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Cat. No. 11368V

Paperwork Reduction Act Notice.We

ask for the information on this form tocarry out the Internal Revenue laws of theUnited States. You are required to give usthe information. We need it to ensure thatyou are complying with these laws and toallow us to figure and collect the rightamount of tax.

The time needed to complete and filethis form will vary depending on individualcircumstances. The estimated average timeis: Recordkeeping, 6 hr., 40 min.;Learning about the law or the form, 1hr., 56 min.; Preparing the form, 4 hr., 19min.; and Copying, assembling, andsending the form to the IRS, 1 hr., 47min.

If you have comments concerning theaccuracy of these time estimates orsuggestions for making this form simpler,we would be happy to hear from you. Youcan write to both the Internal RevenueService, Attention: Tax Forms Committee,PC:FP, Washington, DC 20224; and theOffice of Management and Budget,Paperwork Reduction Project (1545-0089),Washington, DC 20503. DO NOT send thetax form to either of these offices. Instead,see Where To File on page 3.

General Instructions

Items To NoteSocial Security Numbers (SSNs).Anincorrect or missing SSN for you or yourdependent age 1 or older will delay anyrefund shown on your return. To apply foran SSN, get Form SS-5 from a SocialSecurity Administration (SSA) office or callthe SSA at 1-800-772-1213. Fill it in andreturn it to the SSA. If you wont have anSSN by the date your return is due, seeExtension of Time To File on page 2.

Q Visa Holders.Beginning October 1,1994, alien individuals with Q visas aretreated as students, teachers, and traineesand, as such, are exempt individuals forpurposes of the substantial presence test if

they otherwise qualify. However, Q visaholders may only exclude days of presenceafter September 30, 1994. Q visas areissued to aliens participating in certaininternational cultural exchange programs.

Self-Employed Health InsuranceDeduction.This deduction expiredDecember 31, 1993. However, at the timeForm 1040NR was printed, Congress wasconsidering legislation that would allow adeduction for 1994. For later informationabout this deduction, get Pub. 553,Highlights of 1994 Tax Changes.

Charitable Contributions.No deduction

is allowed for any contribution of $250 ormore unless you have a written statementfrom the charitable organization containingcertain information. For details, see theinstructions for Schedule A, lines 4 through7 on page 14.

Capital Gain Distributions.The separateline for reporting capital gain distributionswhen Schedule D (Form 1040) is not filedhas been removed. Instead, capital gaindistributions are now reported on line 14. Ifyou have capital gain distributions anddont need to file Schedule D (Form 1040),enter those distributions on line 14. WriteCGD on the dotted line next to line 14 toindicate that you dont need to file

Schedule D (Form 1040).Moving Expenses.New rules apply toexpenses incurred after 1993. The distancetest has been increased from 35 to 50miles and certain expenses are no longerdeductible. In addition, expenses incurredin 1994 are deducted on Form 1040NR,line 25. For more details, get Form 3903,Moving Expenses, and its instructions.

Travel, Meal, and EntertainmentExpenses.Travel expenses for a person(including your spouse or dependent) whoaccompanied you on business travel arenot deductible unless that person is youremployee. Also, the travel must be for abona fide business purpose and would

otherwise be deductible by that person.Generally, only 50% of meal andentertainment expenses are deductible.

Club Dues.No deduction is allowed foramounts paid or incurred after 1993 formembership dues in any club organized forbusiness, pleasure, recreation, or othersocial purpose. This includes business,social, athletic, luncheon, sporting, airline,and hotel clubs.

Payment of Deferred Additional 1993Taxes.Some higher-income taxpayersowed additional 1993 Federal incometaxes due solely to the 1993 income taxrate increases. If you were one of thesetaxpayers and elected to defer these taxes

and pay them in installments by filingForm 8841, Deferral of Additional 1993Taxes, with your 1993 return, you have aninstallment due on either April 17, 1995, orJune 15, 1995, depending on your filingrequirement (see When To File on page 2).The installment due is one-half of theamount shown on line 16 of Form 8841.There is no interest on the installmentpayment if it is made on time. But if youdo not make the installment payment bythe due date, the entire amount youdeferred will become due and payableupon notice and demand from the IRS.

You should receive a reminder notice earlyin January 1995 showing the installmentamount due and the date due.

You have two options to pay theinstallment:

Send a separate check or money orderto the IRS by the due date. The notice youreceive in January will include a tear-offvoucher for you to send back with yourcheck or money order payable to theInternal Revenue Service. Clearly write yoursocial security number and 1993 OBRAInstallment on your payment. Send yourpayment with the tear-off voucher in thereturn envelope included with the notice. Ifyou dont have the tear-off voucher orenvelope, send your payment by itself tothe Internal Revenue Service Center,Philadelphia, PA 19255, U.S.A. We willapply this payment to your deferred 1993taxes regardless of any outstanding debtsyou may have.

Do not send this payment with your taxreturn. Also, do not make this paymentusing a payment voucher other than theone attached to the reminder notice.

Apply part or all of any refund on your1994 tax return toward the installmentpayment. See the instructions for line 63for details.

Earned Income Credit.If a child didntlive with you, your main home was in theUnited States for over half of 1994, youwere at least age 25, and you earned lessthan $9,000, you may be able to take thiscredit for 1994. If a child lived with you inthe United States for over half of 1994 andyou earned less than $25,296, you may beable to take a larger credit. See theinstructions for line 54. Also, the extracredit for a child born during the year andthe health insurance credit are no longerallowed.

Tax Law Changes.For more details, seePub. 553.

Other Reporting Requirements.If youmeet the closer connection to a foreigncountry exception to the substantialpresence test or exclude days of presencein the United States for purposes of thattest, you must file a statement containingcertain information. This rule does notapply to foreign government-relatedindividuals who exclude days of presencein the United States. For details, get Form8840, Closer Connection ExceptionStatement for Aliens, or Form 8843,Statement for Exempt Individuals andIndividuals With a Medical Condition.Certain dual resident taxpayers who claimtax treaty benefits must file Form 8833,

Treaty-Based Return Position DisclosureUnder Section 6114 or 7701(b), or a similarstatement. A dual resident taxpayer is onewho is a resident of both the United Statesand another country under each countrystax laws.

United StatesIndia Income TaxTreaty.Residents of India who werestudents or business apprentices presentin the United States for educational ortraining purposes may be able to take thestandard deduct ion and exemptions fortheir spouse and dependents under this

Instructions for Form 1040NRU.S. Nonresident Alien Income Tax Return

Section references are to the Internal Revenue Code unless otherwise noted.

Department of the TreasuryInternal Revenue Service

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treaty. For details, get Pub. 519, U.S. TaxGuide for Aliens.

Additional InformationIf you need more information, our freepublications may help you. Pub. 519 willbe the most important, but the followingpublications may also help:

Pub. 525, Taxable and Nontaxable Income

Pub. 529, Miscellaneous Deductions

Pub. 552, Recordkeeping for Individuals

Pub. 597, Information on the UnitedStatesCanada Income Tax Treaty

Pub. 901, U.S. Tax Treaties

Pub. 910, Guide to Free Tax Services(includes a list of all publications)

These free publications and the formsand schedules you will need are availableon request from the Internal RevenueService. If you have a foreign address,send your order to either: Eastern AreaDistribution Center, P.O. Box 25866,Richmond, VA 23286-8107, U.S.A.; orWestern Area Distribution Center, RanchoCordova, CA 95743-0001, U.S.A.,whichever is closer.

Resident Alien orNonresident AlienIf you are not a citizen of the UnitedStates, specific rules apply to determine ifyou are a resident alien or a nonresidentalien. Generally, you are considered aresident alien if you meet either the greencard test or the substantial presence testfor 1994. If you do not meet either of thesetests for 1994 but you meet the substantialpresence test for 1995, you may be able tochoose to be treated as a resident alien forpart of 1994. But you must have beenphysically present in the United States forat least 31 days in a row during 1994 to do

so. This choice does not apply if you meteither the green card test or the substantialpresence test for 1993. For more details,see Pub. 519.

You are considered a nonresident alienfor the year if you are not a U.S. residentunder either of these tests. You areconsidered a nonresident alien if youotherwise meet the substantial presencetest but you come under any of the threeexceptions to that test.

For more details on resident andnonresident status, the tests for residenceand the exceptions to them, see Pub. 519.

Green Card Test.You are a resident fortax purposes if you were a lawful

permanent resident (immigrant) of theUnited States at any time during 1994.

Substantial Presence Test.You areconsidered a U.S. resident if you meet thesubstantial presence test for 1994. Youmeet this test if you were physicallypresent in the United States for at least:

1. 31 days during 1994, and

2. 183 days during the period 1994,1993, and 1992, counting all the days ofphysical presence in 1994 but only 13 thenumber of days of presence in 1993 andonly 16 the number of days in 1992.

Generally, you are treated as present inthe United States on any day that you arephysically present in the country at anytime during the day.

Exceptions. The following are exceptionsto the substantial presence test:

1. Exempt individual. You do not countdays for which you are an exemptindividual. In general, an exempt individualis an individual who is a:

a. foreign government-related individual,

b. teacher or trainee,

c. student, ord. professional athlete who is temporarily

in the United States to compete in acharitable sports event.

2. Medical condition. You do not countany day that you intended to leave theUnited States but were unable to leavebecause of a medical condition or medicalproblem that arose while you were presentin the United States.

