What is statutory and residual grouping?

For purposes of determining the FTC limitation the statutory groupings are foreign source income in the separate categories and the residual group is U.S. source income. The method used must reflect, to a reasonably close extent, the factual relationship between the deduction and the grouping of gross income.

What is effectively connected income?

Generally, when a foreign person engages in a trade or business in the United States, all income from sources within the United States connected with the conduct of that trade or business is considered to be Effectively Connected Income (ECI).

How is interest income sourced?

Generally, interest income is determined by the residence of the payor. This presupposes that the true identity of the payor is known. Interest paid by a U.S. trade or business (U.S. branch) of a foreign corporation is deemed paid by a domestic corporation and, therefore, from sources within the U.S.

What is source income?

Source income refers to which state the money was earned in. It literally means where the money comes from.

What is US source income for nonresident alien?

The Internal Revenue Service (IRS) considers all services performed entirely outside of the U.S. by a Nonresident Alien (NRA) to be Non-U.S. Source Income. Nonresident aliens, for tax purposes, unlike U.S. citizens and residents, are only subject to tax on income that is considered U.S.-source income.

What is residual grouping?

Residual grouping. ▪ The residual grouping is simply what remains after the statutory grouping is taken into. account. When calculating the IRC 904 FTC Limitation, the residual grouping will be U.S. source income.

What is non effectively connected income?

Non-Effectively Connected Income: Income that is not effectively connected with a US trade or business is classified as FDAP income (fixed, determinable, annual or periodical.) FDAP income that is considered to be US sourced income: subject to 30% withholding or withholding at a lower treaty rate.

Are wages effectively connected income?

Wages, salaries, fees, compensations, emoluments, or other remunerations, including bonuses, received by a nonresident alien individual for performing personal services in the United States which, under paragraph (a) of § 1.864-2, constitute engaging in a trade or business in the United States, and pensions and …

Where do you source interest income?

As a general rule, interest payments are sourced to the residence or country of incorporation of the obligor. The method and place of payment are immaterial in determining whether interest is U.S. source interest. Thus, U.S.-sourced interest income includes interest from the United States or the District of Columbia.

What is the source of interest?

The tax at source on interest is 30% of the interest accrued. The tax at source on interest is collected by those responsible for paying the interest, including banks, financial service offices, or the issuer of the bond. The state is the recipient of tax revenues derived from tax at source on interest.

Why are the rules of Section 861 important?

The rules of sections 861 through 865 have significance solely in determining whether income is considered from sources within the United States or without the United States, which is relevant, for example, in determining whether a U.S. citizen or resident may claim a credit for foreign taxes paid.

What does Section 871 of the Internal Revenue Code mean?

the section 871 (b) 26 U.S.C. § 871 (b)) tax on certain items of income of nonresident alien individuals effectively connected with the conduct of a United States business; the section 881 ( 26 U.S.C. § 881) and section 882 ( 26 U.S.C. § 882) taxes on the income of certain foreign corporations; and

Who is considered a foreign person under Section 86 ( d )?

Any social security benefit (as defined in section 86 (d) ). any foreign person for the provision of a guarantee of any indebtedness of such person, if such amount is connected with income which is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States.