IRS AM: Regularly Traded Exception Application to Stock Held in a Partnership by a Nonresident Alien Individual (IRC §897)

The Chief Counsel’s Office advised on whether in two different situations a nonresident alien individual’s gain on the disposition of a domestic corporation’s stock is treated as effectively connected income under I.R.C. §897(a). Partnership owns a small percentage of the outstanding stock of the domestic corporation. A nonresident alien individual owns a 25% interest in the capital and profits of Partnership, and the other partners are U.S. citizens, unrelated to the nonresident alien individual. In the first situation, the nonresident alien individual owns no stock of the corporation, directly or constructively, and in the second situation, the individual owns stock ...