3. Closer connection to foreigncountry. Even though you would otherwisemeet the substantial presence test, you arenot treated as having met that test for1994 if you:

a. were present in the United States forfewer than 183 days during 1994,

b. establish that during 1994 you had atax home in a foreign country, and

c. establish that during 1994 you had acloser connection to one foreign country inwhich you had a tax home than to theUnited States unless you had a closerconnection to two foreign countries.

Tax Obligations of Aliens.As an alienhaving income from the United States, youmust pay U.S. taxes. If you have not filedrequired tax returns for each of the yearssince you first came to the United States,you should do so as soon as possible. Getthe Form 1040 instructions to see if you

must file a return.

Who Must FileUse Form 1040NR if any of the followingfour conditions applies to you.

1. You were a nonresident alienengaged, or considered to be engaged, ina trade or business in the United Statesduring 1994. You must file Form 1040NReven if:

a. none of your income came from atrade or business conducted in the UnitedStates,

b. you have no income from U.S.sources, or

c. your income is exempt from U.S. tax.

In any of the above three cases, do notcomplete the schedules for Form 1040NR.Instead, attach a list of the kinds ofexclusions you claim and the amount ofeach.

Note: If you were a nonresident alienstudent or trainee who was temporarilypresent in the United States under an F,J, or M visa (or a Q visa afterSeptember 30, 1994), you are consideredengaged in a trade or business in theUnited States. Therefore, condition 1

applies to you and you must file Form1040NR.

2. You were a nonresident alien notengaged in a trade or business in theUnited States during 1994 and not all U.S.tax that you owe was withheld from yourincome.

3. You represent a deceased personwho would have had to file Form 1040NR.

4. You represent an estate or trust thatwould have had to file Form 1040NR.

Exception for Children Under Age 14.If

your child was under age 14 on January 1,1995, had income only from interest anddividends that are effectively connectedwith a U.S. trade or business, and thatincome totaled more than $500 but lessthan $5,000, you may be able to elect toreport your childs income on your return.But you must use Form 8814, ParentsElection To Report Childs Interest andDividends, to do so. If you make thiselection, your child does not have to file areturn. For more details, see Form 8814.

Filing a Deceased Persons Return.Thepersonal representative must file the returnfor a deceased person who was requiredto file a return for 1994. A personal

representative can be an executor,administrator, or anyone who is in chargeof the deceased persons property.

Filing for an Estate or Trust.If you arefiling Form 1040NR for a nonresident alienestate or trust, change the form to reflectthe provisions of Subchapter J, Chapter 1,of the Internal Revenue Code. You mayfind it helpful to refer to Form 1041, U.S.Income Tax Return for Estates and Trusts,and its instructions.

When To FileIndividuals.If you were an employee andreceived wages subject to withholding, fileForm 1040NR by the 15th day of the 4th

month after your tax year ends. A returnfor the 1994 calendar year is due by April17, 1995.

If you did not receive wages as anemployee subject to U.S. income taxwithholding, file Form 1040NR by the 15thday of the 6th month after your tax yearends. A return for the 1994 calendar yearis due by June 15, 1995.

Estates and Trusts.If you file for anonresident alien estate or trust that hasan office in the United States, file thereturn by the 15th day of the 4th monthafter the tax year ends. If you file for anonresident alien estate or trust that doesnot have an office in the United States, file

the return by the 15th day of the 6thmonth after the tax year ends.

Note: If the regular due date for filing fallson a Saturday, Sunday, or legal holiday, fileby the next business day.

Extension of Time To File.If you cannotfile your return by the due date, you shouldfile Form 4868, Application for AutomaticExtension of Time To File U.S. IndividualIncome Tax Return. You must file Form4868 by the regular due date of the return.

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Note: Form 4868 does not extend the timeto pay your income tax. The tax is due bythe regular due date of the return.

Where To FileFile Form 1040NR with the InternalRevenue Service Center, Philadelphia, PA19255, U.S.A.

Election To Be Taxed as aResident Alien

You can elect to be taxed as a U.S.resident for the whole year if either of thefollowing applies to you:

You were a nonresident alien on the lastday of the tax year, and your spouse wasa U.S. citizen or resident alien on the lastday of the tax year.

You were a nonresident alien at thebeginning of the tax year, but you were aresident alien on the last day of the taxyear and your spouse was a U.S. citizen orresident alien on the last day of the taxyear. This also applies if both you and yourspouse were nonresident aliens at thebeginning of the tax year and both wereresident aliens at the end of the tax year.

If you elect in 1994 to be taxed as aU.S. resident, you and your spouse mustfile a joint return for 1994 using Form 1040,1040A, or 1040EZ. Your worldwide incomefor the whole year will be taxed under U.S.tax laws. You must agree to keep therecords, books, and other informationneeded to figure the tax. If you made theelection in an earlier year, you may file ajoint return or separate return for 1994. Ifyou file a separate return, use Form 1040or Form 1040A. Your worldwide income forthe whole year must be included whetheryou file a joint or separate return.

To make this election, you must attachthe statement described in Pub. 519 to

your return. Do not use Form 1040NR.

Dual-Status TaxpayersNote: If you elect to be taxed as a residentalien (discussed above), the specialinstructions and restrictions discussed heredo not apply.

Dual-Status Tax Year

A dual-status year is one in which youchange status between nonresident andresident alien. Different U.S. income taxrules apply to each status.

Most dual-status years are the years ofarrival or departure. Before you arrive in

the United States, you are a nonresidentalien. After you arrive, you may or may notbe a resident, depending on thecircumstances.

If you become a U.S. resident, you staya resident until you leave the UnitedStates. You may become a nonresidentalien when you leave, if, after leaving (orafter your last day of lawful permanentresidency if you met the green card test)and for the remainder of the calendar yearof your departure, you have a closerconnection to a foreign country than to theUnited States, and, during the next

calendar year, you are not a U.S. residentunder either the green card test or thesubstantial presence test. See Pub. 519.

What and Where To File for aDual-Status Year

If you were a U.S. resident on the last dayof the tax year, file Form 1040, U.S.Individual Income Tax Return. WriteDual-Status Return across the top andattach a statement showing your incomefor the part of the year you were anonresident. You may use Form 1040NRas the statement; write Dual-StatusStatement across the top. File your returnand statement with the Internal RevenueService Center, Philadelphia, PA 19255,U.S.A.

If you were a nonresident on the lastday of the tax year, file Form 1040NR.Write Dual-Status Return across the topand attach a statement showing yourincome for the part of the year you were aU.S. resident. You may use Form 1040 asthe statement; write Dual-StatusStatement across the top. File your returnand statement with the Internal RevenueService Center, Philadelphia, PA 19255,U.S.A.

Statements.Any statement you file withyour return must show your name,address, and social security number(taxpayer identification number). You donot have to sign the statement. Yoursignature on the return is sufficientbecause it also applies to supportingstatements and schedules.

Income Subject to Tax forDual-Status Year

As a dual-status taxpayer not filing a jointreturn, you are taxed on income from allsources for the part of the year you were aresident alien. Generally, you are taxed onincome only from U.S. sources for the partof the year you were a nonresident alien.However, all income effectively connectedwith the conduct of a trade or business inthe United States is taxable.

Income you received as a dual-statustaxpayer from sources outside the UnitedStates while a resident alien is taxableeven if you became a nonresident alienafter receiving it and before the close ofthe tax year. Conversely, income youreceived from sources outside the UnitedStates while a nonresident alien is nottaxable in most cases even if you becamea resident alien after receiving it and beforethe close of the tax year. Income from U.S.sources is taxable whether you received it

while a nonresident alien or a residentalien.

Restrictions for Dual-StatusTaxpayers

The following rules apply to dual-statustaxpayers.

Standard Deduction.You may not takethe standard deduction.

Head of Household.You may not usethe Head of HouseholdTax Table columnor Tax Rate Schedule.

Joint Return.You may not file a jointreturn. However, see Election To BeTaxed as a Resident Alien above.

Tax Rates.If you were married and anonresident of the United States for all orpart of the tax year and you do not makethe election to be taxed as a resident alienas discussed above, you must use the TaxTable column or Tax Rate Schedule forMarried Filing Separatelyto figure your taxon income effectively connected with aU.S. trade or business. You may not usethe SingleTax Table column or Tax Rate

Schedule.Personal Exemptions.As a dual-statustaxpayer, you usually will be entitled toyour own personal exemption. Subject tothe general rules for qualification, you areallowed exemptions for your spouse anddependents in figuring taxable income forthe part of the year you were a residentalien. The amount you may claim for theseexemptions is limited to your taxableincome (determined without regard toexemptions) for the part of the year youwere a resident alien. You may not useexemptions (other than your own) toreduce taxable income to below zero forthat period.

Special rules apply for exemptions forthe part of the tax year a dual-statustaxpayer is a nonresident alien if thetaxpayer is a resident of Canada, Mexico,Japan, or the Republic of Korea, or is aU.S. national or a student or businessapprentice from India. See Pub. 519.

How To Figure Tax for Dual-StatusTax Year

When you figure your U.S. tax for adual-status year, you are subject todifferent rules for the part of the year youwere a resident and the part of the yearyou were a nonresident.

All income for the period of residenceand all income that is effectively connectedwith a trade or business in the UnitedStates for the period of nonresidence, afterallowable deductions, is added and taxedat the same rates that apply to U.S.citizens and residents. Income that is noteffectively connected with a trade orbusiness in the United States for theperiod of nonresidence is subject to theflat 30% rate or lower treaty rate. Nodeductions are allowed against thisincome.

