What is a FIRPTA Effectively Connected Income?
FIRPTA Effectively Connected Income or ECI is income of a Foreign National connected to a trade or business in the USA subject to FIRPTA tax withholding.
It is important to test every FIRPTA disposition for ECI income and deductions and know how to report it to the IRS or suffer an audit well after the transaction has closed and you think you are home free.
When a foreign person engages in a trade or business in the US, all income from US sources connected with the conduct of that business is Effectively Connected Income.
Certain kinds of investment income are treated as ECI
•The Asset-Use Test held or used in US trade or business
•The Business Activities Test as a factor in realization of income
1. During the tax year
2. Based on examination of the nature of activities
3. Deductions are allowed against ECI