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April 11, 2017

Tax Filing Deadlines for Expatriates

Just knowing the paperwork you need to file with the IRS is not enough – you need to know when to file, too. Let’s talk about tax filing deadlines for Expatriates.

Here are the possible tax filings that you may need to do. Not all of these will necessarily apply to you.

  • Prior year amended tax returns. If you need to fix problems in order to pass the certification test, you will be filing remedial paperwork for one or more of the five calendar years before the year in which you expatriate.
  • Gift tax return. If you need to reduce your wealth in order to pass the net worth test, you may be making taxable gifts.
... continue reading
April 6, 2017

Holding Business Real Estate in a Separate Company

Renting land to yourself

Today’s post is a case study of why you might avoid PFIC classification if you rent land to your own business. This post also shows why 50-50 joint ventures are rather dangerous.

The setup

Suppose you run into this setup:

You, a US person, go into business with an unrelated nonresident alien. You take 40% of the share of an operating company, and your partner takes 60%. You need to buy land for the business to use, but your investors or creditors demand that you hold the land in a separate company. So you and your partner create a separate land company and buy the land using the land company.

... continue reading
April 5, 2017

A former green card holder’s post mortem on expatriation and U.S. tax law

We recently helped a green card holder clean up his tax situation so he could avoid covered expatriate status. This is his own post-mortem of the process.

It is a familiar story: green card holder returns to his home country but does not formally cancel his immigrant visa.  He does not know about the ongoing tax-filing obligations imposed by the U.S. on green card holders.

Eventually, he learns of the problem and wants to file Form I-407 and tie up his loose ends.  He is not rich enough to be a covered expatriate ($2,000,000 or more net worth) but his tax returns for the previous five years were not up to snuff.... continue reading

March 31, 2017

Form 5471, Constructive Ownership, and Exceptions

“You Don’t Own It But the IRS Treats You as if You Do”

Sometimes the IRS treats you as something you’re not. They might think that you own stock of a foreign corporation even if you don’t.

You really aren’t a shareholder:

  • You cannot exercise the voting power that a shareholder has — because you are not a shareholder.
  • You do not receive dividends — because you are not a shareholder.

Yet the IRS says you are a shareholder, at least for some (but not all) requirements of U.S. tax law.

None of the benefits, but plenty of U.S. tax downside potential.... continue reading

March 28, 2017

The Tax Liability Test for Covered Expatriates

You can become a covered expatriate if your average tax liability for the previous five years is above a certain amount ($162,000 for expatriations in 2017).

Calculating this average amount is a bit of a pain.

Covered Expatriate Status is Bad

Don’t be “covered expatriate”.

  • Covered expatriates pay income tax when they renounce U.S. citizenship or give up permanent resident visa status.1
  • Covered expatriates cannot make tax-free gifts or bequests to U.S. persons.2
  • They also risk being barred from re-entering the United States, because they might be considered tax-motivated. The dreaded Reed Amendment gives the State Department the power to exclude these people from entering the United States.
... continue reading
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