If you were a resident alien on the lastday of the tax year, add to the tax fromthe Tax Table, Tax Rate Schedules, CapitalGain Tax Worksheet, or Form 8615 the tax

on the noneffectively connected income.Enter the total tax on Form 1040, line 38.Next to line 38 show the two amounts. Ifyou are filing Form 1040NR, enter the taxfrom the Tax Table, Tax Rate Schedules,Capital Gain Tax Worksheet, or Form 8615on line 37 and the tax on the noneffectivelyconnected income on line 47.

Credits.You are allowed a credit againstyour U.S. income tax liability for certaintaxes you paid, are considered to havepaid, or that were withheld from yourincome. These include:

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1. Tax withheld from wages earned inthe United States and taxes withheld atthe source from various items of incomefrom U.S. sources other than wages. Thisincludes U.S. tax withheld on dispositionsof U.S. real property interests.

When filing Form 1040, show the totaltax withheld on line 54. Enter amountsfrom the attached statement (Form1040NR, lines 52, 59a, 59b, 60a, and 60b)to the left of line 54 and identify andinclude in the amount on line 54.

When filing Form 1040NR, show thetotal tax withheld on lines 52, 59a, 59b,60a, and 60b. Enter the amount from theattached statement (Form 1040, line 54) tothe left of line 52 and identify and includein the amount on line 52.

2. Tax paid with Form 1040-ES,Estimated Tax for Individuals, or Form1040-ES (NR), U.S. Estimated Tax forNonresident Alien Individuals.

3. Tax paid with Form 1040-C, U.S.Departing Alien Income Tax Return, at thetime of departure from the United States.When filing Form 1040, include the taxpaid with Form 1040-C with the totalpayments on line 60. Identify the paymentin the area to the left of the entry.

As a dual-status taxpayer, you generallymay claim tax credits using the same rulesthat apply to resident aliens.

How To Report Income onForm 1040NR

Community Income

If either you or your spouse, or both youand your spouse, were nonresident aliensat any time during the tax year, and youhad community income during the year,treat the community income according tothe applicable community property lawsexcept as follows:

Earned income of a spouse, other thantrade or business or partnershipdistributive share income. The spousewhose services produced the income mustreport it on his or her separate return.

Trade or business income, other thanpartnership income. Treat this income asreceived by the husband unless the wifeexercises substantially all of themanagement over the trade or business.

Partnership income (or loss) receivedfrom a trade or business carried on by thepartnership. Treat this income (or loss) asreceived by the spouse who is the partnerand report it on that spouses return.

Income derived from the separateproperty of one spouse that is not earnedincome, trade or business income, orpartnership distributive share income. Thespouse with the separate property mustreport this income on his or her separatereturn.

Get Pub. 555, Federal Tax Informationon Community Property, for more details.

Kinds of Income

You must divide your income for the taxyear into the following three categories:

1. Income effectively connected with aU.S. trade or business. This income istaxed at the same rates that apply to U.S.citizens. Report it on page 1 of Form1040NR. Pub. 519 describes this income ingreater detail.

2. U.S. income not effectively connectedwith a U.S. trade or business. This incomeis taxed at 30% unless a treaty betweenyour country and the United States has seta lower rate that applies to you. Reportthis income on page 4 of Form 1040NRand figure the tax on it. Then, report the

tax on line 47. Pub. 519 describes thisincome more fully.

Note: Use line 50 to report the 4% tax onU.S. source gross transportation income.

3. Income exempt from U.S. tax.Complete items K and L on page 5 ofForm 1040NR and line 22 if applicable.

Dispositions of U.S. Real PropertyInterests

Gain or loss on the disposition of a U.S.real property interest by a nonresidentalien individual is treated as if the alienindividual were engaged in a trade orbusiness in the United States and as if the

gain or loss were effectively connectedwith the conduct of that trade or business.Losses of individuals shall be taken intoaccount only to the extent they would betaken into account under section 165(c).See section 897 and its regulations.

Report gains and losses on thedisposition of U.S. real property interestson Schedule D (Form 1040) and Form1040NR, line 14. Also, net gains may besubject to the alternative minimum tax. Seethe instructions for line 45.

The nonrecognition rules (not recognizinggain or loss) apply only when a U.S. realproperty interest is exchanged for aninterest the sale of which would be subject

to U.S. tax.Money and the fair market value of

property received in exchange for aninterest in a partnership, trust, or estate,will, to the extent attributable to a U.S. realproperty interest held by the partnership,trust, or estate, be considered as receivedfrom the sale or exchange of the U.S. realproperty interest.

Gains or losses from the disposition of aU.S. real property interest by a partnership,trust, or estate generally are passedthrough and must be reported on theincome tax return of each partner orbeneficiary.

U.S. Real Property Interests.A U.S. real

property interest is any interest (other thanan interest solely as a creditor) in realproperty located in the United States orthe Virgin Islands, or any interest in adomestic corporation that is a U.S. realproperty holding corporation. Generally,real property includes:

Land and unsevered natural productsof the land, such as growing crops andtimber, and mines, wells, and other naturaldeposits.

Improvements on land, includingbuildings, other inherently permanent

structures, and structural components ofthese.

Personal property associated with theuse of real property, such as farming,forestry, mining, or constructionequipment, or property used in lodgingfacilities or rented office space. See Pub.519 for exceptions.

A corporation is a U.S. real propertyholding corporation if the fair market valueof its U.S. real property interests is 50% ormore of the fair market value of its U.S.real property interests, interests in foreignreal property, plus any other of its assetsthat are used or held for use in a trade orbusiness. For special rules, see sections897(c)(4) and (5).

An interest in a foreign corporation is aU.S. real property interest only if thecorporation elected to be treated as adomestic corporation.

An interest in a domestic corporation isnot a U.S. real property interest if at thedate of disposition of the interest in thecorporation: (a) the corporation did nothold any U.S. real property interests, and(b) all the U.S. real property interests heldby the corporation during the shorter of theperiods described in section 897(c)(1)(A)(ii):

1. Were disposed of in a transaction inwhich all gain realized was recognized; or

2. Ceased to be U.S. real propertyinterests because of the application ofsection 897(c)(1)(B) to one or more othercorporations.

Stock Regularly Traded.A U.S. realproperty interest does not include anyclass of stock of a domestic corporationthat is regularly traded on an establishedsecurities market, unless you held morethan 5% of that class of stock at any timeduring the shorter of the periods describedin section 897(c)(1)(A)(ii).

Section 897(h) provides special rules for

a real estate investment trust.Virgin Islands Real Estate.Gain or losson dispositions of real property interestslocated in the U.S. Virgin Islands will bereported on returns filed with the VirginIslands tax authorities. Tax on thesedispositions will also be paid to the VirginIslands tax authorities.

Income You May Elect To Treat asEffectively Connected With a U.S.Trade or Business

You may elect to treat some items ofincome as effectively connected with aU.S. trade or business. The election

applies to all income from real property, oran interest in real property, located in theUnited States and held for the productionof income. Income from real propertyincludes:

Rental income from real property.

Profit from disposing of U.S. timber,coal, or iron ore while keeping a share in it.

Rents and royalties from mines, oil orgas wells, or other natural resources.

The election does not apply todispositions of U.S. real property interestsdiscussed earlier.

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To make the election, attach a statementto your return for the year of the election.Include in your statement:

1. That you are making the election.

2. A complete list of all your realproperty, or any interest in real property,located in the United States (includinglocation). Give the legal identification ofU.S. timber, coal, or iron ore in which youhave an interest.

3. The extent of your interest in the realproperty.

4. A description of any substantialimprovements on such real property.

5. Your income from the property.

6. The dates you owned it.

7. Whether the election is under section871(d) or treaty.

8. Details of any previous elections andrevocations of the real property elections.

Foreign Income Taxed by theUnited States

You may be required to report someincome from foreign sources on your U.S.return if it is effectively connected with aU.S. trade or business. For this foreign

income to be treated as effectivelyconnected with a U.S. trade or business,you must have a fixed place of business inthe United States. The income, gain, orloss must result directly from the usualbusiness activities of your U.S. office. Thekinds of foreign income that may be taxedat the graduated rates are:

Interest or dividends from the U.S.business.

Income from foreign sales made by yourU.S. office.

Rents or royalties you received for theuse of intangible property located outsidethe United States or the privilege of usingit. Such property includes patents,copyrights, trademarks, and franchises.

Line Instructions forForm 1040NR

Name, Address, andIdentifying NumberName.If you are filing Form 1040NR foran estate or trust, enter the name of theestate or trust, and your name, title, andaddress. Also, give the name and addressof any U.S. grantors and beneficiaries.

P.O. Box.If your post office does notdeliver mail to your home and you have aP.O. box, enter your box number insteadof your present home address.

Foreign Address.If your address isoutside the United States or itspossessions or territories, fill in the line forCity, town or post office, state, and ZIPcode in the following order: city, provinceor state, and postal code. Do notabbreviate the country name on the nextline.

Identifying Number.If you are filingForm 1040NR for an estate or trust, enterthe employer identification number of theestate or trust.

