Guillermo Baez Espinosa - Page 5

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          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.                                                            
          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.  A                 

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