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File Only State Taxes

File only state taxes 2. File only state taxes   Source of Income Table of Contents Introduction Topics - This chapter discusses: Resident Aliens Nonresident AliensInterest Income Dividends Guarantee of Indebtedness Personal Services Transportation Income Scholarships, Grants, Prizes, and Awards Pensions and Annuities Rents or Royalties Real Property Personal Property Community Income Introduction After you have determined your alien status, you must determine the source of your income. File only state taxes This chapter will help you determine the source of different types of income you may receive during the tax year. File only state taxes This chapter also discusses special rules for married individuals who are domiciled in a country with community property laws. File only state taxes Topics - This chapter discusses: Income source rules, and Community income. File only state taxes Resident Aliens A resident alien's income is generally subject to tax in the same manner as a U. File only state taxes S. File only state taxes citizen. File only state taxes If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U. File only state taxes S. File only state taxes tax return. File only state taxes You must report these amounts from sources within and outside the United States. File only state taxes Nonresident Aliens A nonresident alien usually is subject to U. File only state taxes S. File only state taxes income tax only on U. File only state taxes S. File only state taxes source income. File only state taxes Under limited circumstances, certain foreign source income is subject to U. File only state taxes S. File only state taxes tax. File only state taxes See Foreign Income in chapter 4. File only state taxes The general rules for determining U. File only state taxes S. File only state taxes source income that apply to most nonresident aliens are shown in Table 2-1. File only state taxes The following discussions cover the general rules as well as the exceptions to these rules. File only state taxes Not all items of U. File only state taxes S. File only state taxes source income are taxable. File only state taxes See chapter 3. File only state taxes Interest Income Generally, U. File only state taxes S. File only state taxes source interest income includes the following items. File only state taxes Interest on bonds, notes, or other interest-bearing obligations of U. File only state taxes S. File only state taxes residents or domestic corporations. File only state taxes Interest paid by a domestic or foreign partnership or foreign corporation engaged in a U. File only state taxes S. File only state taxes trade or business at any time during the tax year. File only state taxes Original issue discount. File only state taxes Interest from a state, the District of Columbia, or the U. File only state taxes S. File only state taxes Government. File only state taxes The place or manner of payment is immaterial in determining the source of the income. File only state taxes A substitute interest payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as the interest on the transferred security. File only state taxes Exceptions. File only state taxes   U. File only state taxes S. File only state taxes source interest income does not include the following items. File only state taxes Interest paid by a resident alien or a domestic corporation on obligations issued before August 10, 2010, if for the 3-year period ending with the close of the payer's tax year preceding the interest payment, at least 80% of the payer's total gross income: Is from sources outside the United States, and Is attributable to the active conduct of a trade or business by the individual or corporation in a foreign country or a U. File only state taxes S. File only state taxes possession. File only state taxes However, the interest will be considered U. File only state taxes S. File only state taxes source interest income if either of the following apply. File only state taxes The recipient of the interest is related to the resident alien or domestic corporation. File only state taxes See section 954(d)(3) for the definition of related person. File only state taxes The terms of the obligation are significantly modified after August 9, 2010. File only state taxes Any extension of the term of the obligation is considered a significant modification. File only state taxes Interest paid by a foreign branch of a domestic corporation or a domestic partnership on deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law if the interest paid or credited can be deducted by the association. File only state taxes Interest on deposits with a foreign branch of a domestic corporation or domestic partnership, but only if the branch is in the commercial banking business. File only state taxes Dividends In most cases, dividend income received from domestic corporations is U. File only state taxes S. File only state taxes source income. File only state taxes Dividend income from foreign corporations is usually foreign source income. File only state taxes Exceptions to both of these rules are discussed below. File only state taxes A substitute dividend payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as a distribution on the transferred security. File only state taxes Dividend equivalent payments. File only state taxes   U. File only state taxes S. File only state taxes source dividends also include all dividend equivalent payments. File only state taxes Dividend equivalent payments include substitute dividends, payments made pursuant to a specified notional principal contract, and all similar payments that, directly or indirectly, are contingent on or determined by reference to, the payment of a dividend from U. File only state taxes S. File only state taxes sources. File only state taxes    The Internal Revenue Service has issued final regulations that would affect the treatment of dividend equivalent payments and specified notional principal contracts. File only state taxes You can view this regulation at www. File only state taxes irs. File only state taxes gov/irb/2013-52_IRB/ar08. File only state taxes html. File only state taxes First exception. File only state taxes   Dividends received from a domestic corporation are not U. File only state taxes S. File only state taxes source income if the corporation elects to take the American Samoa economic development credit. File only state taxes Second exception. File only state taxes   Part of the dividends received from a foreign corporation is U. File only state taxes S. File only state taxes source income if 25% or more of its total gross income for the 3-year period ending with the close of its tax year preceding the declaration of dividends was effectively connected with a trade or business in the United States. File only state taxes If the corporation was formed less than 3 years before the declaration, use its total gross income from the time it was formed. File only state taxes Determine the part that is U. File only state taxes S. File only state taxes source income by multiplying the dividend by the following fraction. File only state taxes   Foreign corporation's gross income connected with a U. File only state taxes S. File only state taxes trade or business for the 3-year period     Foreign corporation's gross income from all sources for that period   Guarantee of Indebtedness Certain amounts received directly or indirectly, for the provision of a guarantee of indebtedness issued after September 27, 2010, are U. File only state taxes S. File only state taxes