If you are a nonresident alien engaged ina trade or business in the United States,you must get a taxpayer identificationnumber. Generally, this number is yoursocial security number (SSN). Apply foryour number using Form SS-5, which youcan get at Social Security Administration(SSA) offices. Fill it in and return it to theSSA. An incorrect or missing SSN will

delay your refund.If you do not have an SSN and are not

otherwise required to get one, you can usethe identification number the IRS assignedto you. This number is similar to an SSNbut begins with the number 9. If 1994 isthe first year you are filing a tax return andyou are not otherwise required to get anSSN, do not make an entry in the spacelabeled Identifying or social securitynumber. When the IRS receives yourreturn, you will be assigned anidentification number. You must use thisnumber when you file tax returns in thefuture or until you receive an SSN.

Filing Status andExemptions for IndividualsExemptions for estates and trusts aredescribed in the instructions for line 35.

The amount of your tax depends on yourfiling status. Before you decide which boxto check, read the following explanations.

Were You Single or Married?If youwere married on December 31, consideryourself married for the whole year. If youwere single, divorced, or legally separatedunder a decree of divorce or separatemaintenance on December 31, consideryourself single for the whole year. If you

meet the tests described under MarriedPersons Who Live Apart below, you mayconsider yourself single for the whole year.

If your spouse died in 1994, consideryourself married to that spouse for thewhole year, unless you remarried beforethe end of 1994.

Lines 1 and 2Single Residents ofCanada or Mexico, Single U.S. Nationals(American Samoans), and Other SingleNonresident Aliens.If you check the boxon line 1, you can claim exemptions foryour children and other dependents on thesame terms as U.S. citizens. Get Pub. 501,Exemptions, Standard Deduction, andFiling Information, for more details.

If you were a resident of Japan or theRepublic of Korea, you may claim oneexemption each for yourself and for any ofyour children who lived with you in theUnited States at any time during 1994.

Married Persons Who Live Apart.Somemarried persons who have a child and whodo not live with their spouse may file assingle. If you meet all five tests below andyou are a married resident of Canada orMexico, or a U.S. national, check the boxon line 1. If you meet the tests and you area married resident of Japan or the

Republic of Korea, check the box online 2.

1. You file a separate return from yourspouse.

2. You paid more than half the cost tokeep up your home in 1994.

3. You lived apart from your spouseduring the last 6 months of 1994.

4. Your home was the principal home ofyour child, stepchild, adopted child, orfoster child for more than half of 1994.

5. You claim this child as your

dependent or the childs other parentclaims him or her as a dependent underthe rules explained on page 6 for Childrenof Divorced or Separated Parents.

Lines 3 and 4Married Residents ofCanada, Mexico, Japan, or the Republicof Korea, and Married U.S. Nationals.Ifyour spouse died in 1994, you can still fileas married and claim an exemption foryour spouse.

If you were a married resident of Canadaor Mexico, or a married U.S. national (line3), you can take an exemption for yourself.You can take an exemption for yourspouse only if your spouse had no grossincome for U.S. tax purposes and cannot

be claimed as a dependent on anotherU.S. taxpayers return.

You can claim exemptions for yourchildren and other dependents on thesame terms as U.S. citizens. See Pub. 501for more details.

If you were a married resident of Japanor the Republic of Korea (line 4), you mayclaim one exemption each for yourself, andfor your spouse and any of your childrenwho lived with you in the United States atany time during 1994. You may claim yourspouses exemption only if your spousehad no income from U.S. sources andcannot be claimed as a dependent onanother taxpayers return.

Line 6Qualifying Widow(er) WithDependent Child.You may check thebox on line 6 and use joint return tax ratesfor 1994 if all seven of the following apply.

1. You were a resident of Canada,Mexico, Japan, or the Republic of Korea,or a U.S. national.

2. Your spouse died in 1992 or 1993 andyou did not remarry in 1994.

3. You have a child, stepchild, adoptedchild, or foster child whom you can claimas a dependent.

4. This child lived in your home for all of1994. Temporary absences, such as forvacation or school, count as time lived in

the home.5. You paid over half the cost of keeping

up your home for this child.

6. You were a resident alien or U.S.citizen the year your spouse died. Thisrefers to your actual status, not theelection that some nonresident aliens canmake to be taxed as U.S. residents.

7. You could have filed a joint return withyour spouse the year he or she died, evenif you didnt actually do so.

Do not claim an exemption for yourspouse.

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Exemptions.Generally, you can alwaystake an exemption for yourself. However, ifyou can be claimed as a dependent onanother persons U.S. tax return (such asyour parents return), you cannot take anexemption for yourself even if that personchose not to claim you. If you were aresident of Canada, Mexico, India, Japan,or the Republic of Korea, or a U.S. national(American Samoan), you may be able totake other exemptions as well. See Pub.519 for details.

Line 7cDependents.Only residents of

Canada, Mexico, Japan, the Republic ofKorea, and U.S. nationals may claimexemptions for their dependents.

Note: Residents of India who werestudents or business apprentices may beable to claim exemptions for their spouseand dependents. See Pub. 519 for details.

You can take an exemption for each ofyour dependents who was alive duringsome part of 1994. This includes a babyborn in 1994 or a person who died in1994.

After you have figured out who you canclaim as a dependent, fill in the columnson line 7c. If you have more than fivedependents, show the informationrequested in columns (1) through (5) foreach of those dependents on an attachedstatement.

Column (1). Enter the name of eachdependent.

Column (2). If your dependent wasunder age 1 on December 31, 1994, put acheckmark in column (2).

Column (3). Any dependent age 1 orolder must have an SSN. You must enterthat SSN in column (3). If you do not enterit or if the SSN is wrong, it will take uslonger to issue any refund shown on yourreturn. You may also have to pay a $50penalty.

Your dependent can get an SSN by filingForm SS-5 with an SSA office. If yourdependent wont have an SSN by the dateyour return is due, see Extension of TimeTo File on page 2. If your dependent livesin Canada or Mexico, see Pub. 501 fordetails on how to get an SSN.

Column (4). Enter your dependentsrelationship to you. For example, if thedependent is your child, enter son ordaughter.

Column (5). Enter the number of monthsyour dependent lived with you in 1994. Donot enter more than 12. Count temporaryabsences such as school or vacation astime lived in your home. If your dependent

was born or died in 1994, enter 12 in thiscolumn.

Children Who Didnt Live With YouDue to Divorce or Separation. If you areclaiming a child who didnt live with youunder the rules for Children of Divorcedor Separated Parents below, enter thetotal number of such children on the line tothe right of line 7c labeled No. of yourchildren on 7c who: didnt live with youdue to divorce or separation. If you put anumber on this line, you must do one ofthe following each year you claim this childas a dependent.

1. Check the box on line 7d if yourdivorce decree or written separationagreement went into effect before 1985and it states that you can claim the childas your dependent.

2. Attach Form 8332 or similarstatement. If your divorce decree orseparation agreement went into effect after1984 and it unconditionally states that youcan claim the child as your dependent, youmay attach a copy of certain pages fromthe decree or agreement instead of Form8332. Get Pub. 504, Divorced or

Separated Individuals, for details.Note: You must attach the requiredinformation even if you filed it in an earlieryear.

Other Dependent Children. Enter thetotal number of dependent children whodid not live with you for reasons other thandivorce or separation on the line labeledDependents on 7c not entered above.

Children of Divorced or SeparatedParents. The parent who had custody of achild for most of the year (the custodialparent) can generally take the exemptionfor that child if both parents together paidover half of the childs support. Thisgeneral rule also applies to parents whodid not live together at any time during thelast 6 months of the year. But the parentwho did not have custody, or who had thechild for the shorter time (thenoncustodial parent), may take theexemption if both parents together paidover half of the childs support and eithera or b below applies:

a. The custodial parent signs Form 8332or a similar statement agreeing not toclaim the childs exemption for 1994, or

b. A decree of divorce or separatemaintenance (or a written agreement) thatwas in effect before 1985 states that thenoncustodial parent can take theexemption and he or she gave at least$600 for the childs support in 1994. Thisrule does not apply if the decree oragreement was changed after 1984 to saythat the noncustodial parent cannot claimthe exemption.

Rounding Off to WholeDollarsYou may round off cents to the nearestwhole dollar on your forms and schedules.This will make it easier to complete yourreturn. To do so, drop amounts under 50cents and increase amounts from 50 to 99cents to the next dollar. For example,

$1.39 becomes $1 and $2.50 becomes $3.If you do round off, do so for all

amounts. But if you have to add two ormore amounts to figure the amount toenter on a line, include cents when addingand only round off the total. Example. Youreceived two W-2 forms, one showingwages of $5,000.55 and one showingwages of $18,500.73. On Form 1040NR,line 8, you would enter $23,501 ($5,000.55+ $18,500.73 = $23,501.28).

Income EffectivelyConnected With U.S. Tradeor BusinessPub. 519 explains how income is classifiedand what income you should report here.The instructions for this section assumeyou have decided that the income involvedis effectively connected with a U.S. tradeor business in which you were engaged.But your decision may not be easy.

Interest, for example, may be effectivelyconnected with a U.S. trade or business, itmay not be, or it may be tax exempt. Thetax status of income also depends on itssource. Under some circumstances, itemsof income from foreign sources are treatedas effectively connected with a U.S. tradeor business. Other items are reportable aseffectively connected or not effectivelyconnected with a U.S. trade or business,depending on how you elect to treat them.

Line 8Wages, Salaries, Tips, etc.Enter the total of your effectivelyconnected wages, salaries, tips, etc. Thisshould be shown in box 1 of your W-2form. Also include in this total:

Corrective distributions of excess salarydeferrals.

Corrective distributions of excesscontributions and excess aggregatecontributions to a retirement plan.

Disability pensions if you have notreached the minimum retirement age setby your employer.

