iTAX GLOBAL

Effectively connected income - nonresident alien individuals and foreign (non-U.S.) corporations are generally taxed on taxable income that is effectively connected with the conduct of a trade or business within the United States. This "effectively connected income" or ECI is computed by allocating or apportioning expenses to effectively connected gross income.

Expense Apportionment

When An Expense Is a Good OR a Bad Thing


The allocation and/or apportionment of expenses has a direct impact on U.S. income tax liability since expenses are a critical part of determining taxable income. That means it's an area of higher IRS scrutiny for both U.S. and non-U.S. taxpayers. Some of the more important computations where our group of independent tax contractors have assisted clients in determining the correct assignment of expenses are:



Foreign Tax Credit - this computation requires an analysis and ultimately assignment of each expense, loss, or deduction reported on a U.S. person's U.S. Federal income tax return to either U.S. or foreign source. Classifying an expense as foreign will reduce the foreign tax credit, potentially disallowing the benefit of that deduction. Types of expenses requiring special analysis include interest expense, research and development expense, and stewardship / SG&A / headquarters expense.