within the United
States.
(d) Election to treat real property income as income connected with
United States business
(1) In general
A nonresident alien individual who during the taxable year
derives any income -
(A) from real property held for the production of income and
located in the United States, or from any interest in such real
property, including (i) gains from the sale or exchange of such
real property or an interest therein, (ii) rents or royalties
from mines, wells, or other natural deposits, and (iii) gains
described in section 631(b) or (c), and
(B) which, but for this subsection, would not be treated as
income which is effectively connected with the conduct of a
trade or business within the United States,
may elect for such taxable year to treat all such income as
income which is effectively connected with the conduct of a trade
or business within the United States. In such case, such income
shall be taxable as provided in subsection (b)(1) whether or not
such individual is engaged in trade or business within the United
States during the taxable year. An election under this paragraph
for any taxable year shall remain in effect for all subsequent
taxable years, except that it may be revoked with the consent of
the Secretary with respect to any taxable year.
(2) Election after revocation
If an election has been made under paragraph (1) and such
election has been revoked, a new election may not be made under
such paragraph for any taxable year before the 5th taxable year
which begins after the first taxable year for which such
revocation is effective, unless the Secretary consents to such
new election.
(3) Form and time of election and revocation
An election under paragraph (1), and any revocation of such an
election, may be made only in such manner and at such time as the
Secretary may by regulations prescribe.
[(e) Repealed. Pub. L. 99-514, title XII, Sec. 1211(b)(5), Oct. 22,
1986, 100 Stat. 2536]
(f) Certain annuities received under qualified plans
(1) In general
For purposes of this section, gross income does not include any
amount received as an annuity under a qualified annuity plan
described in section 403(a)(1), or from a qualified trust
described in section 401(a) which is exempt from tax under
section 501(a), if -
(A) all of the personal services by reason of which the
annuity is payable were either -
(i) personal services performed outside the United States
by an individual who, at the time of performance of such
personal services, was a nonresident alien, or
(ii) personal services described in section 864(b)(1)
performed within the United States by such individual, and
(B) at the time the first amount is paid as an annuity under
the annuity plan or by the trust, 90 percent or more of the
employees for whom contributions or benefits are provided under
such annuity plan, or under the plan or plans of which the
trust is a part, are citizens or residents of the United
States.
(2) Exclusion
Income received during the taxable year which would be excluded
from gross income under this subsection but for the requirement
of paragraph (1)(B) shall not be included in gross income if -
(A) the recipient's country of residence grants a
substantially equivalent exclusion to residents and citizens of
the United States; or
(B) the recipient's country of residence is a beneficiary
developing country under title V of the Trade Act of 1974 (19
U.S.C. 2461 et seq.).
(g) Special rules for original issue discount
For purposes of this section and section 881 -
(1) Original issue discount obligation
(A) In general
Except as provided in subparagraph (B), the term "original
issue discount obligation" means any bond or other evidence of
indebtedness having original issue discount (within the meaning
of section 1273).
(B) Exceptions
The term "original issue discount obligation" shall not
include -
(i) Certain short-term obligations
Any obligation payable 183 days or less from the date of
original issue (without regard to the period held by the
taxpayer).
(ii) Tax-exempt obligations
Any obligation the interest on which is exempt from tax
under section 103 or under any other provision of law without
regard to the identity of the holder.
(2) Determination of portion of original issue discount accruing
during any period
The determination of the amount of the original issue discount
which accrues during any period shall be made under the rules of
section 1272 (or the corresponding provisions of prior law)
without regard to any exception for short-term obligations.
(3) Source of original issue discount
Except to the extent provided in regulations prescribed by the
Secretary, the determination of whether any amount described in
subsection (a)(1)(C) is from sources within the United States
shall be made at the time of the payment (or sale or exchange) as
if such payment (or sale or exchange) involved the payment of
interest.
(4) Stripped bonds
The provisions of section 1286 (relating to the treatment of
stripped bonds and stripped coupons as obligations with original
issue discount) shall apply for purposes of this section.
(h) Repeal of tax on interest of nonresident alien individuals
received from certain portfolio debt investments
(1) In general
In the case of any portfolio interest received by a nonresident
individual from sources within the United States, no tax shall be
imposed under paragraph (1)(A) or (1)(C) of subsection (a).
(2) Portfolio interest
For purposes of this subsection, the term "portfolio interest"
means any interest (including original issue discount) which
would be subject to tax under subsection (a) but for this
subsection and which is described in any of the following
subparagraphs:
(A) Certain obligations which are not registered
Interest which is paid on any obligation which -
(i) is not in registered form, and
(ii) is described in section 163(f)(2)(B).