Note: Disability pensions received after youreach your employers minimum retirementage and other pensions shown onForm1099-R(other than payments from an IRA)are reported on lines 17a and 17b of Form1040NR. However, you must report thisincome on line 73 if it is not effectivelyconnected with a U.S. trade or business.

Payments from an IRA are reported onlines 16a and 16b.

For details on reporting income receivedin the form of goods, property, meals,stock options, etc., get Pub. 525, Taxableand Nontaxable Income.

If you used an employer-providedvehicle for both personal and business useand 100% of its annual lease value wasincluded as wages on your W-2 form, youmay be able to deduct the business use ofthe vehicle on Schedule A. But you mustuse Form 2106, Employee BusinessExpenses, to do so. The total annual leasevalue of the vehicle should be shown ineither box 12 or 14 of your W-2 form or on

a separate statement. For more details, getPub. 917, Business Use of a Car.

Tip Income. Be sure to report all tipincome you actually received, even if it isnot included in box 1 of your W-2 form(s).You must report as income the amount ofallocated tips shown on your W-2 form(s)unless you can prove a smaller amount.Allocated tips should be shown in box 8 ofyour W-2 form(s). They are not included inbox 1 of your W-2 form(s). For details onallocated tips, get Pub. 531, Reporting TipIncome.

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Use Form 4137, Social Security andMedicare Tax on Unreported Tip Income,to figure any social security and Medicaretax on unreported or allocated tips. Seethe instructions for line 48.

Excess Salary Deferrals. You may havechosen to have your employer contributepart of your pay to certain retirement plans(such as a 401(k) plan or the Federal ThriftSavings Plan) instead of having it paid toyou. If so, the Deferred compensationbox in box 15 of your W-2 form should bechecked. The amount deferred should be

shown in box 13. The total amount thatmay be deferred for 1994 under all plans isgenerally limited to $9,240 for each person.But a different limit may apply if amountswere deferred under a tax-shelteredannuity plan or an eligible plan of a stateor local government or tax-exemptorganization. Get Pub. 575, Pension andAnnuity Income (Including SimplifiedGeneral Rule), for details. Any amountdeferred in excess of these limits must bereported on Form 1040NR, line 8.

Dependent Care Benefits (DCB). If youreceived benefits for 1994 under youremployers dependent care plan, you maybe able to exclude part or all of them from

your income. But you must use Form2441, Child and Dependent CareExpenses, to do so. The benefits shouldbe shown in box 10 of your W-2 form(s).First, fill in Parts I and III of Form 2441.Include any taxable benefits from line 20 ofthat form on Form 1040NR, line 8. On thedotted line next to line 8, enter DCB.

Line 9aTaxable Interest Income.Report on line 9a all of your taxableinterest income from assets effectivelyconnected with a U.S. trade or business.

If you received interest not effectivelyconnected with a U.S. trade or business,report it on page 4 of Form 1040NR,unless it is tax exempt under a treaty. Get

Pub. 901, U.S. Tax Treaties. In addition,interest from a U.S. bank, savings and loanassociation, or similar institution, and fromcertain deposits with U.S. insurancecompanies, is tax exempt if it is noteffectively connected with a U.S. trade orbusiness.

Report any interest you received or thatwas credited to your account so you couldwithdraw it, even if it wasnt entered inyour passbook. Interest credited in 1994on deposits you could not withdrawbecause of the bankruptcy or insolvency ofthe financial institution may not have to beincluded in your 1994 income. For details,get Pub. 550, Investment Income andExpenses.

For information on reporting Originalissue discount (OID), get Pub. 1212, List ofOriginal Issue Discount Instruments.

Line 9bTax-Exempt Interest.If youreceived any tax-exempt interest income,such as from municipal bonds, report it online 9b. Include any exempt-interestdividends from a mutual fund or otherregulated investment company. Do notinclude interest earned on your IRA.

Line 10Dividend Income.Enter yourtotal ordinary dividends from assetseffectively connected with a U.S. trade or

business. If you received capital gaindistributions, see the instructions forline 14.

Nontaxable Distributions. Somedistributions are nontaxable because theyare a return of your cost. They will not betaxed until you recover your cost. Youmust reduce your cost (or other basis) bythese distributions. After you get back allof your cost (or other basis), you mustreport these distributions as capital gains.

Line 11Taxable Refunds, Credits, orOffsets of State and Local IncomeTaxes.If you received a refund, credit, oroffset of state or local income taxes in1994 that you paid and deducted before1994, part or all of this amount may betaxable. You may receive Form 1099-G, orsimilar statement, showing the refund.

If you chose to apply part or all of therefund to your 1994 estimated state orlocal income tax, the amount applied isconsidered income you received in 1994.

If, in the year you paid the tax, you(a) did not itemize deductions on Form1040NR or Schedule A (Form 1040), or(b) filed Form 1040A or Form 1040EZ,none of your refund is taxable.

For details on how to figure the amountyou must report as income, seeRecoveries in Pub. 525, Taxable andNontaxable Income.

Line 12Scholarship and FellowshipGrants.If you received a scholarship orfellowship, part or all of it may be taxableeven if you didnt receive a W-2 form.

If you were a degree candidate, theamounts you used for expenses other thantuition and course-related expenses aregenerally taxable. For example, amountsused for room, board, and travel aregenerally taxable.

If you were not a degree candidate, thefull amount of the scholarship or fellowship

is generally taxable. Also, amountsreceived as a scholarship or fellowship thatare payment for teaching, research, orother services are taxable even if theservices were required to get the grant.

Report the total amount of the grant online 12 and show any nontaxable part online 29. If the grant was reported on Form1042-S, enter the gross amount fromcolumn (b) on line 12. Attach a statementthat shows: the amount of your grant, thedates it covers, the grantors name,expenses the grant covers, and theconditions under which it was given toyou. Explain how much was taxable, howmuch was tax exempt, and why.

Attach any Form 1042-S or Form W-2you received from the college or institution.If you did not receive a 1042-S or W-2form, attach a statement from the collegeor institution (on their letterhead) showingthe details of the grant.

Line 13Business Income or (Loss).Ifyou operated your own business orpracticed your profession as a soleproprietor, report your income andexpenses on Schedule C or ScheduleC-EZ (Form 1040).

Include any income you received as adealer in stocks, securities, andcommodities through your U.S. office. Ifyou dealt in these items through anindependent agent, such as a U.S. broker,custodian, or commissioned agent, yourincome may not be considered effectivelyconnected with a U.S. business. Forgeneral information on business income orloss, see the Instructions for Schedule C(Form 1040) and get Pub. 334, Tax Guidefor Small Business.

Line 14Capital Gain or (Loss).See the

Instructions for Schedule D (Form 1040).Enter the effectively connected gain or(loss) from Schedule D. You may needPub. 544, Sales and Other Dispositions ofAssets.

Gains and losses from disposing of U.S.real property interests are taxed as if youwere engaged in a U.S. trade or businessand are treated as effectively connectedwith that trade or business. SeeDispositions of U.S. Real PropertyInterests on page 4.

If you received capital gain distributionsand do not need Schedule D for othercapital transactions, enter thosedistributions on line 14. Write CGD on

the dotted line next to line 14.Note: Use theCapital Gain TaxWorksheeton page 12 to figure your tax ifyour taxable income (Form 1040NR, line36) ismore than:$45,925 if married filingseparately, $55,100 if single, or $91,850 iffiling as a qualifying widow(er).

Line 15Other Gains or (Losses).If yousold or exchanged assets used in a U.S.trade or business, see the Instructions forForm 4797.

Lines 16a and 16bIRA Distributions.Use lines 16a and 16b to report effectivelyconnected payments (distributions) youreceived from your individual retirementarrangement (IRA). These include regulardistributions, early distributions, rollovers,and any other money or property youreceived from your IRA account or annuity.But if this income is not effectivelyconnected with your U.S. trade orbusiness, report it on line 73. Generally,you will receive a Form 1099-R showingthe amount of your d istribution.

If you made any nondeductiblecontributions to your IRA for 1994 or anearlier year or you rolled your IRAdistribution over into another IRA, seebelow. Do not use lines 16a and 16b toreport a rollover from a qualifiedemployers plan to an IRA. Instead, see theinstructions for lines 17a and 17b.

IRA distributions that you must include inincome are taxed at the same rate as otherincome. You may not use the specialaveraging rule for lump-sum distributionsfrom qualified employer plans.

If your IRA distribution is fully taxable,enter it on line 16b; do not make an entryon line 16a. If only part is taxable, enterthe total distribution on line 16a and thetaxable part on line 16b.

Caution: If you received an earlydistribution and the total distribution wasnot rolled over or you received an excess

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distribution, you may have to pay additionaltax. See the instructions for line 49 fordetails.

Nondeductible Contributions. If youmade nondeductible contributions for anyyear, only part of your IRA distribution maybe taxable. Get Form 8606 to figure thetaxable part of your IRA distribution. If you

made any nondeductible contributions for1994, you may need to make a specialcomputation. Get Pub. 590, IndividualRetirement Arrangements (IRAs), fordetails. Enter the total distribution on line16a and the taxable part on line 16b.

IRA Rollovers. A rollover is a tax-freedistribution of cash or other assets fromone retirement plan that is contributed toanother plan. Use lines 16a and 16b toreport a rollover from one IRA to anotherIRA. Enter the total distribution on line 16a.If the total on line 16a was rolled over,enter zero on line 16b. If the total was notrolled over, enter the part not rolled overon line 16b. But if you ever makenondeductible contributions to any of yourIRAs, use Form 8606 to figure the taxablepart to enter on line 16b. For more details,see Pub. 590.