source income. File only state taxes They must be paid by a noncorporate resident or U. File only state taxes S. File only state taxes corporation or by any foreign person if the amounts are effectively connected with the conduct of a U. File only state taxes S. File only state taxes trade or business. File only state taxes For more information, see Internal Revenue Code sections 861(a)(9) and 862(a)(9). File only state taxes Personal Services All wages and any other compensation for services performed in the United States are considered to be from sources in the United States. File only state taxes The only exceptions to this rule are discussed in chapter 3 under Employees of foreign persons, organizations, or offices, and under Crew members. File only state taxes If you are an employee and receive compensation for labor or personal services performed both inside and outside the United States, special rules apply in determining the source of the compensation. File only state taxes Compensation (other than certain fringe benefits) is sourced on a time basis. File only state taxes Certain fringe benefits (such as housing and education) are sourced on a geographical basis. File only state taxes Or, you may be permitted to use an alternative basis to determine the source of compensation. File only state taxes See Alternative Basis , later. File only state taxes Multi-level marketing. File only state taxes   Certain companies sell products through a multi-level marketing arrangement, such that an upper-tier distributor, who has sponsored a lower-tier distributor, is entitled to a payment from the company based on certain activities of that lower-tier distributor. File only state taxes Generally, depending on the facts, payments from such multi-level marketing companies to independent (non-employee) distributors (upper-tier distributors) that are based on the sales or purchases of persons whom they have sponsored (lower-tier distributors) constitute income for the performance of personal services in recruiting, training, and supporting the lower-tier distributors. File only state taxes The source of such income is generally based on where the services of the upper-tier distributor are performed, and may, depending on the facts, be considered multi-year compensation, with the source of income determined over the period to which such compensation is attributable. File only state taxes Self-employed individuals. File only state taxes   If you are self-employed, you determine the source of compensation for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. File only state taxes In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. File only state taxes Time Basis Use a time basis to figure your U. File only state taxes S. File only state taxes source compensation (other than the fringe benefits discussed later). File only state taxes Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed services in the United States during the year     Total number of days you performed services during the year   You can use a unit of time less than a day in the above fraction, if appropriate. File only state taxes The time period for which the compensation is made does not have to be a year. File only state taxes Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. File only state taxes Example 1. File only state taxes Christina Brooks, a resident of the Netherlands, worked 240 days for a U. File only state taxes S. File only state taxes company during the tax year. File only state taxes She received $80,000 in compensation. File only state taxes None of it was for fringe benefits. File only state taxes Christina performed services in the United States for 60 days and performed services in the Netherlands for 180 days. File only state taxes Using the time basis for determining the source of compensation, $20,000 ($80,000 × 60/240) is her U. File only state taxes S. File only state taxes source income. File only state taxes Example 2. File only state taxes Rob Waters, a resident of South Africa, is employed by a corporation. File only state taxes His annual salary is $100,000. File only state taxes None of it is for fringe benefits. File only state taxes During the first quarter of the year he worked entirely within the United States. File only state taxes On April 1, Rob was transferred to Singapore for the remainder of the year. File only state taxes Rob is able to establish that the first quarter of the year and the last 3 quarters of the year are two separate, distinct, and continuous periods of time. File only state taxes Accordingly, $25,000 of Rob's annual salary is attributable to the first quarter of the year (. File only state taxes 25 × $100,000). File only state taxes All of it is U. File only state taxes S. File only state taxes source income because he worked entirely within the United States during that quarter. File only state taxes The remaining $75,000 is attributable to the last three quarters of the year. File only state taxes During those quarters, he worked 150 days in Singapore and 30 days in the United States. File only state taxes His periodic performance of services in the United States did not result in distinct, separate, and continuous periods of time. File only state taxes Of this $75,000, $12,500 ($75,000 × 30/180) is U. File only state taxes S. File only state taxes source income. File only state taxes Multi-year compensation. File only state taxes   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. File only state taxes Multi-year compensation is compensation that is included in your income in one tax year but that is attributable to a period that includes two or more tax years. File only state taxes   You determine the period to which the compensation is attributable based on the facts and circumstances of your case. File only state taxes For example, an amount of compensation that specifically relates to a period of time that includes several calendar years is attributable to the entire multi-year period. File only state taxes   The amount of compensation treated as from U. File only state taxes S. File only state taxes sources is figured by multiplying the total multi-year compensation by a fraction. File only state taxes The numerator of the fraction is the number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in the United States in connection with the project. File only state taxes The denominator of the fraction is the total number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in connection with the project. File only state taxes Geographical Basis Compensation you receive as an employee in the form of the following fringe benefits is sourced on a geographical basis. File only state taxes Housing. File only state taxes Education. File only state taxes Local transportation. File only state taxes Tax reimbursement. File only state taxes Hazardous or hardship duty pay as defined in Regulations section 1. File only state taxes 861-4(b)(2)(ii)(D)(5). File only state taxes Moving expense reimbursement. File only state taxes The amount of fringe benefits must be reasonable and you must substantiate them by adequate records or by sufficient evidence. File only state taxes Principal place of work. File only state taxes   The above fringe benefits, except for tax reimbursement and hazardous or hardship duty pay, are sourced based on your principal place of work. File only state taxes Your principal place of work is usually the place where you spend most of your working time. File only state taxes This could be your office, plant, store, shop, or other location. File only state taxes If there is no one place where