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December 6, 2016

U.S. Estate Tax After Expatriation

Hi and welcome to Expatriation Only, the newsletter devoted entirely to tax problems faced by people who give up their U.S. citizenship or green cards. You watched “escape” movies, right? This is all about the tax hurdles you face when escaping the U.S. tax system.

This episode was written in response to an email I received from reader D.O. Thanks for the questions. (Hint: you, too, can email me and I will answer your questions.)

Estate Tax After Expatriation

Let’s talk about estate tax. This is a tax imposed on what you own when you die. The tax rate caps out at 40%.... continue reading

December 1, 2016

PFIC Wrapper Miniseries #2: Participating Life Insurance

This week’s topic is the second of a series of posts that will talk about how various “wrappers” affect the US taxation of PFICs. The last post discussed Canadian RESP.

This post discusses a participating life insurance policy I have seen in China and Southeast Asia. It is called a participating life insurance because the policy contains a cash value that is tied to returns on investments made using the premiums–in this way, the policyholder “participates” in the profits from the investments.

This post discusses the implications of this type of life insurance wrapper around a PFIC.

PFIC defined

A passive foreign investment company (PFIC) is a foreign corporation that meets either 1 of the following 2 tests (IRC §1297(a)):

  1. Income test: At least 75% of the corporation’s gross income is passive income.
... continue reading
November 28, 2016

Claiming the Foreign Earned Income Exclusion for Nonfilers

This discussion is for Americans working abroad who want to claim the foreign earned income exclusion, but they are late in filing the tax return to do so.

The Foreign Earned Income Exclusion

Americans living and working abroad can make up to $101,3001 of earned income tax-free. Earned income is what you get paid for working — wages or self-employment income.

This is the foreign earned income exclusion.2 It is great.

  • Your salary = $100,000.
  • Your tax = $0.

What’s not to like?

You get this tax benefit by attaching Form 2555 to your income tax return.3


People (not you!) have been known to misunderstand the foreign earned income exclusion.... continue reading

November 22, 2016

Estate Tax for Noncovered Expatriates

Hello and welcome to Expatriation Only.

Noncovered Expatriates

Noncovered expatriates are people who – when they exit the U.S. tax system can answer “Yes” to all three of these questions:

  1. Is your net worth below $2,000,000?1
  2. Did you, on average over the previous five years, have a Federal income tax liability below $162,000?2
  3. Have you, for the previous five years, filed all of your required U.S. tax paperwork correctly and paid all of your U.S. tax?3

If you answer “no” to any one of those questions, you are a “covered” expatriate.4

Covered Expatriates and Punishing the Iniquitous

This discussion is only marginally accurate for covered expatriates – they face an additional bolus of tax rules designed to punish those who have sinned in the eyes of our Dear Leaders.... continue reading

November 15, 2016

PFIC Wrapper Miniseries #1: Canadian RESP


This week’s topic is the first of a series of posts that will talk about how various “wrappers” affect the US taxation of PFICs. The particular topic came by way of email:

I established a Canadian RESP for my child. I will move to the US this year and become a US resident. What can I do with the PFICs inside?

This post will talk about how the US sees the RESP and why there are issues other than PFIC rules that should be of concern. For this post, I am skipping the question about what to do with the PFICs inside and focus on the RESP itself: Are there any US tax issues that might make the RESP itself undesirable?... continue reading

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International Tax Lunch

December: International Tax Lunch

Foreign Mutual Funds and Form 8621 — the Default Rules in Depth

In this month’s tax lunch presentation, we will work through a real world scenario where a US person buys into a foreign mutual fund — which happens to be a PFIC — held in a foreign investment account.

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