What is Effectively Connected Income?

Non-U.S. investors that are engaged in a trade or business in the United States are taxed on their income that is “effectively connected” with that business, often referred to as “effectively connected income” or ECI. Non-U.S. investors that are engaged in a U.S. trade or business are required to file U.S. tax returns. To avoid ECI, the fund cannot invest in flow-through operating entities, except through a blocker structure.