Section 965 and Fiscal Year Foreign Corporations

Fiscal year corporations and section 965

Here is one question that we saw rather often:

I am a US citizen reporting on a calendar year. I have a fiscal year corporation. When am I subject to the repatriation tax? What is the rate of tax?

This post explains why you might not have a fiscal year corporation under tax law, why a US shareholder of a fiscal year corporation (assuming it is one) takes into account income in 2018, and how the participation exemption works for shareholders of fiscal year corporations.

Background: deemed repatriation under section 965

A quick introduction to section 965: In December of 2017, Congress passed laws that changed the US taxation of foreign income significantly.... continue reading

June 15 Payment Dates for Section 965

Sometimes you need to confirm situation normal. This is one of those times. Thanks to correspondent BZ for triggering the discussion of this topic.

Here is the conclusion up front, in case you want to go outside and have fun:

Americans abroad with tax caused by Section 965 (you know who you are) can pay that tax over eight years. The first installment is due June 15 — the regular tax payment due date.

That seems unremarkable.

Americans abroad have a June 15 filing deadline for their income tax returns, and can pay their tax due by that date without incurring late payment penalties.... continue reading

How the New Tax Laws Affect Low Income Expatriates

Today’s Topic: How the New Tax Laws Affect Low Income Expatriates

One of the much-touted aspects of the new tax laws that came into effect at the start of 2018 is the abolishment of the personal exemption and the increase of the standard deduction.

These changes are part of the “tax reform” bill passed in late 2017 whereby ordinary individual taxpayers are supposed to benefit from a simpler system and a lower overall tax bill. I put the words “tax reform” in quotes because, well, I have opinions.

In today’s discussion, I will examine how these changes will impact people who expatriate in 2018 and later years, and specifically, expatriates with low income.... continue reading

Effective Tax Rate Under Section 965 for Individuals

One question we get a lot is this:

My client is a US citizen who has to recognize deferred income from foreign corporations under the new deemed repatriation law. What is the effective tax rate?

The effective tax rate is going to depend on this client’s income and what else he has going on, so it is not particularly effective to tell you the tax rate. Instead, this post tells you how to calculate the participation exemption that applies to the deemed repatriation, so you can plug in some numbers and get the effective tax rate for each client.

Background: deemed repatriation under section 965

A quick introduction to section 965: In December of 2017, Congress passed a law that changes the US taxation of foreign income fairly significantly.... continue reading

Section 965 and Net Investment Income Tax

We received a question from our March 23, 2018 workshop discussion about Section 965 about the interplay between the new transition tax rules (IRC §965) and the Net Investment Income Tax (IRC §1411).

There is no free lunch. The taxpayer will pay income tax AND Net Investment Income Tax on the income recognized because of new Section 965.

When Income Tax is Paid

Income tax is paid all at once, or over eight years, as the taxpayer chooses.

When Net Investment Income Tax is Paid

The taxpayer will not escape the Net Investment Tax.... continue reading