Lines 17a and 17bPensions andAnnuities.Use lines 17a and 17b toreport effectively connected pension andannuity payments you received, includingpayments (distributions) from retirementplans, life insurance annuity contracts,profit-sharing plans, and employee-savingsplans. See page 9 for details on rolloversand lump-sum distributions. But if thisincome is not effectively connected with

your U.S. trade or business, report it online 73.

Also use these lines to report disabilitypensions received after you reach theminimum retirement age set by youremployer. Disability pensions receivedbefore you reach your employers minimumretirement age are reported on line 8.

Some annuities are tax-exempt. Seesection 871(f).

Note: If you perform services in the UnitedStates, your income is effectivelyconnected with the conduct of a U.S. tradeor business. When you receive a pension ina later year as a result of these services,the pension is also considered effectivelyconnected with the conduct of a U.S. tradeor business.

In general, you should receive a Form1099-R showing the amount of yourpension or annuity. Attach Form 1099-R toForm 1040NR if any Federal income taxwas withheld.

Do not use lines 17a and 17b to reportcorrective distributions of excess salarydeferrals, excess contributions, or excessaggregate contributions from retirementplans. Instead, see the instructions forline 8. Also, do not use lines 17a and 17bto report social security or railroadretirement benefits shown on FormsSSA-1042S and RRB-1042S. Instead, seethe instructions on page 17.

Caution: Certain transactions, such asloans against your interest in a qualifiedplan, may be treated as taxabledistributions and may also be subject to

additional taxes. For details, getPub. 575,Pension and Annuity Income (IncludingSimplified General Rule).

Fully Taxable Pensions and Annuities.If your pension or annuity is fully taxable,enter it on line 17b; do not make an entryon line 17a. Your pension or annuitypayments are fully taxable if either of thefollowing applies:

You did not contribute to the cost ofyour pension or annuity, or

You used the 3-Year Rule and you got

your entire cost back tax free before 1994.Fully taxable pensions and annuities also

include military retirement pay shown onForm 1099-R. For details on militarydisability pensions, get Pub. 525, Taxableand Nontaxable Income. If you received aForm RRB-1099-R, get Pub. 575 to seehow to report your benefits.

Partially Taxable Pensions andAnnuities. If your pension or annuity ispartially taxable and your Form 1099-Rdoes not show the taxable part, you mustuse the General Rule to figure the taxablepart. The General Rule is explained in Pub.939, Pension General Rule (NonsimplifiedMethod). But if your annuity starting date

(defined later) was after July 1, 1986, youmay be able to use the Simplified GeneralRule instead. See Simplified General Rulebelow.

You can ask the IRS to figure thetaxable part for you for a $50 fee. Submityour request before the due date of yourreturn, including extensions. For details,see Pub. 939.

If your Form 1099-R shows a taxableamount, you may report that amount online 17b. But you may be able to report alower taxable amount by using the GeneralRule or, if you qualify, the SimplifiedGeneral Rule.

Once you have figured the taxable part

of your pension or annuity, enter thatamount on line 17b and the total on line17a.

Annuity Starting Date. Your annuitystarting date is the later of the first day ofthe first period for which you received apayment, or the date the plans obligationsbecame fixed.

Simplified General Rule. This methodwill usually give you the same amount ormore tax free each year as the GeneralRule or as figured by the IRS. You can usethis simpler method if all four of thefollowing apply.

1. Your annuity starting date was afterJuly 1, 1986.

2. The payments are for (a) your life or(b) your life and that of your beneficiary.

3. The payments are from a qualifiedemployee plan, a qualified employeeannuity, or a tax-sheltered annuity.

4. At the time the pension or annuitypayments began, either you were underage 75 or the number of years ofguaranteed payments was fewer than 5.

If all four of the above apply, use theworksheet on this page to figure thetaxable part of your pension or annuity. Ifyou are a beneficiary entitled to a death

Simplified General Rule WorksheetLines 17a and 17b (keep for your records)

Enter the total pension or annuity payments received this year. Also,enter this amount on Form 1040NR, line 17a

1.1.

Enter your cost in the plan at the annuity starting dateplus any death benefit exclusion (see below)

2.2.

Age at annuity starting date(see this page):

3.Enter:

300260240

170120

55 and under56606165

667071 and older

3.

Divide line 2 by the number on line 3 4.4.Multiply line 4 by the number of months for which thisyears payments were made. If your annuity startingdate was before 1987, skip lines 6 and 7 and enterthis amount on line 8. Otherwise, go to line 6

5.

5.

Enter the amount, if any, recovered tax free in yearsafter 1986 6.

6.

Subtract line 6 from line 2 7.7.

Enter the smaller of line 5 or line 78. 8.

Taxable amount. Subtract line 8 from line 1. Enter the result, but not

less than zero. Also, enter this amount on Form 1040NR, line 17b. Ifyour Form 1099-R shows a larger amount, use the amount on this lineinstead of the amount from Form 1099-R

9.

9.

Note: If you had more than one partially taxable pension or annuity, figure the taxable partof each separately. Enter the total of the taxable parts on Form 1040NR, line 17b. Enterthe total pension or annuity payments received in 1994 on Form 1040NR, line 17a.

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benefit exclusion, add the exclusion to theamount you enter on line 2 of theworksheet even if you received a Form1099-R showing a taxable amount. Thepayer of the annuity cannot add the deathbenefit exclusion to your cost whenfiguring the taxable amount. Attach asigned statement to your return statingthat you are entitled to a death benefitexclusion. For more details on theSimplified General Rule, see Pub. 575 orPub. 721, Tax Guide to U.S. Civil ServiceRetirement Benefits.

Caution: If you received U.S. CivilService retirement benefits and you chosethe lump-sum credit option, use theworksheet in Pub. 721. Do notuse the oneon page 8.

Age at Annuity Starting Date. If you arethe retiree, use your age on the annuitystarting date. If you are the survivor of aretiree, use the retirees age on his or herannuity starting date. If you are thebeneficiary of an employee who died, seePub. 575. If there is more than onebeneficiary, see Pub. 575 or Pub. 721 tofigure each beneficiarys taxable amount.

Changing Methods. If your annuitystarting date was after July 1, 1986, you

may be able to change the way you figurethe taxable part of your pension. Fordetails, see Pub. 575 or Pub. 721.

Death Benefit Exclusion. If you are thebeneficiary of a deceased employee orformer employee, amounts paid to you by,or on behalf of, an employer because ofthe death of the employee may qualify fora death benefit exclusion of up to $5,000.If you are entitled to this exclusion, add itto the cost of the pension or annuity.Special rules apply if you are the survivorunder a joint and survivors annuity. Fordetails, see Pub. 575.

Rollovers. A rollover is a tax-freedistribution of cash or other assets from

one retirement plan that is contributed toanother plan. Use lines 17a and 17b toreport a rollover, including a direct rollover,from one qualified employers plan toanother or to an IRA.

Enter on line 17a the total distributionbefore income tax or other deductionswere withheld. This amount should beshown in box 1 of Form 1099-R. If thetotal on line 17a (minus any contributionsthat were taxable to you when made) wasrolled over, either directly or within 60 daysof receiving the distribution, enter zero online 17b. Otherwise, subtract the amountthat was rolled over and any contributionsthat were taxable to you when made from

the total on line 17a. Enter the results online 17b. Special rules apply to partialrollovers of property. For more details onrollovers, including distributions underqualified domestic relations orders, seePub. 575.

Lump-Sum Distributions. If youreceived a lump-sum distribution from aprofit-sharing or retirement plan, your Form1099-R should have the Total distributionbox in box 2b checked. If you received anearly distribution from a qualified retirementplan and the total amount was not rolledover, you may owe an additional tax. You

may also owe additional tax if you receivedan excess distribution from a qualifiedretirement plan. For details, see theinstructions for line 49.

Enter the total distribution on line 17aand the taxable part on line 17b. But youmay pay less tax on the distribution if youwere born before 1936, you meet certainother conditions, and you chose to useForm 4972, Tax on Lump-SumDistributions, to figure the tax on any partof the distribution. You may also be able touse Form 4972 if you are the beneficiary of

a deceased employee who was bornbefore 1936 and was age 50 or older onthe date of death. For details, get Form4972.

Line 20UnemploymentCompensation.Enter on line 20 anyunemployment compensation (insurance)you received. By January 31, 1995, youshould receive a Form 1099-G showingthe total amount paid to you during 1994.This amount should be shown in box 1.

If you received an overpayment ofunemployment compensation in 1994 andyou repaid any of it in 1994, subtract theamount you repaid from the total amountyou received. Enter the result on line 20.

Also, enter Repaid and the amount yourepaid on the dotted line next to line 20.

If, in 1994, you repaid unemploymentcompensation that you reported in anearlier year, see Repayments in Pub. 525,Taxable and Nontaxable Income.

Do not include on line 20 anysupplemental unemployment benefitsreceived from a company-financedsupplemental unemployment benefit fund.Instead, report these benefits on line 8.

Line 21Other Income.Use line 21 toreport any other income effectivelyconnected with your U.S. business that isnot reported on your return or otherschedules. List the type and amount ofincome. If necessary, show the requiredinformation on an attached statement.Examples of income to report on line 21are:

Repayments of expenses you deductedin an earlier year if they reduced your tax.

