Basics of Foreign Inbound Reporting: Effectively Connected Income, FDAP, U.S. Withholding and Reporting Requirements

The reporting considerations for foreign inbound activity by foreign taxpayers in the U.S. are complex. To determine how income in the U.S. is taxed and what tax withholding is required, practitioners must first determine the type of income generated and then must understand the withholding and documentation requirements surrounding such income. ECI is income generally connected with a U.S. trade or business. On the other hand, income that is not ECI and U.S.-sourced may be fixed or determinable, annual, or periodic income which may be considered FDAP. FDAP income is generally subject to a 30% withholding tax unless an income tax treaty or other income tax provision can apply to reduce the withholding tax rate.

Generally, nonresidents with ECI should file Form 1040NR, U.S. Nonresident Alien Income Tax Return. Similarly, foreign corporations with ECI generally should file Form 1120-F, U.S. Income Tax Return of a Foreign Corporation. Both nonresidents and foreign corporations with U.S. withholding may want to file if an opportunity exists to obtain a refund of the withheld taxes. Often there are ways to mitigate or reduce U.S. withholding taxes at source, depending on income tax treaties and other positions taken. Tax practitioners working with foreign taxpayers should understand basic terms, concepts, reporting, and documentation requirements for foreign inbound transactions.

Listen as our panel of international tax reporting professionals walks you through foreign inbound transactions, including U.S. withholding and reporting requirements.

I. Foreign inbound reporting: introduction

II. Effectively connected income (ECI)

III. Fixed, determinable, annual, or periodic income (FDAP)

IV. Partnerships with non-U.S. owners

V. Withholding requirements

VI. Nonresident tax returns: Form 1040NR

VII. Returns of foreign corporations: Form 1120F

VIII. Other foreign inbound reporting considerations

The panel will cover these and other key issues:

• What is FDAP income, and how is it taxed in the U.S.?
• Who is considered a nonresident alien and required to file Form 1040NR?
• What are the U.S. withholding obligations of withholding agents?
• When is a foreign business considered to have a U.S. trade or business and ECI?

Learning Objectives

After completing this course, you will be able to:

• Recognize how the U.S. foreign tax reporting regime is structured
• Understand the requirements for reporting inbound activities
• Identify the reporting requirements of U.S. resident taxpayers and foreign individuals
• Determine who is required to file Form 1120-F
• Recognize reportable transactions with related parties that must be reported on Form 5472
• Establish when there is ECI and the tax consequences

• 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 preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of international taxation including residency determination, foreign entity classifications, application of treaty benefits, as well as GILTI, Subpart F, and the related Section 250 deductions.

  
  

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).