(B) Certain registered obligations
Interest which is paid on an obligation -
(i) which is in registered form, and
(ii) with respect to which the United States person who
would otherwise be required to deduct and withhold tax from
such interest under section 1441(a) receives a statement
(which meets the requirements of paragraph (5)) that the
beneficial owner of the obligation is not a United States
person.
(3) Portfolio interest not to include interest received by 10-
percent shareholders
For purposes of this subsection -
(A) In general
The term "portfolio interest" shall not include any interest
described in subparagraph (A) or (B) of paragraph (2) which is
received by a 10-percent shareholder.
(B) 10-Percent shareholder
The term "10-percent shareholder" means -
(i) in the case of an obligation issued by a corporation,
any person who owns 10 percent or more of the total combined
voting power of all classes of stock of such corporation
entitled to vote, or
(ii) in the case of an obligation issued by a partnership,
any person who owns 10 percent or more of the capital or
profits interest in such partnership.
(C) Attribution rules
For purposes of determining ownership of stock under
subparagraph (B)(i) the rules of section 318(a) shall apply,
except that -
(i) section 318(a)(2)(C) shall be applied without regard to
the 50-percent limitation therein,
(ii) section 318(a)(3)(C) shall be applied -
(I) without regard to the 50-percent limitation therein;
and
(II) in any case where such section would not apply but
for subclause (I), by considering a corporation as owning
the stock (other than stock in such corporation) which is
owned by or for any shareholder of such corporation in that
proportion which the value of the stock which such
shareholder owns in such corporation bears to the value of
all stock in such corporation, and
(iii) any stock which a person is treated as owning after
application of section 318(a)(4) shall not, for purposes of
applying paragraphs (2) and (3) of section 318(a), be treated
as actually owned by such person.
Under regulations prescribed by the Secretary, rules similar to
the rules of the preceding sentence shall be applied in
determining the ownership of the capital or profits interest in
a partnership for purposes of subparagraph (B)(ii).
(4) Portfolio interest not to include certain contingent interest
For purposes of this subsection -
(A) In general
Except as otherwise provided in this paragraph, the term
"portfolio interest" shall not include -
(i) any interest if the amount of such interest is
determined by reference to -
(I) any receipts, sales or other cash flow of the debtor
or a related person,
(II) any income or profits of the debtor or a related
person,
(III) any change in value of any property of the debtor
or a related person, or
(IV) any dividend, partnership distributions, or similar
payments made by the debtor or a related person, or
(ii) any other type of contingent interest that is
identified by the Secretary by regulation, where a denial of
the portfolio interest exemption is necessary or appropriate
to prevent avoidance of Federal income tax.
(B) Related person
The term "related person" means any person who is related to
the debtor within the meaning of section 267(b) or 707(b)(1),
or who is a party to any arrangement undertaken for a purpose
of avoiding the application of this paragraph.
(C) Exceptions
Subparagraph (A)(i) shall not apply to -
(i) any amount of interest solely by reason of the fact
that the timing of any interest or principal payment is
subject to a contingency,
(ii) any amount of interest solely by reason of the fact
that the interest is paid with respect to nonrecourse or
limited recourse indebtedness,
(iii) any amount of interest all or substantially all of
which is determined by reference to any other amount of
interest not described in subparagraph (A) (or by reference
to the principal amount of indebtedness on which such other
interest is paid),
(iv) any amount of interest solely by reason of the fact
that the debtor or a related person enters into a hedging
transaction to manage the risk of interest rate or currency
fluctuations with respect to such interest,
(v) any amount of interest determined by reference to -
(I) changes in the value of property (including stock)
that is actively traded (within the meaning of section
1092(d)) other than property described in section 897(c)(1)
or (g),
(II) the yield on property described in subclause (I),
other than a debt instrument that pays interest described
in subparagraph (A), or stock or other property that
represents a beneficial interest in the debtor or a related
person, or
(III) changes in any index of the value of property
described in subclause (I) or of the yield on property
described in subclause (II), and
(vi) any other type of interest identified by the Secretary
by regulation.
(D) Exception for certain existing indebtedness
Subparagraph (A) shall not apply to any interest paid or
accrued with respect to any indebtedness with a fixed term -
(i) which was issued on or before April 7, 1993, or
(ii) which was issued after such date pursuant to a written
binding contract in effect on such date and at all times
thereafter before such indebtedness was issued.