Fees received as a nonprofessionalfiduciary, such as an executor oradministrator of the estate of a deceasedfriend or relative.

For more details, see MiscellaneousTaxable Income in Pub. 525.

Report other income on page 4 of Form1040NR if not effectively connected with aU.S. trade or business.

Recapture of Clean-Fuel VehicleDeduction. If you claimed this deductionin 1993 for property that no longer qualifiesas clean-fuel vehicle property, you mayhave to include the amount deducted online 21. For details, get Pub. 535, BusinessExpenses.

Net Operating Loss. If you had a netoperating loss in an earlier year to carryforward to 1994, include it as a negativeamount in parentheses on line 21. Attach astatement showing how you figured the

amount. Get Pub. 536, Net OperatingLosses, for more details.

Line 22.Use line 22 to report your totaleffectively connected income that isexempt from tax by a tax treaty. Do notinclude this exempt income on line 23.Also, complete item L on page 5 of Form1040NR.

AdjustmentsAdjustments are amounts you can subtractfrom your income effectively connected

with a U.S. trade or business.Line 24IRA Deduction.Use line 24 todeduct contributions to your individualretirement arrangement (IRA).

Caution: If you were covered by aretirement plan (qualified pension,profit-sharing (including 401(k)), annuity,Keogh, SEP, etc.) at work or throughself-employment, your IRA deduction maybe reduced or eliminated. Earnings oncontributions to your IRA are not taxeduntil they are distributed to you.

Special Rule for Married Individuals. Ifyou checked filing status box 3, 4, or 5and you were not covered by a retirement

plan but your spouse was, you areconsidered covered by a plan unless youlived apart from your spouse for all of1994.

Not Covered by a Retirement Plan. Ifyou were not covered by a retirement plan,you can take a full IRA deduction.

Covered by a Retirement Plan. YourForm W-2 should have the Pension planbox in box 15 checked if you were coveredby your employers plan. This box shouldbe checked even if you were not vested inthe plan. You are also covered by a plan ifyou were self-employed and had a Keoghor SEP retirement plan.

Get Pub. 590, Individual Retirement

Arrangements (IRAs), for more details.Line 25Moving Expenses.Employeesand self-employed persons (includingpartners) can deduct certain movingexpenses. The move must be inconnection with employment thatgenerates effectively connected income.Expenses incurred in 1994 are deductedon this line. Expenses incurred before 1994that were not previously deducted are onlyallowed as an itemized deduction onSchedule A.

You can take this deduction if youmoved in connection with your job orbusiness and your new workplace is atleast 50 miles farther from your old home

than your old home was from your oldworkplace. If you had no former workplace,your new workplace must be at least 50miles from your old home. The deductionis generally limited to moves to or withinthe United States or its possessions. If youmeet these requirements, get Pub. 521,Moving Expenses. Use Part I of Form3903, Moving Expenses, to figure theamount to enter on this line.

Line 26Self-Employed HealthInsurance Deduction.

Caution: This deduction expired December31, 1993. However, at the time these

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instructions went to print, Congress wasconsidering legislation that would allow adeduction for 1994. Get Pub. 553,Highlights of 1994 Tax Changes, for laterinformation about this deduction. Youcannottake a deduction on this line unlessit has been allowed by Congress beforeyou file your return.

If you were self-employed and had a netprofit for the year, you may be able todeduct part of the amount paid for healthinsurance on behalf of yourself, yourspouse, and dependents. But if you werealso eligible to participate in anysubsidized health plan maintained by youror your spouses employer for any monthor part of a month in 1994, amounts paidfor health insurance coverage for thatmonth cannot be used to figure thededuction. For more details, get Pub. 535,Business Expenses.

If you qualify to take the deduction, usethe worksheet on this page to figure theamount you can deduct.

Line 27Keogh Retirement Plan andSelf-Employed SEP Deduction.If youare self-employed or a partner, deductpayments to your Keogh (HR 10) plan orSimplified Employee Pension (SEP) online 27. Deduct payments for youremployees on Schedule C or F (Form1040).

There are two types of Keogh plans:

A defined-contribution plan has aseparate account for each person. Benefitsare based on the amount paid to eachaccount.

Payments to a defined-benefit plan are

determined by the funds needed to give aspecific benefit at retirement. If you deductpayments to this kind of plan, enter DBnext to line 27.

For more details, including limits on theamount you can deduct, get Pub. 560,Retirement Plans for the Self-Employed.

Line 28Penalty on Early Withdrawal ofSavings.The Form 1099-INT or Form1099-OID you received will show theamount of any penalty you were charged.Enter this amount on line 28.

Line 29Scholarship and FellowshipGrants Excluded.See the line 12instructions and Pub. 519.

Line 30Total Adjustments.Include inthe total on line 30 any of the followingadjustments that are related to your

effectively connected income.Qualified Performing Artists. Include in

the total on line 30 your performing-arts-related expenses from line 10 of Form2106, Employee Business Expenses, orline 6 of Form 2106-EZ, UnreimbursedEmployee Business Expenses. Enter theamount and QPA next to line 30.

Forestation or ReforestationAmortization. If you can claim a deductionfor amortization of the costs of forestationor reforestation and you do not have to fileSchedule C, C-EZ, or F (Form 1040) forthis activity, include your deduction in thetotal on line 30. Enter the amount andReforestation next to line 30.

Repayment of Sub-Pay Under theTrade Act of 1974. If you repaidsupplemental unemployment benefits(sub-pay) that you previously reported inincome because you became eligible forpayments under the Trade Act of 1974,include in the total on line 30 the amountyou repaid in 1994. Enter the amount andSub-pay TRA next to line 30. Or, youmay be able to claim a credit against yourtax instead. Get Pub. 525 for more details.

Contributions to Section 501(c)(18)Pension Plans. The amount youcontributed should be identified with codeH in box 13 of your W-2 form. You maydeduct the amount contributed subject to

the limits explained under Excess SalaryDeferrals on page 7. Include yourdeduction in the total on line 30. Enter theamount and 501(c)(18) next to line 30.

Deduction for Clean-Fuel Vehicles. Ifyou placed a vehicle in service in 1994 thatuses a clean-burning fuel, you may be ableto take this deduction. For details,including how to figure the deduction, getPub. 535, Business Expenses. Include yourdeduction in the total on line 30. But if partof your deduction is claimed on ScheduleC, C-EZ, E, or F (Form 1040), subtractthat part from your total deduction and

include only the balance on line 30. Enterthe amount and Clean-Fuel on the dottedline next to line 30.

Adjusted Gross IncomeIf line 31 is less than zero, you may have anet operating loss that you can carry toanother tax year. If you carry the loss backto earlier years, see Form 1045,Application for Tentative Refund. For moredetails, get Pub. 536, Net OperatingLosses.

Tax Computation on IncomeEffectively Connected With aU.S. Trade or BusinessLine 33Itemized Deductions.Entertotal itemized deductions from Schedule A.

Note: Residents of India who werestudents or business apprentices may beable to take the standard deduction. SeePub. 519 for details.

Line 35Deduction for Exemptions.You can claim exemptions only to theextent of your income that is effectively

connected with a U.S. trade or business.If you file as an individual, multiply

$2,450 by the total number of exemptionsentered on line 7e. (If you were a residentof Japan or the Republic of Korea, youmust figure the exemptions for yourspouse and children according to theproportion your U.S. income bears to yourtotal income. For details, see Pub. 519.)But use the worksheet on the next page tofigure the amount, if any, to enter on line35 if your adjusted gross income from line32 is more than

$83,850 if you checked filing status box3, 4, or 5.

$111,800 if you checked filing status box1 or 2.

$167,700 if you checked filing status box6.

If you are filing for an estate, enter $600on line 35. If you are filing for a trustwhose governing instrument requires it todistribute all its income currently, enter$300 on line 35. Any other trust is allowedan exemption of $100.

Line 37Tax.To figure your tax, use oneof the following methods.

Tax Table. If your taxable income (line36) is less than $100,000, you must usethe Tax Table to find your tax unless youare required to use Form 8615 or you use

the Capital Gain Tax Worksheet (seepage 11). Be sure you use the correctcolumn in the Tax Table. If you checkedfiling status box 3, 4, or 5, you must usethe Married filing separately column.

Tax Rate Schedules. You must use theTax Rate Schedules to figure your tax ifyour taxable income (line 36) is $100,000or more, OR you are filing for an estate ortrust, unless you are required to use Form8615 or you use the Capital Gain TaxWorksheet.

Self-Employed Health Insurance Deduction WorksheetLine 26(keep for your records)

See the Caution in the instructions for line 26 before completing thisworksheet.

1. Enter total payments made in 1994 for health insurance coveragefor 1994 for you, your spouse, and dependents. But do notinclude amounts for any month you were eligible to participatein an employer-sponsored health plan 1.

2. Multiply line 1 by 25% (.25) 2.

3. Enter your net profit and any other earned income* from thebusiness under which the insurance plan is established, minusany deduction you claim on Form 1040NR, line 27 3.

4. Self-employed health insurance deduction. Enter the smallerof line 2 or line 3 here and on Form 1040NR, line 26 4.

*Earned income includes net earnings and gains from the sale, transfer, or licensing ofproperty you created. It does not include capital gain income.

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Capital Gain Tax Worksheet. If you hada net capital gain on Schedule D or youreported capital gain distributions on Form1040NR, line 14, your tax may be less ifyou figure it using the worksheet on thenext page.

