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US 19 | s864 (c) IRC
Manage episode 324026457 series 3321676
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In the last episode, we looked at s882 of the Internal Revenue Code which covers foreign corporations with a US Trade or Business. Today let’s look at s864 (c ) of the Internal Revenue Code, which defines effectively connected income (ECI).
s864 is the definition section, and for us it is s864 (c ) that is particularly relevant since it defines effectively connected income.
S864 (c ) has 8 paragraphs, but it is really only the first five that are relevant for us.
1 - Number 1 basically just says that the following rules apply to non-resident aliens as well as foreign corporations. So it doesn’t matter whether you are an individual or a company, the same rules apply to ECI.
And it also says that if you don’t have a US Trade or Business, then you don’t have ECI.
2 - Number 2 discusses to what extent FDAP is treated as effectively connected income. So if you run a business and you also have interest, dividends, royalty income and so on, when do you treat it as FDAP and when as ECI.
3 - Number 3 says something very important. It says that apart from paragraph 2 - so the whole question whether FDAP income is treated as FDAP or ECI - apart from that, number 3 says that all US-sourced income is ECI. And this is big. This is the limited force of attraction rule. And it suggests anything that is not FDAP is ECI if you have a USTB.
4 - Number 4 also says something very important. It says that foreign-sourced income - foreign in the eyes of the US - number 4 says that no foreign-sourced income is ECI unless there is an office or other fixed place of business in the US that earned this income.
5 - Number 5 then discusses what this office or other fixed place of business in the US would look like and role dependent agents or independent agents play. So basically what gives you an office or other fixed place of business?
And that is basically it for us. Number 6 covers deferred payments, no. 7 real estate and no. 8 covers the sale of partnership interests, so we basically just have to worry about paragraph 1 to 5 of s864 (c ).
The speaker in this episode is Bryan Kelly of Wilkie, Farr & Gallagher in Los Angeles.
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