26 U.S.C. § 871 — Tax on nonresident alien individuals

(a) Income not connected with a United States business—30 percent tax. (1) Income other than capital gains. Except for subsection (h), a nonresident alien individual must pay a 30% tax each taxable year on amounts received from United States sources as: (A) interest (other than original issue discount defined in section 1273), dividends, rents, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, and other fixed or determinable annual or periodic gains, profits, and income; (B) gains described in section 631(b) or (c); (C) for an original-issue-discount obligation, the discount that accrued while the individual held it, to the extent it was not already counted under clause (ii), or, for a payment on that obligation, the discount accrued while held, subject to the statute's limits so it is not counted twice and the tax does not exceed the payment after the tax on the amount in subparagraph (A); and (D) gains from sales or exchanges after October 4, 1966, of patents, copyrights, secret processes or formulas, goodwill, trademarks, trade brands, franchises, similar property, or an interest in them, when the payments depend on the property's productivity, use, or disposition. Subparagraph (D) applies only to the extent the amount is not effectively connected with a United States trade or business. (2) Capital gains of aliens present 183 days or more. If the individual is in the United States for at least 183 days in total during the taxable year, the individual owes 30% of United States-source gains from selling or exchanging capital assets minus United States-source losses from such sales or exchanges. Count a gain or loss only as it would be recognized if effectively connected with a United States business, but do not use section 1202 and do not use the capital-loss carryover in section 1212. Do not count a gain or loss already used under paragraph (1) or subsection (b). For the 183-day test, an individual with no prior taxable year who is not engaged in a United States trade or business is treated as having a calendar-year taxable year. (3) Social Security benefits. For this section and section 1441: (A) 85% of each Social Security benefit defined in section 86(d) is included in gross income, despite section 207 of the Social Security Act; and (B) section 86 does not apply. (b) Income connected with a United States business—graduated rate. (1) A nonresident alien individual engaged in a United States trade or business during the taxable year is taxed under section 1 or 55 on taxable income effectively connected with that business. (2) For that calculation, gross income includes only gross income effectively connected with the United States trade or business. (c) Certain exchange or training programs. A nonresident alien individual who otherwise is not engaged in a United States trade or business but is temporarily present as a nonimmigrant under Immigration and Nationality Act section 101(a)(15)(F), (J), (M), or (Q) is treated as engaged in such a business. Income described in the second sentence of section 1441(b), received by that individual and derived from United States sources, is treated as effectively connected with that business. (d) Election for real-property income. (1) A nonresident alien may elect to treat as effectively connected with a United States trade or business all income from United States real property held to produce income, or an interest in it, including (A)(i) sales or exchanges, (ii) rents or royalties from mines, wells, or other natural deposits, and (iii) gains under section 631(b) or (c), if the income otherwise would not be effectively connected. The income is then taxed under subsection (b)(1), whether or not the individual is engaged in a United States business. The election continues for later taxable years unless the Secretary consents to revoke it for a year. (2) After revocation, a new election cannot be made before the fifth taxable year beginning after the first year for which the revocation applies, unless the Secretary consents. (3) The election and revocation must be made in the form and at the time set by the Secretary's regulations. (e) Repealed. This subsection was repealed by Pub. L. 99–514, title XII, section 1211(b)(5), October 22, 1986. (f) Certain annuities under qualified plans. (1) Gross income does not include an amount received as an annuity under a qualified annuity plan described in section 403(a)(1), or from a tax-exempt qualified trust under section 401(a) and 501(a), if (A) all services that make the annuity payable were either (i) performed outside the United States by a nonresident alien at the time, or (ii) services described in section 864(b)(1) performed in the United States by that person; and (B) when the first annuity amount is paid, at least 90% of employees for whom contributions or benefits are provided under the annuity plan, or plans of which the trust is part, are United States citizens or residents. (2) Income that would qualify except for paragraph (1)(B) is still excluded if (A) the recipient's country gives United States residents and citizens a substantially equivalent exclusion, or (B) that country is a beneficiary developing country under title V of the Trade Act of 1974. (g) Special rules for original issue discount. These rules apply for purposes of this section and section 881. (1)(A) Unless subparagraph (B) applies, an “original issue discount obligation” means a bond or other evidence of indebtedness with original issue discount under section 1273. (B) It does not include (i) an obligation payable within 183 days or less after