you spend most of your working time, your main job location is the place where your work is centered, such as where you report for work or are otherwise required to “base” your work. File only state taxes   If you have more than one job at any time, your main job location depends on the facts in each case. File only state taxes The more important factors to be considered are: The total time you spend at each place, The amount of work you do at each place, and How much money you earn at each place. File only state taxes Housing. File only state taxes   The source of a housing fringe benefit is determined based on the location of your principal place of work. File only state taxes A housing fringe benefit includes payments to you or on your behalf (and your family's if your family resides with you) only for the following. File only state taxes Rent. File only state taxes Utilities (except telephone charges). File only state taxes Real and personal property insurance. File only state taxes Occupancy taxes not deductible under section 164 or 216(a). File only state taxes Nonrefundable fees for securing a leasehold. File only state taxes Rental of furniture and accessories. File only state taxes Household repairs. File only state taxes Residential parking. File only state taxes Fair rental value of housing provided in kind by your employer. File only state taxes   A housing fringe benefit does not include: Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation), The cost of buying property, including principal payments on a mortgage, The cost of domestic labor (maids, gardeners, etc. File only state taxes ), Pay television subscriptions, Improvements and other expenses that increase the value or appreciably prolong the life of property, Purchased furniture or accessories, Depreciation or amortization of property or improvements, The value of meals or lodging that you exclude from gross income, or The value of meals or lodging that you deduct as moving expenses. File only state taxes Education. File only state taxes   The source of an education fringe benefit for the education expenses of your dependents is determined based on the location of your principal place of work. File only state taxes An education fringe benefit includes payments only for the following expenses for education at an elementary or secondary school. File only state taxes Tuition, fees, academic tutoring, special needs services for a special needs student, books, supplies, and other equipment. File only state taxes Room and board and uniforms that are required or provided by the school in connection with enrollment or attendance. File only state taxes Local transportation. File only state taxes   The source of a local transportation fringe benefit is determined based on the location of your principal place of work. File only state taxes Your local transportation fringe benefit is the amount that you receive as compensation for local transportation for you or your spouse or dependents at the location of your principal place of work. File only state taxes The amount treated as a local transportation fringe benefit is limited to actual expenses incurred for local transportation and the fair rental value of any employer-provided vehicle used predominantly by you, your spouse, or your dependents for local transportation. File only state taxes Actual expenses do not include the cost (including interest) of any vehicle purchased by you or on your behalf. File only state taxes Tax reimbursement. File only state taxes   The source of a tax reimbursement fringe benefit is determined based on the location of the jurisdiction that imposed the tax for which you are reimbursed. File only state taxes Moving expense reimbursement. File only state taxes   The source of a moving expense reimbursement is generally based on the location of your new principal place of work. File only state taxes However, the source is determined based on the location of your former principal place of work if you provide sufficient evidence that such determination of source is more appropriate under the facts and circumstances of your case. File only state taxes Sufficient evidence generally requires an agreement between you and your employer, or a written statement of company policy, which is reduced to writing before the move and which is entered into or established to induce you or other employees to move to another country. File only state taxes The written statement or agreement must state that your employer will reimburse you for moving expenses that you incur to return to your former principal place of work regardless of whether you continue to work for your employer after returning to that location. File only state taxes It may contain certain conditions upon which the right to reimbursement is determined as long as those conditions set forth standards that are definitely ascertainable and can only be fulfilled prior to, or through completion of, your return move to your former principal place of work. File only state taxes Alternative Basis If you are an employee, you can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your compensation than the time or geographical basis. File only state taxes If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your compensation. File only state taxes Also, if your total compensation from all sources is $250,000 or more, check “Yes” to both questions on line K on page 5 of Form 1040NR, and attach a written statement to your tax return that sets forth all of the following. File only state taxes Your name and social security number (written across the top of the statement). File only state taxes The specific compensation income, or the specific fringe benefit, for which you are using the alternative basis. File only state taxes For each item in (2), the alternative basis of allocation of source used. File only state taxes For each item in (2), a computation showing how the alternative allocation was computed. File only state taxes A comparison of the dollar amount of the U. File only state taxes S. File only state taxes compensation and foreign compensation sourced under both the alternative basis and the time or geographical basis discussed earlier. File only state taxes Transportation Income Transportation income is income from the use of a vessel or aircraft or for the performance of services directly related to the use of any vessel or aircraft. File only state taxes This is true whether the vessel or aircraft is owned, hired, or leased. File only state taxes The term “vessel or aircraft” includes any container used in connection with a vessel or aircraft. File only state taxes All income from transportation that begins and ends in the United States is treated as derived from sources in the United States. File only state taxes If the transportation begins or ends in the United States, 50% of the transportation income is treated as derived from sources in the United States. File only state taxes For transportation income from personal services, 50% of the income is U. File only state taxes S. File only state taxes source income if the transportation is between the United States and a U. File only state taxes S. File only state taxes possession. File only state taxes For nonresident aliens, this only applies to income derived from, or in connection with, an aircraft. File only state taxes For information on how U. File only state taxes S. File only state taxes source transportation income is taxed, see chapter 4. File only state taxes Scholarships, Grants, Prizes, and Awards Generally, the source of scholarships, fellowship grants, grants, prizes, and awards