1040 NR Schedule NEC Question

HariS

Doing 1040NR for the first time

Taxpayer is India resident with Dividend and Interest Income in the US. Proconnect is coming with EF critical diagnostics that says 15% rate is not allowed in Schedule NEC line 1a and line 2c.

I checked that the tax treaty allows qualified dividends to be taxed at lower rate of 15% per US-India treaty Article 11 for interest

I did search for Ref #46725 and Ref #47310 but could not come up with anything specific to this

Is it ok for me to override (ignore) the diagnostics.

thanks in advance

Hari

HariS

I called customer support and they confirmed that it is okay to override the check. The final e-file diagnostics allows me to file. So I am going to go with it

thanks

HariS

Update on this topic and seeking some suggestions on this forum. All these after my original post

Here is the situation:

1040-NR e-filed for taxpayer. I relied on this IRS notice https://www.irs.gov/pub/irs-drop/n-24-11.pdf to take the position that non-resident taxpayer is eligible for 15% reduced rate on capital gains in Schedule NEC

Proconnect gave e-file critical diagnostics error-

For efile purposes, dividends on Schedule NEC, Line 1a, 15% column, are not allowed when the country of residence for the year is India. US - Ref #46725

I called Pro Connect they said it is not a fatal error and I can try the e-file. I overrode the error and e-filed. IRS rejects with the same reason. I call Pro Connect support and they suggested I can try paper filing to force it into the 15% rate column.

Now I worry that my interpretation for qualified dividend received by non-resident taxpayer on a 1099-B is wrong and maybe it should be in the 25% rate in schedule NEC

Question 1: - Did I misunderstand the intent of this IRS notice cited above. Is it meant only for qualified dividend earned by a "Resident" taxpayer for a foreign company in those treaty countries - this notice wording simply says "Under section 1(h)(11), a dividend paid to an individual shareholder from either a
domestic corporation or a "qualified foreign corporation"

Question 2 - Instructions to schedule NEC - Line 3a under exceptions -if qualified dividends were not effectively connected with a US trade enter them on line 1a. Is this where I misunderstood

Are qualified dividends not eligible for 15% in the hands of a non-resident tax payer.

thanks in advance

Hari

HariS

My apologies- typo

should read "dividends" here

15% reduced rate on ~~capital gains~~ "dividends" in Schedule NEC