- quote -

I thought that tax was withheld if you DIDN'T file a W-8. I
am not sure why it wasn't withheld if no W-8 was filed.

- quote -

You must be engaged in a trade or business in the U.S. in
order for income to be effectively connected to that trade
or business. Since you are not engaged in a U.S. trade or
business, you cannot have effectively connected income.

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Andy Hird wrote:

- quote -

You do not have any effectively connected income unless you
are a dealer in securities. Those dividends are taxed at the
15% rate. The IRS was playing with you. They do that from
time to time...........

--
Alan
http://taxtopics.net

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I'm a non-resident alien (I used to live in the US until
1999, haven't been back since) for tax purposes who has a
few investments in the US held by several brokerages and
financial institutions. During 2001 I received a smallish
amount of dividends from both mutual funds, bonds and a REIT
during the tax year but unfortunately I didn't have a full
set of W-8s on file so no tax was withheld. I didn't realise
this until the IRS kindly notified me and I've since filed a
late return for 2001. I filed the dividends as income not
effectively connected income because it was from personal
investments (which aren't connected to any company I worked
for at the time) and paid the 15% I owed (I'm a Australian
resident for tax purposes).

All great and straight forward so far.

Anyway, I was talking to an IRS tax agent a few days ago after I
received a penalty for the late tax return and she claimed that I
should have filed the dividends as effectively connected income which
using the personal deduction would have wiped out my tax bill. She even
went away for several hours to check what she was saying was true (I
pointed out that the IRS website FAQ and various publications say that
the income was not-effectively connected) and when she got back to me
later told me to file an amended return.

Now this is great, I get some money back, but I'm not
convinced at all that the dividends are effectively
connected because it goes against everything I've read. The
only thing I can think is that because its US source income
then somehow its considered effectively connected?

Can anyone tell me whether the IRS agent is correct? Or is
she just getting my hopes up of a lesser tax bill just to
crush them later?

Thanks
Andy Hird
andyhird[at]gmail.com

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