original issue, regardless of how long the taxpayer held it, or (ii) an obligation whose interest is tax-exempt under section 103 or another law regardless of the holder. (2) The discount accruing during a period is determined under section 1272 or corresponding prior law without a short-term-obligation exception. (3) Unless the Secretary's regulations provide otherwise, whether an amount in subsection (a)(1)(C) is United States-source is decided when paid, sold, or exchanged, as if it were interest. (4) Section 1286's stripped-bond and stripped-coupon rules apply. (h) Portfolio interest. (1) No tax under subsection (a)(1)(A) or (C) applies to portfolio interest received by a nonresident individual from United States sources. (2) “Portfolio interest” means interest, including original issue discount, that would be taxed under subsection (a) without this subsection and is paid on a registered-form obligation, when (i) the otherwise withholding United States person receives a qualifying statement that the beneficial owner is not a United States person, or (ii) the Secretary decides a statement is unnecessary. (3) It does not include interest received by a 10-percent shareholder. For a corporation, that means a person owning at least 10% of all voting power; for a partnership, at least 10% of capital or profits. Stock ownership uses section 318(a), with section 318(a)(2)(C) and section 318(a)(3)(C) applied without their 50% limits, with the special proportional corporate-ownership rule in section 318(a)(3)(C), and with stock attributed under section 318(a)(4) not treated as actually owned for sections 318(a)(2) and (3). Similar rules apply by regulation to partnership interests. (4)(A) Portfolio interest generally excludes interest tied to the debtor's or related person's receipts, sales, cash flow, income, profits, property value, dividends, partnership distributions, or similar payments, and other contingent interest identified by regulation as needed to prevent Federal income-tax avoidance. (B) “Related person” means a person related to the debtor under section 267(b) or 707(b)(1), or a party to an arrangement intended to avoid this paragraph. (C) The exclusion does not apply merely because payment timing is contingent; the debt is nonrecourse or limited recourse; substantially all interest is based on other nonexcluded interest or its principal; the debtor or related person hedges interest-rate or currency risk; interest is based on actively traded property value, its yield (with the stated exclusions), or an index of those values or yields; or the Secretary identifies another type of interest by regulation. (D) The exclusion does not apply to interest on fixed-term debt issued by April 7, 1993, or issued later under a binding written contract in effect continuously since that date. (5) A qualifying statement may be made by the beneficial owner or by a securities clearing organization, bank, or financial institution holding customers' securities in its ordinary business. This does not work for a person whom the Secretary publicly determines, at least one month before payment, cannot provide a qualifying statement. (6) If the Secretary finds information exchange with a foreign country inadequate to prevent United States persons' tax evasion, the Secretary may publish a written determination ending this subsection for interest paid to, addressed to, or for persons in that country, from a specified date until information exchange becomes adequate. The determination does not affect interest on obligations issued by its publication date. (7) “Registered form” has the meaning in section 163(f). (i) Certain interest and dividends. (1) No tax under subsection (a)(1)(A) or (C) applies to paragraph (2) amounts. (2) Those amounts are (A) deposit interest not effectively connected with a United States business; (B) the active foreign business percentage of (i) dividends and (ii) interest paid by an existing 80/20 company; (C) income a foreign central bank of issue derives from bankers' acceptances; and (D) dividends from a foreign corporation treated under section 861(a)(2)(B) as United States-source income. (3) “Deposits” means (A) deposits with persons carrying on banking; (B) deposits or withdrawable accounts with federally or State-chartered and supervised savings institutions, to the extent amounts paid or credited are deductible under section 591 without sections 265 and 291 when those institutions compute taxable income; and (C) amounts an insurance company holds under an agreement to pay interest. (j) Gambling winnings. No tax under subsection (a)(1)(A) applies to proceeds from a wager on blackjack, baccarat, craps, roulette, or a big-6 wheel. This exemption does not apply if the Secretary's regulations say collecting the tax is administratively feasible. (k) Regulated investment company dividends. (1)(A) Except as in (B), no subsection (a)(1)(A) tax applies to an interest-related dividend from a regulated investment company meeting section 852(a) for the year paid. (B) It does not apply to a dividend attributable to interest the company received on debt issued by the recipient or a corporation or partnership in which the recipient is a 10-percent shareholder, except for interest described in (E)(i) or (iii); to stock unless the withholding person receives a statement, under rules similar to (h)(5), that the beneficial owner is not a United States person; or during a country-exclusion period under (h)(6), except for stock acquired by the publication date. (C) An interest-related dividend is the amount the company reports in writing, reduced when reported amounts exceed