is the residence of the payer regardless of who actually disburses the funds. File only state taxes However, see Activities to be performed outside the United States , later. File only state taxes For example, payments for research or study in the United States made by the United States, a noncorporate U. File only state taxes S. File only state taxes resident, or a domestic corporation, are from U. File only state taxes S. File only state taxes sources. File only state taxes Similar payments from a foreign government or foreign corporation are foreign source payments even though the funds may be disbursed through a U. File only state taxes S. File only state taxes agent. File only state taxes Payments made by an entity designated as a public international organization under the International Organizations Immunities Act are from foreign sources. File only state taxes Activities to be performed outside the United States. File only state taxes   Scholarships, fellowship grants, targeted grants, and achievement awards received by nonresident aliens for activities performed, or to be performed, outside the United States are not U. File only state taxes S. File only state taxes source income. File only state taxes    These rules do not apply to amounts paid as salary or other compensation for services. File only state taxes See Personal Services, earlier, for the source rules that apply. File only state taxes Pensions and Annuities If you receive a pension from a domestic trust for services performed both in and outside the United States, part of the pension payment is from U. File only state taxes S. File only state taxes sources. File only state taxes That part is the amount attributable to earnings of the pension plan and the employer contributions made for services performed in the United States. File only state taxes This applies whether the distribution is made under a qualified or nonqualified stock bonus, pension, profit-sharing, or annuity plan (whether or not funded). File only state taxes If you performed services as an employee of the United States, you may receive a distribution from the U. File only state taxes S. File only state taxes Government under a plan, such as the Civil Service Retirement System, that is treated as a qualified pension plan. File only state taxes Your U. File only state taxes S. File only state taxes source income is the otherwise taxable amount of the distribution that is attributable to your total U. File only state taxes S. File only state taxes Government basic pay other than tax-exempt pay for services performed outside the United States. File only state taxes Rents or Royalties Your U. File only state taxes S. File only state taxes source income includes rent and royalty income received during the tax year from property located in the United States or from any interest in that property. File only state taxes U. File only state taxes S. File only state taxes source income also includes rents or royalties for the use of, or for the privilege of using, in the United States, intangible property such as patents, copyrights, secret processes and formulas, goodwill, trademarks, franchises, and similar property. File only state taxes Real Property Real property is land and buildings and generally anything built on, growing on, or attached to land. File only state taxes Gross income from sources in the United States includes gains, profits, and income from the sale or other disposition of real property located in the United States. File only state taxes Natural resources. File only state taxes   The income from the sale of products of any farm, mine, oil or gas well, other natural deposit, or timber located in the United States and sold in a foreign country, or located in a foreign country and sold in the United States, is partly from sources in the United States. File only state taxes For information on determining that part, see section 1. File only state taxes 863-1(b) of the regulations. File only state taxes Table 2-1. File only state taxes Summary of Source Rules for Income of Nonresident Aliens Item of income Factor determining source Salaries, wages, other compensation Where services performed Business income:   Personal services Where services performed Sale of inventory—purchased Where sold Sale of inventory—produced Allocation Interest Residence of payer Dividends Whether a U. File only state taxes S. File only state taxes or foreign corporation* Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. File only state taxes Where property is used Sale of real property Location of property Sale of personal property Seller's tax home (but see Personal Property , later, for exceptions) Pension distributions attributable to contributions Where services were performed that earned the pension Investment earnings on pension contributions Location of pension trust Sale of natural resources Allocation based on fair market value of product at export terminal. File only state taxes For more information, see section 1. File only state taxes 863-1(b) of the regulations. File only state taxes *Exceptions include: a) Dividends paid by a U. File only state taxes S. File only state taxes corporation are foreign source if the corporation elects the  American Samoa economic development credit. File only state taxes  b) Part of a dividend paid by a foreign corporation is U. File only state taxes S. File only state taxes source if at least 25% of the  corporation's gross income is effectively connected with a U. File only state taxes S. File only state taxes trade or business for the  3 tax years before the year in which the dividends are declared. File only state taxes Personal Property Personal property is property, such as machinery, equipment, or furniture, that is not real property. File only state taxes Gain or loss from the sale or exchange of personal property generally has its source in the United States if you have a tax home in the United States. File only state taxes If you do not have a tax home in the United States, the gain or loss generally is considered to be from sources outside the United States. File only state taxes Tax home. File only state taxes   Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. File only state taxes Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. File only state taxes If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. File only state taxes If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. File only state taxes Inventory property. File only state taxes   Inventory property is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. File only state taxes Income from the sale of inventory that you purchased is sourced where the property is sold. File only state taxes Generally, this is where title to the property passes to the buyer. File only state taxes For example, income from the sale of inventory in the United States is U. File only state taxes S. File only state taxes source income, whether you purchased it in the United States or in a foreign country. File only state taxes   Income from the sale of inventory property that you produced in the United States and sold outside the United States (or vice versa) is partly from sources in the United States and partly from sources outside the United States. File only state taxes For information on making this allocation, see section 1. File only state taxes 863-3 of the regulations. File only state taxes   These rules apply even if your tax home is not in the United States. File only state taxes Depreciable property. File only state taxes   To determine the source of any gain from the sale of depreciable personal