2001 Instructions for Form 1040NR - Uncle Fed's Tax*Board

trade or business. Each payer should complete item M on page 5 of Form United States and the treaty country to
send you a Form 1099-DIV. 1040NR. claim treaty benefits on Form 1040NR.
Capital Gain Distributions. If you Attach any Form(s) 1042-S you
See the instructions for item M on page
received any capital gain distributions, received from the college or institution.
24 for details.
see the instructions for line 14 that If you did not receive a 1042-S form, When completing Form 1040NR:
begin on this page.
attach a statement from the college or • Be sure you have entered your home
Nontaxable Distributions. Some institution (on their letterhead) showing country and permanent address in the
distributions are nontaxable because the details of the grant.
space provided on page 1.
they are a return of your cost (or other
• Enter $0 on line 12. The $9,000
For more information about
basis). They will not be taxed until you
reported to you in box 2 of Form
scholarships and fellowships in general,
recover your cost (or other basis). You 1042-S is reported on line 22 (not line
see Pub. 520.
must reduce your cost (or other basis)
12).
by these distributions. After you get Example 1. You are a citizen of a • Enter $9,000 on line 22.
back all of your cost (or other basis), country that has not negotiated a tax • Enter $0 on line 31. Because none of
you must report these distributions as treaty with the United States. You are a the $9,000 you received from the
capital gains on Schedule D (Form candidate for a degree at ABC
scholarship is included in your income,
1040). For details, see Pub. 550. University (located in the United you cannot exclude it on line 31.
States). You are receiving a full • Include on line 55 the $1,260 shown
Dividends on insurance policies
scholarship from ABC University. The in box 7 of Form 1042-S.
TIP are a partial return of the
total amounts you received from ABC • Provide all the required information in
premiums you paid. Do not
University during 2001 are as follows: item M on page 5.
report them as dividends. Include them
in income only if they exceed the total
Line 13—Business Income or
of all net premiums you paid for the
Tuition and fees $25,000
(Loss). If you operated a business or
contract.
Books, supplies,
practiced your profession as a sole
and equipment 1,000
Line 11—Taxable Refunds, Credits,
proprietor, report your effectively
Room and
or Offsets of State and Local Income
connected income and expenses on
board 9,000
Taxes.
Schedule C or Schedule C-EZ (Form
$35,000 1040).
None of your refund is taxable if,
TIP in the year you paid the tax, you The Form 1042-S you received from Include any income you received as
did not itemize deductions. ABC University for 2001 shows $9,000 a dealer in stocks, securities, and
in box 2 and $1,260 (14% of $9,000) in commodities through your U.S. office. If
If you received a refund, credit, or box 7. you dealt in these items through an
offset of state or local income taxes in
Note: Box 2 shows only $9,000 independent agent, such as a U.S.
2001, you may receive a Form 1099-G.
because withholding agents (such as broker, custodian, or commissioned
If you chose to apply part or all of the
ABC University) are no longer required agent, your income may not be
refund to your 2001 estimated state or
to report section 117 amounts (tuition, considered effectively connected with a
local income tax, the amount applied is
fees, books, supplies, and equipment) U.S. business.
treated as received in 2001.
on Form 1042-S.
For details on how to figure the
Line 14—Capital Gain or (Loss). If
amount you must report as income, see When completing Form 1040NR: you had effectively connected capital
Recoveries in Pub. 525.
• Enter on line 12 the $9,000 shown in gains or losses, including any
box 2 of Form 1042-S.
effectively connected capital gain
Line 12—Scholarship and
• Enter $0 on line 31. Because section distributions from a mutual fund, you
Fellowship Grants. If you received a
117 amounts (tuition, fees, books, must complete and attach Schedule D
scholarship or fellowship, part or all of it
supplies, and equipment) are not (Form 1040). But see the Exception
may be taxable.
included in box 2 of your Form 1042-S below. Enter the effectively connected
If you were a degree candidate, the (and are not included on line 12 of gain or (loss) from Schedule D (Form
amounts you used for expenses other Form 1040NR), you cannot exclude any 1040) on line 14.
than tuition and course-related of the section 117 amounts on line 31.
expenses (fees, books, supplies, and • Include on line 55 the $1,260 shown
Gains and losses from disposing of
equipment) are generally taxable. For in box 7 of Form 1042-S.
U.S. real property interests are taxed as
example, amounts used for room,
Example 2. The facts are the same
if you were engaged in a U.S. trade or
board, and travel are generally taxable. as in Example 1 except that you are a
business and are treated as effectively
citizen of a country that has negotiated
connected with that trade or business.
If you were not a degree candidate,
a tax treaty with the United States and
See Dispositions of U.S. Real
the full amount of the scholarship or
you were a resident of that country
Property Interests on page 5.
fellowship is generally taxable. Also,
amounts received in the form of a immediately before leaving for the
Exception. You do not have to file
scholarship or fellowship that are United States to attend ABC University. Schedule D (Form 1040) if both of the
payment for teaching, research, or Also, assume that, under the terms of following apply.
other services are generally taxable as the tax treaty, you may exempt from tax
1. The only amounts you have to
wages even if the services were all of your scholarship income because
report on Schedule D (Form 1040) are
required to get the grant.
ABC University is a nonprofit
effectively connected capital gain
If the grant was reported on Form(s)
educational organization.
distributions. (These amounts should
1042-S, you must generally include the Note: Many tax treaties do not permit be shown in box 2a of Forms 1099-DIV
amount shown in box 2 of Form(s) an exemption from tax on scholarship or substitute statements.)
1042-S on line 12. However, if any or or fellowship grant income unless the 2. Those distributions do not include
all of that amount is exempt by treaty, income is from sources outside the 28% rate gains, qualified 5-year gains,
do not include the treaty-exempt United States. If you are a resident of a unrecaptured section 1250 gains, or
amount on line 12. Instead, include the treaty country, you must know the section 1202 gains. (These amounts
treaty-exempt amount on line 22 and terms of the tax treaty between the should be shown in boxes 2b through
-10- Instructions for Form 1040NR