1958, section 403 (a) (2) and are considered to be gains from the sale or exchange of capital assets. Thus, the tax applies to gain recognized on certain distributions by an exempt employees' trust where the total distributions, with respect to any employee, are paid to the distributee within one taxable year; to the gain recognized on certain payments under annuity contracts purchased by an employer for an employee under certain qualified annuity plans where the total payments are paid to the payee within one taxable year; to gain recognized under specified circumstances on the disposal of timber, coal, and domestic iron ore and considered in accordance with section 1231 to be gain from the sale or exchange of a capital asset; and to gain recognized on certain transfers of patent rights by an individual. (ii) Ninety-day rule not applicable. The provisions of section 871 (a) (2) do not apply to the gains described in this subparagraph; as a consequence, the taxpayer receiving these gains during a taxable year is subject to the tax of 30 percent thereon without regard to the 90-day rule of that section and even though he has not been present in the United States at any time during the taxable year. (iii) Recognized gain fully taxable. The tax of 30 percent imposed upon the gains described in this subparagraph shall apply (a) to the full amount of gain recognized upon the transaction, (b) without regard to the alternative tax imposed by section 1201 upon the excess of the net long-term capital gain over the net short-term capital loss, and (c) without regard to the deduction allowed by section 1202 in respect of capital gains. (iv) Losses. In computing the gain subject to tax under this subparagraph no deduction shall be allowed for any loss sustained during the taxable year, even though the loss is taken into account under section 1231 in determining whether the gain is considered to be gain from the sale or exchange of a capital asset. (4) Capital gains and losses-(i) Items subject to tax. The tax of 30 percent also applies, pursuant to the provisions of section 871 (a) (2), to the excess of capital gains derived from sources within the United States over capital losses allocable to such sources, determined under the provisions of part I (section 861 and following), subchapter N, chapter 1 of the Code, and the regulations thereunder, and in accordance with the provisions of this subparagraph. (ii) Present less than 90 days. If he has been present in the United States for a period or periods aggregating less than 90 days during the taxable year, a nonresident alien individual not engaged in trade or business within the United States at any time during the taxable year is liable to a tax of 30 percent upon the amount by which his gains, derived from sources within the United States, from sales or exchanges of capital assets effected during his presence in the United States exceed his losses, allocable to sources within the United States, from such sales or exchanges effected during such presence. Gains and losses from sales or exchanges of capital assets effected during the taxable year at times other than during such presence in the United States are not to be taken into account for this purpose. (iii) Present 90 days or more. If he has been present in the United States for a period or periods aggregating 90 days or more during the taxable year, a nonresident alien individual not engaged in trade or business within the United States at any time during the taxable year is liable to a tax of 30 percent upon the amount by which his gains, derived from sources within the United States, from sales or exchanges of capital assets effected at any time during that year exceed his losses, allocable to sources within the United States, from sales or exchanges effected at any time during that year. Gains and losses from sales or exchanges effected at any time during the taxable year are to be taken into account for this purpose even though the alien individual is not present in the United States at the time the sales or exchanges are effected. (iv) Separate periods to be aggregated. In computing the total period of presence in the United States for a taxable year, all separate periods of presence in the United States during the taxable year are to be aggregated. (v) Other provisions applicable. For the purpose of the computation of the excess of capital gains over capital losses subject to tax under this subparagraph, gains and losses shall, subject to the 90-day rule of section 871 (a) (2), be taken into account only if, and to the extent that, they would be recognized and taken into account if the nonresident alien individual were engaged in any trade or business within the United States, except that the gains and losses shall be computed without regard to the provisions of section 1202, relating to the deduction for capital gains, and the losses shall be determined