property, you must first figure the part of the gain that is not more than the total depreciation adjustments on the property. File only state taxes You allocate this part of the gain to sources in the United States based on the ratio of U. File only state taxes S. File only state taxes depreciation adjustments to total depreciation adjustments. File only state taxes The rest of this part of the gain is considered to be from sources outside the United States. File only state taxes   For this purpose, “U. File only state taxes S. File only state taxes depreciation adjustments” are the depreciation adjustments to the basis of the property that are allowable in figuring taxable income from U. File only state taxes S. File only state taxes sources. File only state taxes However, if the property is used predominantly in the United States during a tax year, all depreciation deductions allowable for that year are treated as U. File only state taxes S. File only state taxes depreciation adjustments. File only state taxes But there are some exceptions for certain transportation, communications, and other property used internationally. File only state taxes   Gain from the sale of depreciable property that is more than the total depreciation adjustments on the property is sourced as if the property were inventory property, as discussed above. File only state taxes   A loss is sourced in the same way as the depreciation deductions were sourced. File only state taxes However, if the property was used predominantly in the United States, the entire loss reduces U. File only state taxes S. File only state taxes source income. File only state taxes   The basis of property usually means the cost (money plus the fair market value of other property or services) of property you acquire. File only state taxes Depreciation is an amount deducted to recover the cost or other basis of a trade or business asset. File only state taxes The amount you can deduct depends on the property's cost, when you began using the property, how long it will take to recover your cost, and which depreciation method you use. File only state taxes A depreciation deduction is any deduction for depreciation or amortization or any other allowable deduction that treats a capital expenditure as a deductible expense. File only state taxes Intangible property. File only state taxes   Intangible property includes patents, copyrights, secret processes or formulas, goodwill, trademarks, trade names, or other like property. File only state taxes The gain from the sale of amortizable or depreciable intangible property, up to the previously allowable amortization or depreciation deductions, is sourced in the same way as the original deductions were sourced. File only state taxes This is the same as the source rule for gain from the sale of depreciable property. File only state taxes See Depreciable property , earlier, for details on how to apply this rule. File only state taxes   Gain in excess of the amortization or depreciation deductions is sourced in the country where the property is used if the income from the sale is contingent on the productivity, use, or disposition of that property. File only state taxes If the income is not contingent on the productivity, use, or disposition of the property, the income is sourced according to your tax home as discussed earlier. File only state taxes If payments for goodwill do not depend on its productivity, use, or disposition, their source is the country in which the goodwill was generated. File only state taxes Sales through offices or fixed places of business. File only state taxes   Despite any of the earlier rules, if you do not have a tax home in the United States, but you maintain an office or other fixed place of business in the United States, treat the income from any sale of personal property (including inventory property) that is attributable to that office or place of business as U. File only state taxes S. File only state taxes source income. File only state taxes However, this rule does not apply to sales of inventory property for use, disposition, or consumption outside the United States if your office or other fixed place of business outside the United States materially participated in the sale. File only state taxes   If you have a tax home in the United States but maintain an office or other fixed place of business outside the United States, income from sales of personal property, other than inventory, depreciable property, or intangibles, that is attributable to that foreign office or place of business may be treated as U. File only state taxes S. File only state taxes source income. File only state taxes The income is treated as U. File only state taxes S. File only state taxes source income if an income tax of less than 10% of the income from the sale is paid to a foreign country. File only state taxes This rule also applies to losses if the foreign country would have imposed an income tax of less than 10% had the sale resulted in a gain. File only state taxes Community Income If you are married and you or your spouse is subject to the community property laws of a foreign country, a U. File only state taxes S. File only state taxes state, or a U. File only state taxes S. File only state taxes possession, you generally must follow those laws to determine the income of yourself and your spouse for U. File only state taxes S. File only state taxes tax purposes. File only state taxes But you must disregard certain community property laws if: Both you and your spouse are nonresident aliens, or One of you is a nonresident alien and the other is a U. File only state taxes S. File only state taxes citizen or resident and you do not both choose to be treated as U. File only state taxes S. File only state taxes residents as explained in chapter 1. File only state taxes In these cases, you and your spouse must report community income as explained later. File only state taxes Earned income. File only state taxes   Earned income of a spouse, other than trade or business income and a partner's distributive share of partnership income, is treated as the income of the spouse whose services produced the income. File only state taxes That spouse must report all of it on his or her separate return. File only state taxes Trade or business income. File only state taxes   Trade or business income, other than a partner's distributive share of partnership income, is treated as the income of the spouse carrying on the trade or business. File only state taxes That spouse must report all of it on his or her separate return. File only state taxes Partnership income (or loss). File only state taxes   A partner's distributive share of partnership income (or loss) is treated as the income (or loss) of the partner. File only state taxes The partner must report all of it on his or her separate return. File only state taxes Separate property income. File only state taxes   Income derived from the separate property of one spouse (and which is not earned income, trade or business income, or partnership distributive share income) is treated as the income of that spouse. File only state taxes That spouse must report all of it on his or her separate return. File only state taxes Use the appropriate community property law to determine what is separate property. File only state taxes Other community income. File only state taxes   All other community income is treated as provided by the applicable community property laws. File only state taxes Prev  Up  Next   Home   More Online Publications
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Understanding your CP178 Notice

