Mastering the Effectively Connected Income Rules for Foreign Persons Engaged in Inbound Transactions

Navigating Differing Tax Treatment for ECI and FDAP Income, Withholding Requirements, Available Elections and Other Planning Options

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


Conducted on Tuesday, September 22, 2015

Recorded event now available

or call 1-800-926-7926
Program Materials

This webinar will provide tax advisers and professionals with a deep dive into the effectively connected income (ECI) rules as they apply to inbound transactions engaged by nonresident alien taxpayers in the United States. The panel will discuss differing tax treatment for ECI and income that is fixed, determinable, annual or periodic (FDAP), outline the withholding requirements, and detail available elections and other planning considerations in determining whether inbound income qualifies as ECI.

Description

Nonresident foreign persons with economic activity in the United States are generally subject to U.S. income tax only on income they receive that is U.S.-sourced; this income is categorized as either income effectively connected with a U.S. trade or business or FDAP income. Because the tax rates, reporting mechanics, and withholding requirements are different for ECI than for FDAP, tax professionals must become familiar with the ECI rules to avoid paying unnecessary tax and penalties.

Income that is considered ECI receives more favorable tax treatment than FDAP income. Income that is considered “effectively connected” with a U.S. trade or business is taxed at graduated rates on a net income basis according to IRC Section 871(b). The definition of ECI is broad, and includes numerous special exceptions, rules, treaty applications and elections. Failure to classify eligible income as ECI is a costly mistake for tax advisers.

Income that qualifies as FDAP is subject under Section 871(a) to a flat 30% on gross receipts without any allowance for deductions. Additionally, FDAP income is subject to withholding requirements. Failure to remit withholdings on nonresident FDAP income can lead to significant penalties for the withholding agent and the taxpayer.

Listen as our experienced panel provides in-depth guidance on the ECI rules, and gives detailed best practices on available elections and other planning and reporting mechanics.

READ MORE

Outline

  1. Definition of ECI
  2. Trade or business, partnerships, beneficiary of trust engaged in business
  3. ECI contrasted with FDAP
  4. Form 1120-F
  5. Withholding requirements and exemptions
  6. Case study illustration

Benefits

The panel will discuss these and other key issues:

  • What are the criteria for qualifying income as “effectively-connected”?
  • What are the differences in tax reporting, rates and withholdings between ECI and FDAP?
  • What are the criteria for determining a nonresident alien taxpayer?
  • What is the 871 election for real estate income, and how does it work in practice?
  • What are the planning options to minimize tax on ECI?

Faculty

Daniel R. Blickman
Daniel R. Blickman

Partner
Blank Rome

Mr. Blickman has substantial experience in a wide range of federal and state tax issues. He represents clients in...  |  Read More

Rosenfeld, Jeffrey
Jeffrey M. Rosenfeld, Esq.

Blank Rome

Mr. Rosenfeld concentrates his practice in the area of business tax law. He counsels clients in a broad array of tax...  |  Read More

James K. Sams
James K. Sams
Principal
KPMG

Mr. Sams is attached to the firm's International Corporate Tax Services Practice, providing high-level technical...  |  Read More

Other Formats
— Anytime, Anywhere

Download

CPE Not Available

$147