(5) Certain statements
A statement with respect to any obligation meets the
requirements of this paragraph if such statement is made by -
(A) the beneficial owner of such obligation, or
(B) a securities clearing organization, a bank, or other
financial institution that holds customers' securities in the
ordinary course of its trade or business.
The preceding sentence shall not apply to any statement with
respect to payment of interest on any obligation by any person
if, at least one month before such payment, the Secretary has
published a determination that any statement from such person (or
any class including such person) does not meet the requirements
of this paragraph.
(6) Secretary may provide subsection not to apply in cases of
inadequate information exchange
(A) In general
If the Secretary determines that the exchange of information
between the United States and a foreign country is inadequate
to prevent evasion of the United States income tax by United
States persons, the Secretary may provide in writing (and
publish a statement) that the provisions of this subsection
shall not apply to payments of interest to any person within
such foreign country (or payments addressed to, or for the
account of, persons within such foreign country) during the
period -
(i) beginning on the date specified by the Secretary, and
(ii) ending on the date that the Secretary determines that
the exchange of information between the United States and the
foreign country is adequate to prevent the evasion of United
States income tax by United States persons.
(B) Exception for certain obligations
Subparagraph (A) shall not apply to the payment of interest
on any obligation which is issued on or before the date of the
publication of the Secretary's determination under such
subparagraph.
(7) Registered form
For purposes of this subsection, the term "registered form" has
the same meaning given such term by section 163(f).
(i) Tax not to apply to certain interest and dividends
(1) In general
No tax shall be imposed under paragraph (1)(A) or (1)(C) of
subsection (a) on any amount described in paragraph (2).
(2) Amounts to which paragraph (1) applies
The amounts described in this paragraph are as follows:
(A) Interest on deposits, if such interest is not effectively
connected with the conduct of a trade or business within the
United States.
(B) A percentage of any dividend paid by a domestic
corporation meeting the 80-percent foreign business
requirements of section 861(c)(1) equal to the percentage
determined for purposes of section 861(c)(2)(A).
(C) Income derived by a foreign central bank of issue from
bankers' acceptances.
(D) Dividends paid by a foreign corporation which are treated
under section 861(a)(2)(B) as income from sources within the
United States.
(3) Deposits
For purposes of paragraph (2), the term "deposits" means
amounts which are -
(A) deposits with persons carrying on the banking business,
(B) deposits or withdrawable accounts with savings
institutions chartered and supervised as savings and loan or
similar associations under Federal or State law, but only to
the extent that amounts paid or credited on such deposits or
accounts are deductible under section 591 (determined without
regard to sections 265 and 291) in computing the taxable income
of such institutions, and
(C) amounts held by an insurance company under an agreement
to pay interest thereon.
(j) Exemption for certain gambling winnings
No tax shall be imposed under paragraph (1)(A) of subsection (a)
on the proceeds from a wager placed in any of the following games:
blackjack, baccarat, craps, roulette, or big-6 wheel. The preceding
sentence shall not apply in any case where the Secretary determines
by regulation that the collection of the tax is administratively
feasible.
(k) Exemption for certain dividends of regulated investment
companies
(1) Interest-related dividends
(A) In general
Except as provided in subparagraph (B), no tax shall be
imposed under paragraph (1)(A) of subsection (a) on any
interest-related dividend received from a regulated investment
company.
(B) Exceptions
Subparagraph (A) shall not apply -
(i) to any interest-related dividend received from a
regulated investment company by a person to the extent such
dividend is attributable to interest (other than interest
described in subparagraph (E)(i) or (iii)) received by such
company on indebtedness issued by such person or by any
corporation or partnership with respect to which such person
is a 10-percent shareholder,
(ii) to any interest-related dividend with respect to stock
of a regulated investment company unless the person who would
otherwise be required to deduct and withhold tax from such
dividend under chapter 3 receives a statement (which meets
requirements similar to the requirements of subsection
(h)(5)) that the beneficial owner of such stock is not a
United States person, and
(iii) to any interest-related dividend paid to any person
within a foreign country (or any interest-related dividend
payment addressed to, or for the account of, persons within
such foreign country) during any period described in
subsection (h)(6) with respect to such country.
Clause (iii) shall not apply to any dividend with respect to
any stock which was acquired on or before the date of the
publication of the Secretary's determination under subsection
(h)(6).
