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Effectively Connected Income: Defining a U.S. Trade or Business, FDAP Income, FIRPTA, U.S. Income Tax Treaties

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Thursday, September 19, 2024

Recorded event now available

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This webinar will discuss defining, taxing, and withholding obligations of effectively connected income (ECI). Our panel of astute foreign tax specialists will review trade or business income requirements, fixed, determinable, annual, or periodic (FDAP) income, the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), and how U.S. income tax treaties treat ECI.

Description

Generally speaking, income generated by a nonresident's trade or businesses within the U.S. is considered ECI. Determining whether the activity is a trade or business is critical because ECI is taxed on a net rather than gross basis, unlike fixed, determinable, annual or periodic (FDAP), which is taxed on a gross basis. In other words, deductions are allowed against income received, and this income is taxed using the same graduated rates applicable to U.S. citizens.

As with most tax matters, defining a trade or business is complicated. Certain types of income, for example, FDAP, are treated as ECI. Individuals who are members of a partnership engaged in a U.S. trade or business are likewise considered engaged in a trade or business. For businesses operating in the U.S., whether a foreigner's activity rises to the level of being a trade or business is a matter of facts and circumstances. U.S. income tax treaties can provide some relief. These treaties establish that a U.S. permanent establishment is required to tax business income. International tax advisers working with multinational taxpayers and businesses must fully grasp the criteria for ECI.

Listen as our panel of international tax matter experts clarifies the taxation and withholding requirements of ECI for multinational taxpayers.

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Outline

  1. Statutory framework: IRC §864(c)
  2. Comparison with FDAP income
  3. What is a trade or business
  4. Special situations
  5. Impact of U.S. income tax treaties
  6. Claiming ECI income
  7. Payor reporting of ECI income

Benefits

The panel will cover these and other critical issues:

  • The statutory framework for IRC Section 864(c)
  • What is a trade or business?
  • How FDAP income compares with effectively connected income
  • The impact of U.S. income tax treaties on ECI
  • Withholding and reporting requirements for ECI

Faculty

Kennedy-C. Edward
C. Edward (Ed) Kennedy, Jr., CPA, JD

Managing Director
C Edward Kennedy Jr

Mr. Kennedy has more than 42 years of experience dealing with a variety of international tax matters, specializing...  |  Read More

Phelan, Kimberlee
Kimberlee S.P. Murphy, CPA, CGMA, MBA

Partner, Market Leader, International Services
Withum Smith+Brown

Ms. Murphy is Withum’s International Services Market Leader with over 30 years of accounting and tax...  |  Read More

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