Step 1: Confirming CV’s U.S. tax status (NRA vs. resident)

As a preliminary matter, we assume CV qualifies as a nonresident alien (“NRA”) for U.S. tax purposes in 2024 and 2025, and is likely a tax resident of Mexico. That conclusion tracks her long-term living and work history in Mexico, plus strong personal ties there.

She does not hold a U.S. green card, and the facts do not indicate enough U.S. days to trigger U.S. residency under the substantial presence test. Her seven-week stay in Baltimore in 2021 appears temporary and, on these facts, does not create U.S. residency in later years.

If CV unexpectedly met U.S. residency tests in a later year (for example, due to unreported travel), treaty tie-breaker rules could become relevant. For this case study, we proceed under NRA status.

A. CV’s income from Apple stock and Apple bonds

Assume that as of January 1, 2025, CV owns (i) 100 shares of Apple common stock (purchased in 2021), and (ii) Apple bonds with a $100,000 face value (1.2% coupon, due 2028), purchased at issuance.

1) Apple common stock: dividends

Dividends paid by a U.S. corporation are generally U.S.-source income and are typically treated as FDAP for an NRA who is not conducting a U.S. trade or business. In practice, the broker or custodian acts as the withholding agent and reports the payment (often on Form 1042-S).

Treaty benefits can reduce withholding. Under the U.S.–Mexico income tax treaty, dividends may be taxed by the U.S., but the treaty can cap withholding for a portfolio shareholder if the beneficial owner properly claims benefits (typically via Form W-8BEN).

2) Apple common stock: capital gains

For many NRAs, capital gains from selling publicly traded U.S. stock are not taxed by the United States unless a special rule applies (such as extended physical presence in the U.S. during the taxable year) or the gain is effectively connected with a U.S. trade or business.

On the assumed facts, CV’s capital gains on any sale of Apple stock in 2024–2025 would generally be outside the U.S. tax net and would not trigger U.S. withholding or a mandatory U.S. return filing solely because of the sale.

3) Apple bonds: interest and the portfolio interest exemption

Interest paid by a U.S. issuer is generally U.S.-source FDAP interest. However, many publicly issued corporate bonds can qualify for the portfolio interest exemption if the foreign investor provides proper certification (commonly Form W-8BEN) and does not meet certain ownership thresholds.

On these assumptions, CV’s Apple bond interest (about $1,200 annually) would typically be exempt from U.S. tax under the portfolio interest rules, and a U.S. payor should not withhold.

4) Filing and information reporting

CV’s main compliance work here is documentation: keeping W-8BEN forms current with each withholding agent and retaining year-end reporting forms (especially Form 1042-S) for her home-country reporting and foreign tax credit computations.

B. CV’s sale of her Baltimore home in 2025 (FIRPTA)

Now assume CV purchased a home in Baltimore, Maryland in 2021 for $5,000,000 and sold it in 2025 for $6,000,000. A residence located in Baltimore is U.S. real property, and CV’s ownership is a U.S. real property interest for FIRPTA purposes.

1) FIRPTA converts the gain into ECI

FIRPTA generally treats gain from the disposition of a U.S. real property interest by a foreign person as if it were effectively connected with a U.S. trade or business. In practical terms, the gain is taxed on a net basis at the applicable U.S. rates, and a U.S. return is typically required.

2) Illustrative gain calculation

Assuming no capital improvements and no depreciation, the gain is:

• Amount realized: $6,000,000
• Adjusted basis: $5,000,000
• Gain: $1,000,000 (generally long-term if held more than one year)

3) Principal residence exclusion under § 121 (likely not available on these facts)

Section 121 can exclude gain on the sale of a principal residence if the ownership and use tests are met. Non-U.S. citizens and NRAs are not automatically barred from claiming § 121, but based on the facts here (short periods in Baltimore; primary life centered outside the U.S.), the safer assumption is that CV likely does not satisfy the two-year use test.

