A, a U.S. income tax nonresident alien, owns 9% of the shares of a U.S. corporation and A makes a $1,000,000 loan to such corporation at an annual 5% interest rate.  Assume that the loan satisfies the requirements of the IRC §871(h) so-called "portfolio interest exemption."  The interest consti­tutes U.S. source fixed or determinable, annual or periodical income and is not effectively connected with the conduct of any U.S. trade or business relating to A.  A's U.S. income tax treatment with respect to the interest income will be as follows:

 

Group of answer choices

It will be taxed at the IRC §1 graduated net tax rates

 

It will be taxed at a flat 30% rate

 

It is exempt from U.S. income tax

 

It will be taxed at the IRC §1 graduated net tax rates only if A makes an election to be so taxed

 

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