Your tax return filing requirements may have changed: You may no longer owe excise tax.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

If you no longer owe excise tax, file a final Quarterly Excise Tax Return (Form 720) by:

  • Writing "Not liable" at the top of next quarter’s Form 720, and
  • Checking the box that says, "Final return," located on Page 1 of the form in the upper left corner.
  • If you owe excise tax in the future, we’ll automatically send you Form 720 after we receive a return from you reporting tax.

You may want to...


Answers to Common Questions

How do I know if my business remains liable for excise taxes?
Your business is liable for excise tax if it involves goods, services, or activities identified on Form 720.

If I no longer owe excise taxes where to I mail my final Form 720?
File a final Form 720 if you no longer owe excise taxes because you’re either going out of business or you will not owe excise taxes in future quarters. Check the final return box above Part I of Form 720 and mail to IRS, Cincinnati, OH 45999-0009.

I don’t handle excise taxes for my corporation. How can I request that the IRS send all future notices directly to our accountant?
Complete a Form 8822, Change of Address, and send it to the address shown on the form.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.


Understanding your notice

Reading your notice
Your notice may look different from the sample because the information contained in your notice is tailored to your situation.

Notice CP178, Page 1

Page Last Reviewed or Updated: 28-Mar-2014

The File Only State Taxes

File only state taxes Index A Accrual foreign taxes, adjustments, You may have to post a bond. File only state taxes Accrual method of accounting, Accrual method of accounting. File only state taxes Allocation Carryback/carryover between spouses, Allocations Between Spouses Foreign losses, Foreign Losses Foreign taxes, Allocation of Foreign Taxes U. File only state taxes S. File only state taxes losses, U. File only state taxes S. File only state taxes Losses Alternative minimum tax, Reminders Amended return, Claim for Refund American Samoa, resident of, Possession Exclusion Assistance (see Tax help) B Bankruptcy, effect of, Effect of bankruptcy or insolvency. File only state taxes Beneficiary, Partner or S corporation shareholder. File only state taxes Bond, income tax, You may have to post a bond. File only state taxes Boycotting countries, Taxes From International Boycott Operations C Capital gains and losses, Capital Gains and Losses Carryback and carryover, Carrybacks and carryovers. File only state taxes Allocations between spouses, Allocations Between Spouses Claim for refund, Time Limit on Tax Assessment Joint return, Married Couples Joint return–deduction year, Joint Return Filed in a Deduction Year Taxes all credited or deducted, Claim for Refund Time limit on tax assessment, Time Limit on Tax Assessment Choice to take credit or deduction Changing your choice, Making or Changing Your Choice Choice applied to all qualified foreign taxes, Choice Applies to All Qualified Foreign Taxes Claim for refund, Claim for Refund Classes of gross income, Classes of gross income. File only state taxes Compensation for labor or personal services, Determining the Source of Compensation for Labor or Personal Services Geographical basis, Geographical basis. File only state taxes Comprehensive example, Comprehensive Example — Filled-In Form 1116 Controlled foreign corporation shareholder, Controlled foreign corporation shareholder. File only state taxes , Income from controlled foreign corporations. File only state taxes Covered asset acquisition, Covered Asset Acquisition Credit How to claim, How To Claim the Credit How to figure, How To Figure the Credit Limit on, Limit on the Credit Credit for taxes paid or accrued, Credit for Taxes Paid or Accrued D Deduction for foreign taxes that are not income taxes, Foreign taxes that are not income taxes. File only state taxes Distributions Lump-sum, Lump-Sum Distribution Dividends Taxes on, Taxes Imposed on Certain Dividends Dual-capacity taxpayers, Dual-capacity taxpayers. File only state taxes E Economic benefits, Specific economic benefit. File only state taxes Examples Comprehensive, Comprehensive Example — Filled-In Form 1116 Simple, Simple Example — Filled-In Form 1116 Excess limit, Carryback and Carryover Exchange rates, Foreign Currency and Exchange Rates Excluded income Foreign earned, Foreign Earned Income and Housing Exclusions Taxes on, Taxes on Excluded Income Exemption from foreign tax credit limit, Exemption from foreign tax credit limit. File only state taxes Export