Which of the following statements regarding the sourcing of gross income is true?

Question

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Certain types of U.S.-source investment income, such as dividends, interest, and royalties, earned by non-U.S. persons not engaged in a U.S. trade or business may be subject to a U.S. withholding tax. The amount of withholding tax depends on the type of income and whether an income tax treaty exists between the taxpayer's home country and the U.S. This means that non-U.S. persons do need to consider whether their income is U.S. source for tax purposes, at least with respect to certain types of investment income. Choice A is incorrect because non-U.S. persons may still have U.S. tax reporting obligations even if none of their income is U.S. source, depending on the nature of their activities in the U.S. Choice B is incorrect because not all income earned by non-U.S. persons is necessarily foreign source; only income earned outside the U.S. is foreign source, so a non-U.S. person who earns income while physically present in the U.S. would have some U.S.-source income. Choice C is incorrect because U.S.-source income (other than certain types of investment income) is generally subject to U.S. tax and withholding, but the withholding tax rate may be reduced or eliminated by an applicable income tax treaty.

Which of the Following Statements Regarding the Sourcing of Gross