Taxation 
Taxation of U.S. Non-Resident Aliens and Foreign Corporations
Baker College of Muskegon
Elizabeth Lamas
Taxation of U.S. Non Resident Aliens and Foreign Corporations
Throughout this quarter we have learned how different entities are taxed, but we have not learned how foreign corporations and nonresident aliens are taxed. The purpose of this research paper is to discuss the basic concepts of how these two entities are taxed in the United States. A foreign corporation is any corporation that is “not organize under the laws of the United States, any states, or the District of Columbia” (United States international tax site: foreign corporation, 2012). The United States has jurisdiction to tax foreign corporations, but only if they are engage in business in the United States or receives income from sources within the United States. There are two circumstances where foreign corporations are subject to U.S. income tax. The first circumstance is net income effectively connected with a U.S. trade or business is taxed at a normal corporate income tax rate (United States international tax site: foreign corporation, 2012). The second circumstance is that any U.S. source income not effectively connected with a U.S. trade or business is taxed at a 30% rate. If a foreign corporation is unsure if income is effectively connected with a U.S. trade or business, they can refer to tax code 91 RC section 864 (c) which contains the rules in determining if its effectively connected. Moreover, U.S. source income is separated into 2 categories; periodic income and other income. Periodic income is any gains or losses on the sale of capital assets. “It also includes fixed or determinable annual or periodic gains, profits, and income,” (United States international tax site: foreign corporation, 2012). Some examples of this are interest and dividends, rents and royalties, salaries, wages, and fees. Other income is classified as effectively connected if the taxpayer has a
Baker College of Muskegon
Elizabeth Lamas
Taxation of U.S. Non Resident Aliens and Foreign Corporations
Throughout this quarter we have learned how different entities are taxed, but we have not learned how foreign corporations and nonresident aliens are taxed. The purpose of this research paper is to discuss the basic concepts of how these two entities are taxed in the United States. A foreign corporation is any corporation that is “not organize under the laws of the United States, any states, or the District of Columbia” (United States international tax site: foreign corporation, 2012). The United States has jurisdiction to tax foreign corporations, but only if they are engage in business in the United States or receives income from sources within the United States. There are two circumstances where foreign corporations are subject to U.S. income tax. The first circumstance is net income effectively connected with a U.S. trade or business is taxed at a normal corporate income tax rate (United States international tax site: foreign corporation, 2012). The second circumstance is that any U.S. source income not effectively connected with a U.S. trade or business is taxed at a 30% rate. If a foreign corporation is unsure if income is effectively connected with a U.S. trade or business, they can refer to tax code 91 RC section 864 (c) which contains the rules in determining if its effectively connected. Moreover, U.S. source income is separated into 2 categories; periodic income and other income. Periodic income is any gains or losses on the sale of capital assets. “It also includes fixed or determinable annual or periodic gains, profits, and income,” (United States international tax site: foreign corporation, 2012). Some examples of this are interest and dividends, rents and royalties, salaries, wages, and fees. Other income is classified as effectively connected if the taxpayer has a