Withholding when Nonresidents Own U.S. Rental Real Estate

Proving the Obvious

In a quick email exchange I had with Susan Brown Otto (hi Susan) we touched on a topic that deserves attention. The topic is not terribly difficult, but its existence points to a meta problem.

Susan’s question/comment was about the non-requirement of withholding that is required when nonresidents own U.S. rental real estate . . . sometimes. It’s counterintuitive, because the IRS loves withholding.

So often in tax law there is an answer that you know, intuitively, but you can’t put your finger on exactly why the answer is true. This is dangerous territory for tax advisors. I have done this: blurt out an answer only to find out my memory was faulty.... continue reading

How Expatriation Works: Just The Basics

How expatriation works is something we talk about with clients all the time, and it’s worth devoting a little blog space to a general description of the basic mechanics every once in a while.

Imagine we are now boarding an airplane and zooming up to 30,000 feet. Let’s see how the expatriation process works from 6 miles up.

But first… Some warnings

From this far up, we can see the mountains and oceans and rivers, but not the cars or trees or houses or people.

Because we are taking a very high-level view, we must ignore the details, the nuances, and all the little things that make this topic so complicated.... continue reading

Section 965 and Fiscal Year Foreign Corporations, Part II

Fiscal year corporations and section 965

Today’s post is a followup to the (last post), about a US citizen who owns shares of a fiscal year foreign corporation that is subject to the new deemed repatriation rule of section 965. Here is the setup:

I am a US citizen reporting on a calendar year. I have a foreign corporation with a fiscal year ending June 30. When am I subject to the repatriation tax? What is the rate of tax?

In the last post, I wrote that this corporation may be subject to section 898, which forces certain CFCs to conform to its shareholder(s) tax year.... continue reading

Section 962 Elections, GILTI, and “As If” in the Internal Revenue Code

And the preparation for next Friday’s Section 962 workshop dragged my attention across a sleepy backwater of the Internal Code: Section 951A(f)(1)(A).

Well, not so sleepy, actually. Section 951A is the gnarled source of that gratuitously complex eruption of overly excessive legislative overkill dubbed GILTI by its authors.1

There we find a newly-minted (circa December, 2017) instance of “as if”, this time disguised by using the magic words “in the same manner”.

Everything works out in the end. We can figure out what the law is (more or less). Still, I wish the writers (let’s be fair to writers, like Sparky Anderson)2 had not introduced yet another fiction into the Code.... continue reading

Do Non-Green Card Years Count Toward the 8-Year Long-Term Resident Test?

This week’s question addresses a common situation:

Do years that someone spends in the US on a non-green card visa count towards the long-term resident test?

For purposes of answering this question, I will use the following example:

A taxpayer lives in the US on an H1-B visa for 7 years, then gets his green card. He stays in the US on the green card 2 more years, then moves back to his home country. The year he leaves the US, he turns in his green card with Form I-407.

The question I will answer is: Did this person become a long-term resident, and is he an expatriate when he turns in his green card?... continue reading