without the benefits of the capital loss carryover provided in section 1212. For example, amount (other than the gains specified in subparagraph (3) of this paragraph) which, under the provisions of subtitle A of the Code, is considered to be gain or loss from the sale or exchange of a capital asset shall be taken into account but only in accordance with this subdivision and subject to the provisions of section 873 and the regulations thereunder. Thus, an amount described in section 631(b) or (c) which is considered to be loss from the sale or exchange of a capital asset would be taken into account in such manner. Also, for example, no deduction shall be allowed, pursuant to the provisions of section 267, for losses from sales or exchanges of property between related taxpayers. (vi) Alternative tax. The tax shall be computed under this subparagraph without regard to the alternative tax imposed by section 1201 upon the excess of the net long-term capital gain over the net short-term capital loss. (vii) Allowance of losses. In computing the tax under this subparagraph losses from sales or exchanges of capital assets shall be allowed only to the extent of gains from sales or exchanges of capital assets. (viii) Gains not included. The provisions of this subparagraph do not apply to amounts described in section 402 (a)(2), section 403 (a) (2) for taxable years ending after September 2, 1958, section 631 (b) and (c), and section 1235, which are considered to be gains from the sale or exchange of capital assets. See subparagraph (3) of this paragraph. (5) Deductions allowable. For the allowance of deductions in computing the tax under this paragraph, see paragraph (b) (1) of § 1.873-1. (6) Credits against tax. The credits allowed by section 31 (relating to tax withheld on wages), by section 32 (relating to tax withheld at source on nonresident aliens), and for taxable years beginning before January 1, 1958, by section 35 (relating to partially tax-exempt interest) shall be allowed against the tax computed in accordance with this paragraph. (c) No United States business; gross income of more than $15,400—(1) Imposition of tax. Except as otherwise provided by paragraph (e) of this section and subparagraph (4) of this paragraph, a nonresident alien individual within class 2 is, in accordance with the provisions of section 871 (b), subject to tax under section 1 or, in the alternative, under section 1201 (b) upon the income computed in accordance with this paragraph and received during the taxable year from sources within the United States. In computing the alternative tax under section 1201 (b) for this purpose, all amounts constituting, or considered to be, gains and losses from the sale or exchange of capital assets, whether described in paragraph (b) (3) or (4) of this section, shall be taken into account to the extent prescribed by subparagraphs (2) and (3) of this paragraph. (2) Gross income. For the purposes of subparagraph (1) of this paragraph, the gross income shall include only those items of gains, profits, and income which would be taken into account if the tax were being determined in accordance with paragraph (b) of this section, that is, the gross amount of fixed or determinable annual or periodical income determined in accordance with paragraph (b) (2) of this section, the full amount of any gain taxable in accordance with paragraph (b) (3) of this section, and all other gains (computed without regard to any losses) which are to be taken into account in determining the tax under paragraph (b) (4) of this section. For such purposes, all such gains derived from the sale or exchange of capital assets, whether taken into account under paragraph (b) (3) or (4) of this section, shall be included to the same extent as provided by subchapter P (section 1201 and following), chapter 1 of the Code, and the regulations thereunder. (3) Deductions. In computing, for purposes of subparagraph (1) of this paragraph, the income subject to tax under section 1 or section 1201 (b), there shall be allowed as deductions (1) Capital losses. Any loss, allocable to sources within the United States, from the sale or exchange of a capital asset which would be taken into account if the tax were being determined in accordance with paragraph (b) (4) of this section, except that such loss shall be allowed only to the extent provided by subchapter P (section 1201 and following), chapter 1 of the Code, and the regulations thereunder, but without the benefit of the capital loss carryover provided by section 1212; (ii) Charitable contributions. The deduction for charitable contributions and gifts to the extent allowed by section 170, whether or not connected with income from sources within the United States, but (in accordance with section 873 (c)) only as to contributions or gifts made to domestic corporations, or to community chests, funds, or foundations, created in the United