What goes on your balance sheet when you expatriate?

When you expatriate, you are required to declare all of your assets and liabilities and compute your net worth. If your net worth is above $2 million, you are a “covered expatriate” and hilarity ensues.

What goes on your balance sheet?

Let’s talk about what goes on your Form 8854 balance sheet.  What, specifically, is an asset you own?

This is how you figure it out:

1. Assume you are a U.S. citizen or a resident of the United States (as “resident” is defined for estate/gift tax purposes).
2. There is an asset that you are wondering about. Should you include it on your balance sheet or not?

Section 965 and a new offer in compromise policy

In late 2017 our Trusted Servants(TM) in Congress blessed us with a new tax law.

Among other features, the new law contained a spectacular Come to Jesus that absolutely hammered our minimultinational clients.

I speak, of course, of Section 965.

Section 965

Consider a foreign corporation owned by an American living abroad. The foreign corporation operates an ordinary business.  Dry cleaning.  Gas station.  Utterly mundane.  It paid tax on its profits in its home country every year.

But the U.S. never taxed those profits.  The general rule (in Ye Olden Days) was simple: you didn’t pay U.S. tax on foreign corporation profits until you take the money out of the foreign corporation.... continue reading

Dadon v. United States (2020)

I have posted the full text of this case to make it easy to cross-reference to my previous blog post discussing what happened here.  Don’t treat this version of the opinion as absolute Gospel. I might have messed something up converting the file for posting.

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF INDIANA

JOSEPH DADON, Plaintiff, v. UNITED STATES OF AMERICA, Defendant.

No. 1:19-cv-03862-JMS-DLP

April 1, 2020, Filed April 1, 2020, Decided

JOSEPH DADON, an individual, Plaintiff: Michael A. Bowse, PRO HAC VICE, BOWSE LAW GROUP, APC, Los Angeles, CA.

For UNITED STATES OF AMERICA, by and through the Internal Revenue Service, Defendant: Arie M.... continue reading

How governments share information across borders

The World’s Worst Tax Strategy

“How will they ever find out?”

It’s a classic tax-planning strategy that works very well, until the day it doesn’t work. Then it fails spectacularly.

Children do this all the time. They say “Dad said I could stay out until midnight!” to Mom and “Mom said I could stay out until midnight!” to Dad. This works until Mom and Dad compare notes.

It’s the same with taxpayers working across borders. If the tax authorities in Country A can’t see transactions that happen in Country B, then you can lie to Country A and get away with it. On... continue reading

Exit Tax Book Chapter 9: Taxation of Nongrantor Trust Interest

Covered expatriates are subject to exit tax. For most types of assets, a pretend sale applies, and the covered expatriate must pay tax on gains (after an exclusion is applied) from the pretend sale of all their worldwide assets. This is referred to as the mark-to-market regime.

There are a few types of assets to which an exit tax still applies, but the exit tax works a little differently than for the mark-to-market assets. These are specified tax deferred accounts, deferred compensation, and interests in nongrantor trusts.

In the last couple months of this series, I covered how specified tax deferred accounts and deferred compensation are taxed.... continue reading