financing interest, Export financing interest. File only state taxes Extraterritorial income, Extraterritorial Income Exclusion F Financial services income, Financial services income. File only state taxes Foreign corporation–U. File only state taxes S. File only state taxes shareholders, filing requirements, Taxes of U. File only state taxes S. File only state taxes Persons Controlling Foreign Corporations and Partnerships Foreign country, Foreign country. File only state taxes Foreign currency and exchange rates, Foreign Currency and Exchange Rates Foreign income, translating, Translating foreign currency into U. File only state taxes S. File only state taxes dollars. File only state taxes Foreign losses Allocation of, Foreign Losses Recapture of, Recapture of Prior Year Overall Foreign Loss Accounts Foreign mineral income, taxes on, Taxes on Foreign Mineral Income Foreign oil and gas extraction income, taxes on, Taxes on Combined Foreign Oil and Gas Income Foreign partnerships–U. File only state taxes S. File only state taxes partners, filing requirement, Taxes of U. File only state taxes S. File only state taxes Persons Controlling Foreign Corporations and Partnerships Foreign tax refund, Foreign tax refund. File only state taxes , Foreign tax refund. File only state taxes Foreign tax(es) Allocation to income categories, Allocation of Foreign Taxes For which you cannot take a credit, Foreign Taxes for Which You Cannot Take a Credit Imposed on foreign refund, Foreign tax imposed on foreign refund. File only state taxes Qualifying for credit, What Foreign Taxes Qualify for the Credit? Redetermination, Foreign Tax Redetermination Refund, Foreign tax imposed on foreign refund. File only state taxes Form 1040X, Claim for Refund 1116, Form 1116, Simple Example — Filled-In Form 1116, Comprehensive Example — Filled-In Form 1116 5471, Taxes of U. File only state taxes S. File only state taxes Persons Controlling Foreign Corporations and Partnerships 5713, Form 5713 required. File only state taxes 8833, Report required. File only state taxes 8865, Taxes of U. File only state taxes S. File only state taxes Persons Controlling Foreign Corporations and Partnerships 8873, Extraterritorial Income Exclusion Free tax services, Free help with your tax return. File only state taxes Functional currency, Translating foreign currency into U. File only state taxes S. File only state taxes dollars. File only state taxes G General category income, separate limit, General Category Income H Help (see Tax help) High-taxed income, High-taxed income. File only state taxes I Income from sources in U. File only state taxes S. File only state taxes possessions, Determining the source of income from U. File only state taxes S. File only state taxes possessions. File only state taxes Income re-sourced by treaty, separate limit, Certain Income Re-Sourced By Treaty Income tax, Income Tax Income tax bond, You may have to post a bond. File only state taxes Interest, Penalties and interest. File only state taxes Interest expense, apportioning, Interest expense. File only state taxes International boycott, Taxes From International Boycott Operations Itemized deduction, Taxes for Which You Can Only Take an Itemized Deduction J Joint return Carryback and carryover, Married Couples Credit based on foreign tax of both spouses, Joint return. File only state taxes Filed in a deduction year, Joint Return Filed in a Deduction Year L Levy, Income Tax Limit on credit, Limit on the Credit Losses, foreign, Foreign Losses Allocation of, Foreign Losses Recapture of, Recapture of Prior Year Overall Foreign Loss Accounts Losses, U. File only state taxes S. File only state taxes , U. File only state taxes S. File only state taxes Losses Allocation of, U. File only state taxes S. File only state taxes Losses Lump-sum distributions, Lump-Sum Distribution M Making or changing your choice, Making or Changing Your Choice Married couples Carryback and carryover, Married Couples Joint return, Joint return. File only state taxes Mineral income, foreign,, Taxes on Foreign Mineral Income Mutual fund distributions, Mutual fund shareholder. File only state taxes , Passive income. File only state taxes Mutual fund shareholder, Mutual fund shareholder. File only state taxes N Nonresident aliens, Nonresident Aliens Notice to the IRS of change in tax, Notice to the Internal Revenue Service (IRS) of Redetermination O Overall foreign loss, Overall foreign loss. File only state taxes P Partner, Partner or S corporation shareholder. File only state taxes , Partnership distributive share. File only state taxes , Foreign Taxes From a Partnership or an S Corporation