Form 8615. You must generally useForm 8615 to figure the tax for any childwho was under age 14 on January 1,1995, and who had more than $1,200 ofinvestment income, such as taxableinterest or dividends, that is effectivelyconnected with a U.S. trade or business.But if neither of the childs parents was

alive on December 31, 1994, do not useForm 8615 to figure the childs tax.

CreditsLine 40Credit for Child and DependentCare Expenses.You may be able to takethis credit if you paid someone to care foryour child under age 13 or yourdependent who could not care for himselfor herself. But to do so, the care musthave been provided so that you couldwork or look for work and you must havehad effectively connected income from a job or through self-employment.

Use Form 2441 to figure the credit. Ifyou received any dependent care benefitsfor 1994, you must file Form 2441 to figurethe amount of benefits you can excludefrom your income even if you cannot takethe credit. For more details, includingspecial rules for divorced or separatedparents, see the Instructions for Form 2441and Pub. 503, Child and Dependent CareExpenses.

Line 41Foreign Tax Credit.Form1116 explains when you can take thiscredit for payment of income tax to aforeign country. To take it, you must report

income from foreign sources. See ForeignIncome Taxed by the United States onpage 5. You also must have paid or oweforeign tax on that income. Also, get Pub.514, Foreign Tax Credit for Individuals.

Line 42Other Credits.Complete line42 if you can take any of the followingcredits.

General Business Credit. If you havetwo or more of the following credits, acarryforward of any of these credits, or ifany of the credits (other than thelow-income housing credit) are from apassive activity, you must also completeForm 3800. Include on line 42 the amountfrom Form 3800 and check the Form3800 box. If you dont have to file Form3800 and you have one of these credits,include on line 42 the amount of the credit.Check the Form (specify) box and enterthe form number for that credit.

Investment credit (Form 3468).

Jobs credit (Form 5884).

Credit for alcohol used as a fuel (Form6478).

Credit for increasing research activities(Form 6765).

Low-income housing credit (Form 8586,Form 8609, and Schedule A (Form 8609)).

Disabled access credit (Form 8826).

Enhanced oil recovery credit (Form8830).

Renewable electricity production credit(Form 8835).

Indian employment credit (Form 8845).

Credit for employer social security andMedicare taxes paid on certain employeetips (Form 8846).

Credit for contributions to selectedcommunity development corporations(Form 8847).

Empowerment Zone EmploymentCredit (Form 8844). Although this credit ispart of the general business credit, it is notreported on Form 3800. If you can takethis credit, check the Form (specify) boxon line 42 and enter the form number.

Mortgage Interest Credit (Form 8396).If you were issued a mortgage creditcertificate by a state or local government,get Form 8396 to see if you can take thiscredit. If you can, check the box for Form8396 on line 42.

Credit for Prior Year Minimum Tax(Form 8801). If you paid alternativeminimum tax in an earlier year, get Form8801 to see if you can take this credit. Ifyou can, check the box for Form 8801 online 42.

Qualified Electric Vehicle Credit (Form8834). If you placed a new electric vehiclein service in 1994, get Form 8834 to see ifyou can take this credit. If you can, checkthe Form (specify) box on line 42 andenter the form number.

Line 43.If you sold fuel produced from anonconventional source, see section 29 tofind out if you can take thenonconventional source fuel credit. Ifyou can, attach a schedule showing howyou figured the credit. Include the credit inthe total for line 43. Enter the amount andFNS next to line 43.

Other TaxesLine 45Alternative Minimum Tax.Thetax law gives special treatment to somekinds of income and allows specialdeductions and credits for some kinds ofexpenses. If you benefit from theseprovisions, you may have to pay at least aminimum amount of tax through thealternative minimum tax. This tax is figuredon Form 6251 for individuals. If you arefiling for an estate or trust, get Schedule H(Form 1041) and its instructions to see ifyou owe this tax.

If you are claiming a net operating lossdeduction or the foreign tax credit, youmust complete Form 6251. Otherwise, tosee if you should complete Form 6251,add the amounts on Form 1040NR, lines33 and 35, plus the total of all adjustmentsand tax preference items that apply to you(see the list that begins below). If the totalis more than the dollar amount shownbelow that applies to you, fill in Form 6251.

$33,750 if you checked filing status box1 or 2.

$22,500 if you checked filing status box

3, 4, or 5. $45,000 if you checked filing status box6.

Disposition of U.S. Real PropertyInterests. If you disposed of U.S. realproperty interests at a gain, you mustmake a special computation. Fill in Form6251 through line 23. If your net gain fromthe disposition of U.S. real propertyinterests and the amount on Form 6251,line 21, are BOTH greater than the amounton Form 6251, line 23, replace the amounton line 23 with the smaller of that net gainor the amount on line 21. Also, write RPI

Deduction for Exemptions WorksheetLine 35 (keep for your records)See the instructions for line 35.

1. Multiply $2,450 by the total number of exemptions claimed onForm 1040NR, line 7e

2. Enter the amount from Form 1040NR, line 32

3. Enter $111,800 ($83,850 if you checked filing statusbox 3, 4, or 5; $167,700 if you checked filing statusbox 6)

4. Subtract line 3 from line 2. If zero or less, stop here;enter the amount from line 1 above on Form 1040NR,line 35

Note: If line 4 is more than $122,500 (more than$61,250 if you checked filing status box 3, 4, or 5),stop here; you cannot take a deduction forexemptions. Enter -0- on Form 1040NR, line 35.

5. Divide line 4 by $2,500 ($1,250 if you checked filingstatus box 3, 4, or 5). If the result is not a wholenumber, round it up to the next higher whole number(for example, round 0.0004 to 1)

6. Multiply line 5 by 2% (.02) and enter the result as adecimal amount

7. Multiply line 1 by line 6

8. Deduction for exemptions.Subtract line 7 from line 1. Enter the result

here and on Form 1040NR, line 35

1.

7.

8.

2.

3.

4.

5.

6.

Use this worksheet only if the amount on Form 1040NR, line 32, is more than the dollaramount shown on line 3 below for your filing status.

.

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on the dotted line next to line 23.Otherwise, do not change the amount online 23. Fill in the rest of Form 6251 to seeif you owe this tax.

Adjustments and Preferences:

1. Accelerated depreciation in excess ofstraightline.

2. Income from incentive stock opt ionsin excess of the amount reported on yourreturn.

3. Tax-exempt interest from privateactivity bonds.

4. Intangible drilling costs.

5. Depletion.

6. Circulation expenditures.

7. Research and experimentalexpenditures.

8. Mining exploration and developmentcosts.

9. Amortization of pollution-controlfacilities.

10. Income or (loss) from tax shelterfarm activities.

11. Income or (loss) from passiveactivities.

12. Income from long-term contractsusing the percentage-of-completionmethod.

13. Income from installment sales ofcertain property.

Note: Form 6251 should be filled in for achild under age 14 if the total of the childsadjusted gross income from Form 1040NR,

line 32, is more than the sum of $1,000plus the childs earned income.

Line 46Recapture Taxes.If you oweany of the following taxes, check thebox(es) and include the tax on line 46.

Recapture of Investment Credit. If youdisposed of investment credit property or

changed its use before the end of itsuseful life or recovery period, you may owethis tax. See Form 4255 for details.

Recapture of Low-Income HousingCredit. If you disposed of property (orthere was a reduction in the qualified basisof the property) on which you took thelow-income housing credit, you may owethis tax. See Form 8611 for details.

Recapture of Federal MortgageSubsidy. If you sold your home in 1994and it was financed (in whole or in part)from the proceeds of any tax-exemptqualified mortgage bond or you claimedthe mortgage interest credit, you may owethis tax. See Form 8828 for details.

Recapture of Qualified Electric VehicleCredit. If you claimed this credit in 1993based on a vehicle that no longer qualifies,get Pub. 535, Business Expenses, to see ifyou owe this tax. If you do, include the taxon line 46 and write QEV next to theentry space.

Line 48Social Security and MedicareTax on Tip Income Not Reported toEmployer.If you received tips of $20 ormore in any month and you did not reportthe full amount to your employer, you mustpay the social security and Medicare orrailroad retirement (RRTA) tax on the

unreported tips. You must also pay this taxif your W-2 form(s) shows allocated tipsthat you are including in your income onForm 1040NR, line 8.

To figure the tax, get Form 4137, SocialSecurity and Medicare Tax on UnreportedTip Income. Enter the tax on line 48. But topay the RRTA tax, contact your employer.Your employer will figure and collect thetax.

Caution: You may be charged a penaltyequal to 50% of the social security andMedicare tax due on tips you received butdid not report to your employer.

Line 49Tax on Qualified RetirementPlans, Including IRAs.You may owe thistax if any of the following apply:

1. You received any early distributionsfrom a qualified retirement plan (includingyour IRA), annuity, or modified endowmentcontract (entered into after June 20, 1988).

2. You made excess contributions toyour IRA.

3. You had excess accumulations in aqualified retirement plan.

4. You received any excess distributionsfrom a qualified retirement plan.

If any of the above apply, get Form5329 and its instructions to see if you owethis tax and if you must file Form 5329.Enter the tax from Form 5329 on line 49.However, if only item 1 above applies toyou and distribution code 1 is shown inbox 7 of your Form 1099-R, you do nothave to file Form 5329. Instead, multiplythe taxable amount of the distribution by10% (.10) and enter the result on line 49.The taxable amount of the distribution isthe part of the distribution you reported online 16b or line 17b of Form 1040NR or