(3) Portfolio interest not to include interest received by 10-percent shareholders For purposes of this subsection— (A) In general The term “portfolio interest” shall not include any interest described in paragraph (2) which is received by a 10-percent shareholder. (B) 10-Percent shareholder The term “10-percent shareholder” means— (i) in the case of an obligation issued by a corporation, any person who owns 10 percent or more of the total combined voting power of all classes of stock of such corporation entitled to vote, or (ii) in the case of an obligation issued by a partnership, any person who owns 10 percent or more of the capital or profits interest in such partnership. (C) Attribution rules For purposes of determining ownership of stock under subparagraph (B)(i) the rules of section 318(a) shall apply, except that— (i) section 318(a)(2)(C) shall be applied without regard to the 50-percent limitation therein, (ii) section 318(a)(3)(C) shall be applied— (I) without regard to the 50-percent limitation therein; and (II) in any case where such section would not apply but for subclause (I), by considering a corporation as owning the stock (other than stock in such corporation) which is owned by or for any shareholder of such corporation in that proportion which the value of the stock which such shareholder owns in such corporation bears to the value of all stock in such corporation, and (iii) any stock which a person is treated as owning after application of section 318(a)(4) shall not, for purposes of applying paragraphs (2) and (3) of section 318(a), be treated as actually owned by such person. Under regulations prescribed by the Secretary, rules similar to the rules of the preceding sentence shall be applied in determining the ownership of the capital or profits interest in a partnership for purposes of subparagraph (B)(ii).
FAQs
Definition: 10-percent shareholder from 26 USC § 871(h)(3) | LII? ›
(B) 10-Percent shareholder The term “10-percent shareholder” means— (i) in the case of an obligation issued by a corporation, any person who owns 10 percent or more of the total combined
§871(h), Repeal of Tax on Interest of Nonresident Alien Individuals Received from Certain Portfolio Debt Investments. In the case of any portfolio interest received by a nonresident individual from sources within the United States, no tax shall be imposed under paragraph (1)(A) or (1)(C) of subsection (a).
What is Section 871 of the 26 US Code? ›A nonresident alien individual engaged in trade or business within the United States during the taxable year shall be taxable as provided in section 1 or 55 on his taxable income which is effectively connected with the conduct of a trade or business within the United States.
What is Section 871 income? ›IRC section 871 imposes a tax on nonresident alien individuals on U.S. source income, including interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income.
What is 871 k interest related dividends? ›Section 871(k)(1)(C)(ii) limits the amount a RIC may designate as an interest-related dividend to the RIC's qualified net interest income for the taxable year. Section 871(k)(1)(D) defines qualified net interest income as a RIC's qualified interest income reduced by the deductions properly allocable to such income.
Who can claim full exemption from federal tax? ›To be exempt from withholding, both of the following must be true: You owed no federal income tax in the prior tax year, and. You expect to owe no federal income tax in the current tax year.
What is the 871 m summary? ›IRS 871(m) Compliance
The IRS regulation 871(m) aims to collect tax on dividend-equivalent payments for derivative instruments referencing US equity instruments. Transactions executed in US equity-linked derivative instruments, or those with non-qualified indices, may be “in-scope” for withholding and reporting.
Enacted in 2010, Section 871(m) imposes withholding of up to 30% (subject to reduced rates under applicable US tax treaties) on dividend equivalent payments made or deemed made on certain swaps and equity-linked instruments (“US derivatives”) over US equities if the long party to the instrument is a non-US person, as ...
What is Section 871 transaction? ›Section 871 imposes a 30% withholding tax on payments of U.S. source dividends. Unless Section 871(m) applies, payments on an equity or other derivative (such as an equity swap) are generally not subject to withholding. Swap payments are otherwise sourced to the residence of the payee.
What is the federal statute 18 usc 871? ›Whoever knowingly and willfully deposits for conveyance in the mail or for a delivery from any post office or by any letter carrier any letter, paper, writing, print, missive, or document containing any threat to take the life of, to kidnap, or to inflict bodily harm upon the President of the United States, the ...
What is the IRS definition of royalty income? ›
Royalty definition
The Internal Revenue Service (IRS) defines a royalty as something paid to obtain intellectual property, or to use intellectual property or rights to such property.
The objective of IRS section 871(m) is to ensure that non-US persons investing in equity derivatives with US- sourced equities will be liable for 30% tax on “dividend equivalent payments”.
What is the federal exempt income? ›Exempt income is not subject to taxation. Some income may be exempt at the state level but taxed at the federal level. Income from some types of investments, like municipal bonds, qualifies as exempt income.
How do I know if I have interest or dividend income? ›Interest income is typically reported to you on Form 1099-INT (Interest) or Form 1099-OID (Original Issue Discount). Dividend income is typically reported on Form 1099-DIV (Dividend).
How do I know if I have federally tax-exempt interest and dividends? ›How is tax-exempt income reported to me? The total amount of tax-exempt income is reported on IRS Form 1099-INT (part of your Tax Reporting Statement). The portion (if any) of that total amount constituting specified private activity bond interest is also reported on the same tax form.
What is the difference between interest earned and dividends? ›Generally, dividends are returns on an equity investment (shares); interest is return on a debt investment (deposits). Dividends, in general, are not properly payable until declared at the close of a dividend period; interest, in general, is properly payable daily according to the deposit contract.
What does federal tax exempts HH mean? ›Head of Household will be coded as filing status HH. In addition to the marital status, the checkbox on step 2 of Form W-4 determines which tax table applies.
What is the portfolio interest exemption? ›However, Sections 871(h) and 881(c) waive the withholding requirement for foreign individual and entity lenders in what's known as the portfolio interest exemption. The entire interest payment goes to the foreign lender, making it tax-free to the lender and still deductible by the borrower.
What is a federal gift tax exemption? ›The IRS allows individuals to give away a specific amount of assets or property each year tax-free. For 2024, the annual gift tax exclusion is $18,000, meaning a person can give up to $18,000 to as many people as he or she wants without having to pay any taxes on the gifts.
What is exemption from California withholding? ›In order to claim exemption from state income tax withholding, employees must submit a W-4 (PDF Format, 100KB)*. or DE-4 (PDF Format, 147KB)* certifying that they did not have any federal tax liability for the preceding year and that they do not anticipate any tax liability for the current taxable year.