Sourcing U.S. and Foreign Income: Dividends, Service Income, Property Sales, Rents, and Income Tax Treaties

U.S. citizens, residents, domestic corporations, trusts, and estates are taxed on worldwide income. Foreign tax credits help alleviate the resulting double-taxation of income for U.S. residents but are only available on foreign-sourced income. Foreign persons, on the other hand, are generally subject to U.S. tax only on their income from sources within the U.S. Determining whether income is within the U.S. (U.S.) or without the U.S. (foreign) is critical to accurately assess taxes and credits for taxpayers.

Although logical at first blush, the rules for sourcing income are replete with exceptions. Dividends, for example, are sourced to the place of incorporation or the location of the taxpayer with exceptions. This is true unless it is foreign-sourced dividend income and 25% or more of the corporation's worldwide gross income over a certain testing period is effectively connected income.

Similarly, the source of compensation for labor or personal services is the place of performance of the services. However, there is a de minimis exception to the service income source rule for persons temporarily present in the United States and U.S. tax treaties provide additional exceptions to this rule.

Tax professionals must understand each income type--whether rents, property sales, dividends, or service income--and its sourcing rules and exceptions to mitigate the burden of worldwide taxation on taxpayers.

Listen as our panel of international tax veterans covers the details of appropriately sourcing income, the caveats and exceptions in sourcing this income, and best practices to lessen the taxation of global income paid by taxpayers.

1. Source of income rules: an overview
2. Dividend income
3. Service income
4. Rents and royalties
5. Sale of real property
6. Sale of other property
7. Other income
8. Treaty exceptions

The panel will cover these and other vital issues:

• What are the exceptions to the general dividend income sourcing rules?
• How is service income apportioned between the U.S. and other countries
• What is the temporary presence exception and how is it applied?
• How is personal property, including trademarks and intangible assets, sourced?

Learning Objectives

After completing this course, you will be able to:

• Identify general rules for sourcing sales of property
• Ascertain when standard treaty clauses may affect general income sourcing rules
• Determine how sourcing certain income impacts foreign tax credits
• Decide when a taxpayer might meet the de minimis exception to sourcing service income

• 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 pass-through taxation, including taxation of partnerships, S corporations and sole proprietorships, qualified business income, net operating losses and loss limitations; familiarity with net operating loss carry-backs, carry-forwards and carried interests.

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).