Passive category income, Passive Category Income Penalties, Failure-to-notify penalty. File only state taxes , Penalties and interest. File only state taxes Failure to file Form 5471, 8865, Penalty for not filing Form 5471 or Form 8865. File only state taxes Failure to file Form 5713, Penalty for failure to file. File only state taxes Failure to notify, foreign tax change, Failure-to-notify penalty. File only state taxes Failure to report treaty information, Report required. File only state taxes Pension, employment, and disability fund payments, Pension, unemployment, and disability fund payments. File only state taxes Personal property, sales or exchanges of, Determining the Source of Income From the Sales or Exchanges of Certain Personal Property Possession exclusion, Possession Exclusion Publications (see Tax help) Purchase or sale of oil or gas, taxes in connection with, Taxes in Connection With the Purchase or Sale of Oil or Gas Q Qualified business unit, Translating foreign currency into U. File only state taxes S. File only state taxes dollars. File only state taxes Qualified dividends, Capital Gains and Losses R Rate of exchange, Rate of exchange for foreign taxes paid. File only state taxes Recapture of foreign losses, Recapture of Prior Year Overall Foreign Loss Accounts Records to keep, Records To Keep Redetermination of foreign tax, Foreign Tax Redetermination Refund claims, time limit, Time Limit on Refund Claims Refund, foreign tax, Foreign tax refund. File only state taxes Reporting requirements (international boycott), Reporting requirements. File only state taxes Resident aliens, Resident Aliens S S corporation shareholder, Partner or S corporation shareholder. File only state taxes , Foreign Taxes From a Partnership or an S Corporation Sanctioned countries, Taxes Imposed By Sanctioned Countries (Section 901(j) Income) Section 901(j) income, Section 901(j) Income Section 901(j) sanctioned income, Taxes Imposed By Sanctioned Countries (Section 901(j) Income) Separate limit income, Separate Limit Income General category income, General Category Income Income re-sourced by treaty, Certain Income Re-Sourced By Treaty Lump-sum distribution, Lump-Sum Distribution Passive category income, Passive Category Income Section 901(j) income, Section 901(j) Income Shareholder, Mutual fund shareholder. File only state taxes Simple example, Simple Example — Filled-In Form 1116 Soak-up taxes, Soak-up taxes. File only state taxes Social security taxes, Pension, unemployment, and disability fund payments. File only state taxes Source of compensation for labor or personal services Alternative basis, Alternative basis. File only state taxes Multi-year compensation, Multi-year compensation. File only state taxes Time basis, Time basis. File only state taxes Transportation income, Transportation Income State income taxes, State income taxes. File only state taxes Subsidy, Subsidy received. File only state taxes T Tax help, How To Get Tax Help Tax treaties, Tax Treaties Taxable income from sources outside the U. File only state taxes S. File only state taxes , determination of, Determining Taxable Income From Sources Outside the United States Taxes Excluded income, Foreign Earned Income and Housing Exclusions In lieu of income taxes, Taxes in Lieu of Income Taxes On dividends, Taxes Imposed on Certain Dividends Paid or accrued, Credit for Taxes Paid or Accrued Withheld on income or gain, Taxes Withheld on Income or Gain (Other Than Dividends) Taxes related to a foreign tax credit splitting event, Taxes Related to a Foreign Tax Credit Splitting Event Time limit Refund claims, Time Limit on Refund Claims Tax assessment, Time Limit on Tax Assessment Translating foreign currency, Translating foreign currency into U. File only state taxes S. File only state taxes dollars. File only state taxes U U. File only state taxes S. File only state taxes citizens, U. File only state taxes S. File only state taxes Citizens U. File only state taxes S. File only state taxes losses Allocation of, U. File only state taxes S. File only state taxes Losses U. File only state taxes S. File only state taxes possessions, U. File only state taxes S. File only state taxes possessions. File only state taxes Unused foreign tax credits, carryback or carryover, Carrybacks and carryovers. File only state taxes , Carryback and Carryover W Wages, Wages completely excluded. File only state taxes When refunds can be claimed, Time Limit on Refund Claims When tax can be assessed, Time Limit on Tax Assessment Who can take the credit, Who Can Take the Credit? Why choose the credit, Why Choose the Credit? Prev  Up     Home   More Online Publications