NR4 Code 21

[Sandy1]

Client received an NR4 for the redemption of share certificates - Code 21. He is to receive income in five annual installments of $108,000.00 each. Taxes have been withheld in the amount of $16,200.00. The income has been reported in Canadian dollars. How do I report this? Can Form 1116 be used for the withheld taxes?

[Roland Slugg]

I have no idea what form NR4 is, but from the context of your post, I assume it is a Canadian form ... perhaps the equivalent of a 1099-B or similar squealer form. I also assume your client is a United States citizen or resident and is required to file F-1040.

If these assumptions are correct, then yes, he must report the income on his United States income tax return. The income should be converted to USD based on the conversion rate in effect as of the date(s) the CDN$108,000 was received. And yes, the Canadian tax withheld goes on F-1116, also converted from CDN$ to USD.

[Sandy1]

I believe the NR 4 is usually given to US Citizens who have retirement/pension accounts in Canada. The code 21 income is throwing me -the code is for Management or Administrative fees or charges so I wasn't sure if I should show on 1040 as other income - subject to self employment tax or if it should be shown as a dividend or distribution.

[Burke]

The NR4 form is given to non-residents of Canada. It can be many different types of income, similar to our 1099's. The code 21 should tell you what type it is. Might have to access the Canadian Tax website. Also, the withholding would be in CAD, not USD. So he has to report the income on both returns, with Form 1116 on the US 1040 for a tax credit. If you say it was for redemption of shares, what type of "shares" were they? He should know. Not sure why it is being paid over 5 years, perhaps some sort of product similar to an IRA? Doesn't sound anything like wages or self-employment.