What is ECI?
What is FIRPTA ECI?
Effectively Connect Income
FIRPTA ECI is effectively connected income of a Foreign National connected to a trade or business in the USA subject to FIRPTA tax withholding.
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.
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. Certain kinds of FDAP, Fixed, Determinable, Annual, or Periodical income are treated as ECI because of such things as Internal Revenue Code or they pass certain tests: 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
Certain categories of income are usually considered ECI connected with a trade or business in the USA.
You are considered to be engaged in a trade or business in the United States if you are temporarily present in the United States as a nonimmigrant on an "F," "J," "M," or "Q" visa. The taxable part of any U.S. source scholarship or fellowship grant received by a nonimmigrant in "F," "J," "M," or "Q" status is treated as effectively connected with a trade or business in the United States.
If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States.
You usually are engaged in a U.S. trade or business when you perform personal services in the United States.
If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions, engaged in a trade or business in the United States. For example, profit from the sale in the United States of inventory property purchased either in this country or in a foreign country is effectively connected trade or business income.
Gains and losses from the sale or exchange of U.S. real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. You must treat the gain or loss as effectively connected with that trade or business.
Income from the rental of real property may be treated as ECI if the taxpayer elects to do so.