Nonresident Alien Tax Compliance: Challenges and Planning Techniques for Tax Professionals

Many nonresident aliens are either employed, own rental property, or earn dividends from U.S. investments in the United States. Nonresident aliens are subject to U.S. income tax only on their U.S.-source income. Tax advisers must conduct a careful analysis to determine their taxpayer status, connection to the U.S., approaches to reduce their tax liability, and U.S. reporting obligations.

Taxpayers without green cards or who do not maintain a substantial presence in the U.S. during the calendar year are considered U.S. nonresident aliens. These nonresident aliens can be subject to two different tax rates, one for effectively connected income (ECI) and one for fixed, determinable, annual, or periodic (FDAP) income.

Taxpayers earn ECI in the U.S. from operating a business in the U.S., wages, or self-employment income in the U.S. ECI is taxed for a nonresident at the same graduated rates as for a U.S. person.

If eligible income is classified as FDAP income, such as interest, dividends, rents, or royalties, then the income is taxed at a 30 percent rate. The differences in tax rates, reporting mechanics, and withholding requirements for ECI and FDAP require tax professionals to be familiar with the ECI rules to avoid paying unnecessary taxes and penalties.

Tax treaties, deductions, credits, and other options are available to reduce or eliminate the applicable tax rates or liability.

Listen as our panel guides advisers in determining taxpayer status for non-U.S. citizens, ECI vs. FDAP income classification, reporting requirements, and available mechanisms to reduce the tax liability of nonresident aliens.

1. Overview of the rules and regulations regarding nonresident aliens and U.S. income tax system
2. Determining taxpayer status, filing, and reporting requirements
3. Classifying eligible income: ECI vs. FDAP
4. Tax treaties and reducing or eliminating U.S. tax on nonresident alien income
5. IRS' recent compliance campaign and handling issue-based examinations and audits
6. Best practices for compliance and tax planning techniques for U.S. nonresident aliens

The panel will review these and other high priority issues:

• Tax rules and regulations applicable to U.S. nonresident aliens
• Criteria for determining a nonresident alien taxpayer
• Differences in tax reporting, rates, and withholdings between ECI and FDAP
• The effect of tax treaties the U.S. has with other countries
• Recent IRS compliance campaigns focused on nonresident alien taxpayers
• Best practices for compliance and tax planning techniques

Learning Objectives

After completing this course, you will be able to:

• Determine the classification and status of a taxpayer as a U.S. resident or nonresident alien
• Discern the difference between income effectively connected with a U.S. trade or business and FDAP
• Identify special elections, deductions, and credits available to a U.S. nonresident alien

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules, supervising other preparers/accountants. Specific knowledge and understanding of Effectively-Connected Income (ECI) and FDAP rules; familiarity with taxpayer residence and presence tests

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).