How do I treat the income from an ESPP I sold now that I am a non-resident alien?

Question

I worked in the US in 2009 and was granted an Employee Stock Purchase Plan (ESPP), which I exercised. Then later I left the US and sold the stock, which is a qualified disposition.

Now I am going to need to file a tax return as a non-resident alien.

I think that 15% discount I got should be considered income as effectively connected with a US trade or business, and I should report this amount as wages, salaries. Please correct me if I am wrong.

Here comes my question. The further long term capital gain I got from sale of the stock... is this also effectively connected with a US trade or business or this should be considered as income not effectively connected?

Thanks so much for your help!

Answer 1

That's a tricky question and you should consult a tax professional that specializes on taxation of non-resident aliens and foreign expats. You should also consider the provisions of the tax treaty, if your country has one with the US. I would suggest you not to seek a "free advice" on internet forums, as the costs of making a mistake may be hefty.

Generally, sales of stocks is not considered trade or business effectively connected to the US if that's your only activity. However, being this ESPP stock may make it connected to providing personal services, which makes it effectively connected. I'm assuming that since you're filing 1040NR, taxes were withheld by the broker, which means the broker considered this effectively connected income.