qualified net interest income by the excess allocated in proportion to the reported amount; for a noncalendar year, if post-December reported amounts cover the excess, allocate only among post-December dividends. “Reported interest-related dividend amount,” “excess reported amount,” “aggregate reported amount,” and “post-December reported amount” mean the corresponding amounts described here, including dividends paid after year-end under section 855. (D) Qualified net interest income is qualified interest income minus deductions allocable to it. (E) Qualified interest income is United States-source income consisting of (i) original issue discount on obligations payable within 183 days, (ii) interest on registered-form obligations, including specified ordinary income from discount, except interest from a corporation or partnership in which the company is a 10-percent shareholder and interest treated as nonportfolio under (h)(4), (iii) interest in (i)(2)(A), and (iv) interest-related dividends from another regulated investment company. (F) “10-percent shareholder” has the meaning in (h)(3)(B). (2)(A) Except as in (B), no tax applies to a short-term capital-gain dividend from a qualifying regulated investment company. (B) This does not apply to an individual taxed under (a)(2). (C) A short-term capital-gain dividend is the amount reported in writing, reduced by any allocated excess when reported amounts exceed qualified short-term gain; the allocation and definitions of the four reported amounts follow the same proportional and noncalendar-year rules stated above. (D) Qualified short-term gain is the company's net short-term capital gain minus net long-term capital loss, counting another company's short-term capital-gain dividend as short-term gain. (E) If section 897 does not apply because of its section 897(h)(1) second sentence, the amount otherwise treated as a short-term capital-gain dividend is not so treated and is included as a dividend in the shareholder's gross income. (l) Existing 80/20 companies. (1) An “existing 80/20 company” is a corporation that met the former 80% foreign-business test for its last taxable year beginning before January 1, 2011, meets the new test for every later year, and has not added a substantial business line after enactment. Under the new test, at least 80% of gross income from all sources during the testing period must be active foreign business income: income from outside the United States attributable to active business in a foreign country or United States possession. The testing period is the three years ending with the year before payment, or the applicable part; if there is no gross income, it is the payment year. For a period crossing January 1, 2011, use the weighted average of the old and new percentages; that average is also the active foreign business percentage. (2) Otherwise, that percentage is active foreign business income divided by all-source gross income during the testing period. (3) For these tests, the corporation and subsidiaries are one corporation. A subsidiary is a corporation in which it directly or indirectly owns stock meeting section 1504(a)(2), using 50% instead of 80% and disregarding section 1504(b)(3). (4) The Secretary may issue needed regulations or guidance, including for aggregation. (m) Dividend-equivalent payments. (1) For this subsection, sections 881 and 4948(a), and chapters 3 and 4, a dividend equivalent is treated as a United States-source dividend. (2) It means (A) a substitute dividend under securities lending or sale-repurchase transactions tied directly or indirectly to a United States-source dividend; (B) a payment under a specified notional principal contract tied to such a dividend; or (C) another substantially similar payment identified by the Secretary. (3) A specified contract is (A) a notional principal contract in which, on entry, a long party transfers the underlying security to a short party; on termination, a short party transfers it to a long party; the security is not readily tradable on an established market; the short party posts it as collateral; or the Secretary identifies the contract; and (B), for payments after two years after enactment, any notional principal contract unless the Secretary finds its type lacks tax-avoidance potential. (4) A “long party” is entitled to a payment tied to a United States-source dividend on the underlying security; a “short party” is any other party; and the “underlying security” is the security for the dividend, with an index or fixed basket treated as one security. (5) “Payment” includes a gross amount used to calculate a net amount transferred. (6) The Secretary may reduce tax on a chain of dividend equivalents to prevent over-withholding, but only to the extent the taxpayer shows tax was paid on another equivalent, is not otherwise due, or reduction is appropriate for financial intermediaries; a dividend counts as an equivalent. (7) For chapters 3 and 4, every party to a contract or arrangement providing a dividend equivalent is treated as controlling the payment. (n) Cross-references. (1) Section 402(e)(2) covers certain United States distributions. (2) Section 877 covers expatriate United States citizens. (3) Section 891 covers doubling tax for citizens of certain foreign countries. (4) Section 896 covers adjustments for nationals or residents of certain foreign countries. (5) Section 1441 covers withholding. (6) Section 6013(g) and (h) cover electing to treat a married nonresident alien as a United States resident in certain cases. (7) Section 897 covers gain or loss from disposing of a United States real-property interest.