From IRS PUB 519, U.S. Tax Guide for Aliens
"Certain interest-related dividends. There is no 30% tax on interest-related dividends from sources within the United States that you receive from a mutual fund or other regulated investment company in 2015. The mutual fund will designate in writing which dividends are interest-related dividends". A similar exemption relates to short capital gains. These exemptions have recently been extended to apply to future years.
My spouse and I have a joint Mutual Fund Bond Fund account in the US which pays interest related dividends. It is Joint Tenant with Rights of Survivorship, which implies a half share each (at least in the absence of any specific documentation to the contrary). My spouse is a US citizen, and I am an NRA, both tax resident in UK. So the interest related dividends are US taxable to my US citizen spouse, but not to me as an NRA.
My spouse is first named on the account, so gets the 1099-DIV. My spouse should make a nominee declaration, transfering half the tax liability on the 'interest related dividends' to me. My question is then, is it still a payment of interest with an exemption from US tax for me as an NRA, or has the dividend been 'contaminated' by payment initially to my spouse who is not exempt thereby blocking the exemption. On the face of it I see no reason why it should not retain its exemption, but the wheels of the IRS grind stupidly fine in some cases, and so I wonder if anyone has experience of this situation, and has any tips on how to head of IRS objections.
Having resolved this, we then need to mirror this in our UK tax returns.
For completeness, the mirror situation was discussed previously, although now somewhat out of date:
http://talk.uk-yankee.com/index.php?topic=30723.msg396448#msg396448