(C) Interest-related dividend
For purposes of this paragraph, the term "interest-related
dividend" means any dividend (or part thereof) which is
designated by the regulated investment company as an interest-
related dividend in a written notice mailed to its
shareholders not later than 60 days after the close of its
taxable year. If the aggregate amount so designated with
respect to a taxable year of the company (including amounts so
designated with respect to dividends paid after the close of
the taxable year described in section 855) is greater than the
qualified net interest income of the company for such taxable
year, the portion of each distribution which shall be an
interest-related dividend shall be only that portion of the
amounts so designated which such qualified net interest income
bears to the aggregate amount so designated. Such term shall
not include any dividend with respect to any taxable year of
the company beginning after December 31, 2007.
(D) Qualified net interest income
For purposes of subparagraph (C), the term "qualified net
interest income" means the qualified interest income of the
regulated investment company reduced by the deductions properly
allocable to such income.
(E) Qualified interest income
For purposes of subparagraph (D), the term "qualified
interest income" means the sum of the following amounts derived
by the regulated investment company from sources within the
United States:
(i) Any amount includible in gross income as original issue
discount (within the meaning of section 1273) on an
obligation payable 183 days or less from the date of original
issue (without regard to the period held by the company).
(ii) Any interest includible in gross income (including
amounts recognized as ordinary income in respect of original
issue discount or market discount or acquisition discount
under part V of subchapter P and such other amounts as
regulations may provide) on an obligation which is in
registered form; except that this clause shall not apply to -

(I) any interest on an obligation issued by a corporation
or partnership if the regulated investment company is a 10-
percent shareholder in such corporation or partnership,
and
(II) any interest which is treated as not being portfolio
interest under the rules of subsection (h)(4).
(iii) Any interest referred to in subsection (i)(2)(A)
(without regard to the trade or business of the regulated
investment company).
(iv) Any interest-related dividend includable in gross
income with respect to stock of another regulated investment
company.
(F) 10-percent shareholder
For purposes of this paragraph, the term "10-percent
shareholder" has the meaning given such term by subsection
(h)(3)(B).
(2) Short-term capital gain dividends
(A) In general
Except as provided in subparagraph (B), no tax shall be
imposed under paragraph (1)(A) of subsection (a) on any short-
term capital gain dividend received from a regulated
investment company.
(B) Exception for aliens taxable under subsection (a)(2)
Subparagraph (A) shall not apply in the case of any
nonresident alien individual subject to tax under subsection
(a)(2).
(C) Short-term capital gain dividend
For purposes of this paragraph, the term "short-term capital
gain dividend" means any dividend (or part thereof) which is
designated by the regulated investment company as a short-term
capital gain dividend in a written notice mailed to its
shareholders not later than 60 days after the close of its
taxable year. If the aggregate amount so designated with
respect to a taxable year of the company (including amounts so
designated with respect to dividends paid after the close of
the taxable year described in section 855) is greater than the
qualified short-term gain of the company for such taxable year,
the portion of each distribution which shall be a short-term
capital gain dividend shall be only that portion of the amounts
so designated which such qualified short-term gain bears to the
aggregate amount so designated. Such term shall not include any
dividend with respect to any taxable year of the company
beginning after December 31, 2007.
(D) Qualified short-term gain
For purposes of subparagraph (C), the term "qualified short-
term gain" means the excess of the net short-term capital gain
of the regulated investment company for the taxable year over
the net long-term capital loss (if any) of such company for
such taxable year. For purposes of this subparagraph -
(i) the net short-term capital gain of the regulated
investment company shall be computed by treating any short-
term capital gain dividend includible in gross income with
respect to stock of another regulated investment company as a
short-term capital gain, and
(ii) the excess of the net short-term capital gain for a
taxable year over the net long-term capital loss for a
taxable year (to which an election under section 4982(e)(4)
does not apply) shall be determined without regard to any net
capital loss or net short-term capital loss attributable to
transactions after October 31 of such year, and any such net
capital loss or net short-term capital loss shall be treated
as arising on the 1st day of the next taxable year.
To the extent provided in regulations, clause (ii) shall apply
also for purposes of computing the taxable income of the
regulated investment company.
(l) Cross references
(1) For tax treatment of certain amounts distributed by the
United States to nonresident alien individuals, see section
402(e)(2).
(2) For taxation of nonresident alien individuals who are
expatriate United States citizens, see section 877.
(3) For doubling of tax on citizens of certain foreign
countries, see section 891.
(4) For adjustment of tax in case of nationals or residents
of certain foreign countries, see section 896.
(5) For withholding of tax at source on nonresident alien
individuals, see section 1441.
(6) For election to treat married nonresident alien
individual as resident of United States in certain cases, see
subsections (g) and (h) of section 6013.
(7) For special tax treatment of gain or loss from the
disposition by a nonresident alien individual of a United
States real property interest, see section 897.