The United States Government distinguishes foreign persons from citizens of the United States. This is done for tax purposes. The IRS considers foreign persons as nonresidential alien individuals, foreign corporations, foreign partnerships, foreign trusts, a foreign estate, and any person that is not a U.S. citizen.

Nonresidential aliens’ income from U.S. sources is typically subject to U.S. income tax. U.S. source income can be salaries, wages, or any other compensation where services are provided. Business income is considered to be U.S. source income. Interest, rents, and dividends are as well. Other income that could be considered U.S. source income includes sales of real and personal property, pensions, scholarships, and sales of natural resources.

A resident alien’s income, in most cases, will be taxed like a U.S. citizen’s income. A person is considered to be a dual status alien when they are both a resident alien and nonresident alien in the same tax year. In determining a dual status alien’s U.S. income tax, many different rules apply.

When reporting U.S. tax returns, one must always use U.S. dollars. Income and expenses in foreign currency must be converted to U.S. dollars when filing U.S. tax returns.

According to the IRS, the United States has established income tax treaties with several foreign countries. According to these treaties, residents of another country, who may not be citizens of that country, pay taxes at a reduced rate. Other circumstances allow them to be exempt on particular items received from the United States on their U.S. income taxes.

It is important to note that these tax treaties only reduce U.S. taxes on residents of foreign countries. United States citizens and residents are taxed on their income regardless of where the source of income comes from, however there are few exceptions to this rule.

Some states follow the guidelines set by the United States tax treaties while others do not. In most cases, the guidelines that are set forth by the tax treaties are reciprocal. In other words, they normally apply to both treaty countries.

The Internal Revenue Service if often required by United States treaty partners to certify that a person is in fact a U.S. resident when claiming certain treaty benefits. Form 6166 is used by the IRS in these situations. Form 6166 is a letter of U.S. residency certification printed by the U.S. Department of Treasury. In order to request Form 6166, one must use form 8802.