Abusive Offshore Tax Avoidance Schemes - Law and Arguments (Section II)


Taxation and the Source of Income

IRC §§ 861 through 999 (Subchapter N) address the taxation of income from sources inside and outside the United States providing the details necessary to determine the source of the income and the appropriate tax rate to apply (depending on the character of the income). The general rule for foreign persons is that income connected with the conduct of a U.S. trade or business (commonly referred to as Effectively Connected Income) is subject to U.S. tax using the same graduated rates that apply to U.S. persons. In contrast, income items of foreign persons that are fixed or determinable annually or periodically are generally taxed at a fixed rate of 30% (or the applicable treaty rate).