- 5 - the rental income as if it was effectively connected with a trade or business within the United States. On January 13, 1994, respondent issued a notice of deficiency to petitioner for the taxable years 1987 through 1991. In the notice of deficiency, respondent determined that petitioner was liable for deficiencies and additions to tax in the above listed amounts. Respondent treated petitioner's income as effectively connected with a U.S. trade or business, but determined that petitioner was not entitled to the benefit of any deductions pursuant to section 874(a). For each year in issue, respondent further determined that petitioner is liable for additions to tax for failure to file tax returns pursuant to section 6651(a)(1) and for failure to pay estimated tax pursuant to section 6654. OPINION Section 874(a) In order to understand the primary issue it is useful to briefly explore the taxation of rental income of nonresident alien individuals under the Internal Revenue Code. Under section 871(a)(1)(A) the "amount" from rents received by a nonresident alien individual that is not effectively connected with the conduct of a trade or business within the United States is taxed at a 30-percent rate. This 30-percent rate is imposed on gross rental income. See sec. 1.871-7(a)(3), Income Tax Regs. APage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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