States; and (iii) Other deductions. Any other deduction (including the deduction allowed by section 1202 in respect of capital gains) allowed by section 873, but only if, and to the extent that, they are properly allocable to the gross income specified in subparagraph (2) of this paragraph. See also § 1.873-1. (4) Minimum tax-(i) Taxable years beginning before January 1, 1958. Notwithstanding the provisions of subparagraph (1) of this paragraph, and except as otherwise provided by paragraph (e) of this section, the tax for a taxable year beginning before January 1, 1958, of a nonresident alien individual within class 2 shall in no case be less than 30 percent of the aggregate of the amounts determined under paragraph (b) (2), (3), and (4) of this section and received during the taxable year from sources within the United States. (ii) Taxable years beginning after December 31, 1957. Notwithstanding the provisions of subparagraph (1) of this paragraph, and except as otherwise provided by paragraph (e) of this section, if the tax for a taxable year beginning after December 31, 1957, of a nonresident alien individual within class 2 minus the sum of the credits under sections 34 and 35 would be an amount which is less than 30 percent of the aggregate of the amounts determined under paragraph (b) (2) (determined without regard to the section 116 exclusion), (3), and (4) of this section and received during the taxable year from sources within the United States, then this paragraph shall not apply but paragraph (b) of this section shall apply. The provisions of this subdivision may be illustrated by the following example: Example. A nonresident alien individual during the taxable year 1959 receives from sources within the United States a total in (5) Credits against tax. The credits allowed by section 31 (relating to tax withheld on wages), section 32 (relating to tax withheld at source on nonresident aliens), section 34 (relating to dividends received by individuals), and section 35 (relating to partially tax-exempt interest) shall be allowed against the tax computed in accordance with this paragraph, even though, for taxable years beginning before January 1, 1958, such tax is computed in accordance with subparagraph (4) (i) of this paragraph. For taxable years beginning after December 31, 1957, if, by reason of subparagraph (4) (ii) of this paragraph, paragraph (b) of this section applies, the credits under sections 34 and 35 are not allowed. (d) United States business-(1) Imposition of tax. Except as otherwise provided by paragraph (e) of this section, a nonresident alien individual within class 3 is, in accordance with the pro visions of subsections (c) and (d) of section 871, subject to tax under section 1 or, in the alternative, under section 1201(b) upon his taxable income. (2) Taxable income. For purposes of this paragraph, the taxable income includes only the taxable income from sources within the United States, determined in accordance with the provisions of section 63(a), part I (section 861 and following), subchapter N, chapter 1 of the Code, sections 872 and 873, and the regulations thereunder. (3) Credits against tax. The credits allowed by section 31 (relating to tax withheld on wages), section 32 (relating to tax withheld at source on nonresident aliens), section 34 (relating to dividends received by individuals), and section 35 (relating to partially tax-exempt interest) shall be allowed against the tax computed in accordance with this paragraph. (4) Inapplicable provisions. The provisions of paragraphs (b) and (c) of this section have no application in determining the tax of nonresident alien individuals described in paragraph (a) (3) of this section. (e) Treaty income-(1) Definitions. For purposes of this paragraph, the term "treaty income" shall be construed to mean the gross income of a nonresident alien individual the tax on which is limited by tax convention. Thus, for example, the term would include dividends derived by such an individual from sources within the United States which, in accordance with a tax convention, are subject to United States tax at a rate not to exceed 15 percent. The term "nontreaty income" shall be construed, for such purposes, to mean the gross income of a nonresident alien individual other than treaty income. In either case the gross income shall be determined in accordance with §§ 1.872-1 and 1.872-2, except that the provisions of section 116 shall be disregarded when determining (i) whether the individual is within class 1 or class 2 for the purposes of paragraph (a) of this section, (ii) whether the partial tax under subparagraph (3) (i) of this paragraph shall be computed in accordance with section 871 (a) or (b), and (iii) the tax under subparagraph (3) (ii) of this paragraph upon the separate items of treaty income. (2) Application of $15,400 limitation. Treaty income shall be taken into account in