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Nonresident Alien Students And the Tax Home Concept

The tax home concept can affect whether the capital gain income of a nonresident alien student will be taxable in the United States.

I.R.C. § 871(a)(2) makes taxable the U.S.-source capital gains of a nonresident alien who is present in the United States for 183 days or more in a calendar year. I.R.C. § 865(g) adds the stipulation that these capital gains will be U.S.-source (and thus possibly taxable) only if the alien's tax home is in the United States. These provisions affect mainly "exempt individuals" as defined by I.R.C. § 7701(b)(5). Specifically, these provisions affect foreign government-related individuals, foreign students and foreign scholars, all individuals who typically remain in the United States for long periods of time as nonresidents.

Most foreign government-related individuals are employed before they come to the United States, and most are employed in the United States after they arrive in the United States, thus establishing their tax home in the United States upon their arrival in the United States (unless their stay in the United States is expected to last less than one year).

Likewise, most foreign scholars (teachers/researchers) are employed before they come to the United States and are employed in the United States after they arrive in the United States, thus establishing their tax home in the United States upon their arrival in the United States (unless their stay in the United States is expected to last less than one year).

Many foreign students, however, are not employed or engaged in a trade or business before they arrive in the United States, and many of them are not employed in the United States after they arrive in the United States. In this situation the issue arises as to what constitutes a foreign student's tax home--his residence or his place of employment?

The activity of being a student does not constitute a trade or business under the Internal Revenue Code, and thus, in and of itself, cannot establish a tax home. If the student receives a scholarship or similar payment, he or she may have a U.S. trade or business. I.R.C. § 871(c) provides that a nonresident alien individual who (without regard to IRC 871(c)) is not engaged in trade or business within the United States and who is temporarily present in the United States as a nonimmigrant on an F, J, M, or Q visa is treated as a nonresident alien individual engaged in trade or business within the United States, and any U.S.-source scholarship income (as described in the second sentence of IRC 1441(b) ) which is received by such individual is treated as effectively connected with the conduct of a trade or business within the United States.

This means that a nonimmigrant temporarily present in the United States in F, J, M or Q status is considered to be engaged in a U.S. trade or business for the purpose of taxing any income from scholarships or fellowships he may have. The tax home of nonimmigrants temporarily present in the United States in F, J, M, or Q status and who have U.S.-sourced scholarship/fellowship income is in the United States if such nonimmigrants intend to remain in the United States for a period longer than 1 year.

The tax home of a nonresident alien who is a foreign university degree candidate and who is in the United States during his summer vacation under an on-the-job training program intended to supplement his education but not required by the university in his native country with which the United States has no tax treaty is the location of his training.  

If a foreign student has no employment or trade or business or activity in the United States and receives no scholarship or fellowship income, then he or she may have no U.S. tax home at all.

For a more detailed discussion of “tax home,” refer to section 1, Travel, in Publication 463, Travel, Entertainment, Gift, and Car Expenses.

Conclusion

Based on all the above, we may make the following statements with respect to the issue of the tax home of foreign students:

  1. A nonresident alien student temporarily present in the United States in F, J, M, or Q status who, at the time of his arrival in the United States, intended to remain in the United States for a period longer than 1 year, and who is employed in the United States (or self-employed even if illegally under the immigration law) has established his tax home in the United States beginning on the date his employment or self-employment begins if such employment or self-employment is expected to last for a period longer than 1 year. Such a nonresident alien student shall be taxable on his U.S.--sourced capital gains income in any calendar year in which his presence in the United States equals or exceeds 183 days.
  2. A nonresident alien student temporarily present in the United States in F, J, M, or Q status who, at the time of his arrival in the United States, intends to remain in the United States for a period longer than 1 year, and who is the recipient of a U.S. source scholarship or fellowship has established his tax home in the United States beginning on the first date he is eligible to receive such scholarship or fellowship income if his eligibility to receive such scholarship or fellowship income is expected to last for a period longer than 1 year. The nonresident alien student shall be taxable on his U.S. source capital gains income in any calendar year in which his presence in the United States equals or exceeds 183 days.

A nonresident alien student temporarily present in the United States in any nonimmigrant status who is not employed (or self-employed even if illegally under the immigration law) and is not the recipient of a U.S. source scholarship or fellowship, has not established a tax home in the United States. The nonresident alien student shall not be taxable on his U.S. source capital gains income in any calendar year in which his presence in the United States does not equal or exceed 183 days.

References/Related Topics

Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.

Page Last Reviewed or Updated: 16-Dec-2014