4) FIRPTA withholding at closing

FIRPTA generally requires the buyer to withhold tax at closing (often 15% of the amount realized) unless an exception or reduced-rate rule applies. With a $6,000,000 sales price, the low-price residential exceptions do not apply.

In this example, 15% of $6,000,000 is $900,000 withheld. That amount is a prepayment credit, not the final tax.

5) Required U.S. return: Form 1040-NR for 2025

Because FIRPTA treats the gain as effectively connected income, CV generally must file Form 1040-NR for 2025 to report the sale, compute the actual tax on the net gain, and claim credit for FIRPTA withholding (typically documented through FIRPTA forms such as Forms 8288/8288-A).

6) Treaty note

Treaties generally do not prevent the U.S. from taxing gains from U.S. real estate. Relief is typically handled through foreign tax credit mechanisms in the residence country.

C. CV’s investment in her brother’s restaurant ventures

Assume CV has two loan investments tied to restaurants: (i) an interest-free family loan to a Harrisburg, Pennsylvania restaurant (repaid with interest in 2024); and (ii) a $1,000,000 loan at 7% interest (convertible to equity) to a newly formed U.S. partnership operating restaurants across the U.S. (assume no conversion in 2024–2025).

1) First loan: interest-free family loan and below-market loan rules

Interest-free loans between family members can trigger imputed interest concepts under the below-market loan rules. When interest is actually paid upon repayment in 2024, that payment is generally treated as U.S.-source interest (because the payer is in the U.S.) and typically classified as FDAP, subject to withholding unless reduced by treaty.

2) Second loan: 7% partnership note (treated as debt until conversion)

Annual interest on the $1,000,000 note is about $70,000. Interest paid by a U.S. payer to an NRA is typically U.S.-source FDAP, subject to withholding unless an exemption applies.

The portfolio interest exemption often requires specific structural features and documentation. For private notes, the analysis can be fact-sensitive. If CV qualifies for treaty benefits and properly claims benefits on W-8BEN, treaty limitations may cap withholding.

3) Future conversion to equity: the ECI shift

If CV converts the note into a partnership interest, she can be treated as engaged in the partnership’s U.S. trade or business. That can shift the tax treatment from “creditor FDAP” to “owner ECI,” bringing additional withholding and full Form 1040-NR reporting.

4) Summary

• Debt interest from U.S. payers to NRAs is often FDAP subject to withholding unless reduced or exempt.
• Documentation matters: collect W-8BEN, expect Forms 1042/1042-S reporting.
• Conversion to equity can change the entire withholding and filing regime.

D. CV’s YouTube streaming income

Assume CV generates about $300,000 per year from YouTube. A common surprise for global creators is that U.S. withholding may apply specifically to revenue attributable to U.S. viewers.

1) Character and sourcing: royalties tied to use in the U.S.

U.S. royalty sourcing rules generally look to where the underlying intangible is used. When content is streamed to U.S. viewers, platforms can treat the U.S.-viewer portion of revenue as U.S.-source royalties.

If CV does not have facts that create a U.S. trade or business for this activity, the U.S.-source portion is commonly analyzed as FDAP royalty income subject to withholding, unless reduced by treaty.

2) Treaty relief and the importance of W-8BEN

If a creator qualifies as a resident of a treaty country and claims benefits on a valid Form W-8BEN, the withholding rate applied to U.S.-source royalties can be reduced from the default.

3) Reporting: Form 1042-S

The withholding agent reports U.S.-source royalties and withholding on Form 1042-S. That form often becomes the key document for foreign tax credits and for reconciling withholding on a U.S. return when a return is otherwise required (for example, due to FIRPTA).

Practical checklist (what CV should keep tight)

• W-8BEN + treaty claims: keep current with every U.S. broker, platform, and payor.
• Year-end forms: retain all Forms 1042-S and any FIRPTA forms received after closing.
• Track U.S. days: travel records matter for residency tests and certain special gain rules.
• Real estate timing: model FIRPTA withholding vs. expected tax; consider Form 8288-B early if appropriate.
• Debt vs. equity: document loan terms carefully; conversion features can change U.S. withholding and filing regimes.