determining whether a non resident alien individual not engaged in trade or business within the United States at any time during the taxable year is within class 1 or class 2 for the purposes of paragraph (a) of this section; however, the tax upon such income shall be separately computed to the extent required by subparagraph (3) of this paragraph. (3) Computation of tax. If the gross income of a nonresident alien individual within class 1, 2, or 3 consists of both treaty and nontreaty income, the tax liability for the taxable year shall be the sum of the amounts determined in accordance with subdivisions (i) and (ii) of this subparagraph. In no case, however, may the tax liability so determined exceed the tax liability with respect to the taxpayer's entire gross income, determined in accordance with paragraph (b), (c), or (d) of this section as though the tax convention had not come into effect and without reference to the provisions of this paragraph. This subparagraph shall not be construed to deny the credits provided by sections 31, 32, and 6402. (i) Compute a partial tax upon only the nontreaty income in accordance with section 871 (a), (b), or (c), whichever applies, as determined under paragraph (b), (c), or (d) of this section, and as though the tax convention had not come into effect. To the extent allowed by such paragraph, the credits allowed by sections 34 and 35 shall then be allowed against the tax so computed but only with respect to items included in the nontreaty income. For this purpose, the nontreaty income alone shall be used as a basis for determining whether the partial tax shall be computed in accordance with section 871 (a) or (b). (ii) Compute a tax upon the gross amount of each separate item of treaty income at the reduced rate applicable to that item under the tax convention. Notwithstanding any other provision to the contrary, this tax shall be determined without the allowance of any deduction, credit (other than the credits provided by sections 31, 32, and 6402), or exclusion in respect of any item included in the treaty income. (4) Illustration. The application of this paragraph may be illustrated by the following examples: Example (1). (1) A nonresident alien individual who is a resident of a foreign country with which the United States has entered into a tax convention receives during the taxable year 1955 from sources within the United States total gross income of $125, 000, consisting of the following items and computed by taking into account the exclusion granted by section 116 (a): Oil royalties the tax on which is limited by the convention to a rate not to exceed 15 percent--- $100,000 Interest the tax on which is limited by the convention to a rate not to exceed 5 percent--Dividends the tax on which is not limited by the convention.---. Rents the tax on which is not limited by the convention-- Total gross income.......... 5,000 10,000 10,000 125, 000 The dividends are assumed to be paid by a domestic corporation not disqualified by section 34 (c) or 116 (b). There are no allowable deductions, other than the deductions allowed by sections 613 and 873 (d). The taxpayer has not engaged in trade or business within the United States or had a permanent establishment therein at any time during the taxable year. Although entitled to do so under the convention, the taxpayer does not elect to be taxed for the taxable year as though he did have a permanent establishment within the United States. (ii) The tax liability for the taxable year is $21,792, computed as follows: Nontreaty gross income___ Less: Deduction for personal exemption--- Nontreaty taxable income___ $20,000 600 19,400 Under the facts of this example, for taxable years beginning after December 31, 1957, the minimum tax prescribed by section 871 upon nontreaty gross income shall be $6,015 ($20,050 X 30 percent). Example (2). (1) A nonresident alien individual who is a resident of a foreign country with which the United States has entered into a tax convention receives during the taxable year 1955 from sources within the United States total gross income of $4,050, consisting of the following items and computed without regard to the exclusion granted by section 116 (a): Dividends the tax on which is limited Total gross income_-_ $3,050 1,000 4, 050 The dividends are assumed to be paid by a domestic corporation not disqualified by section 34 (c) or 116 (b). The taxpayer was engaged in trade or business within the United States during the taxable year, but did not have a permanent establishment therein. Interest expense in the amount of $2,100 connected with the dividend income was paid by the taxpayer during the taxable year. (ii) The tax liability for the taxable year is $208, computed as follows: Total gross income computed by tak- $4,000 ($19,400 X 260 776 4 percent of taxable income 400 Partial tax computed in accordance with subparagraph (3)(1) of this paragraph.. |