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Trusts can act as a firewall against the US tax system, but are hard to do right. We create, terminate, and fix trusts.

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March 23, 2017

Your Stock Options in a PFIC

Getting a stock option from a PFIC

Here is a question from an email:

I am employee of a PFIC. My employer issued some stock options to me as part of my compensation. Do I have a PFIC problem?

This post describes why you cannot avoid passive foreign investment company (PFIC) taxes by holding onto an option or selling the option directly. But you may want to hold onto the option to reduce annual reporting requirements.

The option is an issue because of attribution rules

A passive foreign investment company (PFIC) is a special subcategory of foreign corporations. US shareholders of a PFIC are subject to punitive tax rules, so US persons want to avoid owning shares of a PFIC.... continue reading

March 17, 2017

U.S. Citizens Married to Noncitizens Who Own Foreign Corporations

This week I am going to highlight the “constructive ownership” rules in U.S. tax law. This means that the IRS can pretend that you own something — we will talk about stock of foreign corporations — even though you don’t really own it.

We will talk about U.S. citizens married to noncitizens. First, a simple example, then a more complicated (and realistic) example. The realistic example — one I have seen many times — yields a “Who knows what the answer is!” conclusion.

Here is the practical advice:

If you are a U.S. citizen living abroad, married to a noncitizen, look out for the combination of foreign corporations owned by trusts.

... continue reading
March 14, 2017

Covered Expatriates and Nongrantor Trusts. It’s Probably Pointless.

Renounce, Receive Foreign Income and Get Tax Troubles1

Is it possible to renounce your U.S. citizenship, live outside the United States, collect 100% foreign income, and still be under the IRS’s thumb? (YouTube).

Yep. Or at least it looks that way.2 But who really knows?3

The Facts

Here is what it takes:

  • You are a covered expatriate.
  • You are the beneficiary of a foreign nongrantor trust.
  • The foreign nongrantor trust has no U.S. assets, and has no U.S. income.
  • You receive a distribution from the foreign nongrantor trust.

The Results

Here’s what happens to you:

  • No U.S.
... continue reading
March 9, 2017

When You Have to File Both Form 5471 and Form 8621

Filing Form 5471 and Form 8621 for the same foreign corporation

This is a question that we get a lot:

If I own shares in a foreign corporation, and I file Form 5471, then I do not have to file Form 8621, right?

The answer to this question is “incorrect”. There are situations under which you have to file both Form 5471 and Form 8621 to report the same corporation. Here are a few common situations we have seen arise in the course of our work.

Background to Form 8621 and Form 5471

Form 8621 is a form that US persons use to report investments in passive foreign investment companies (PFICs).... continue reading

March 3, 2017

Real Life: Get Married, File Form 5471

Here is a real life problem we1 are solving right now for a real life couple: an American citizen married to a noncitizen, living abroad.

  • H formed a corporation in his country of residence, and started a business. It is a “foreign corporation” to the IRS.
  • H met W, an American citizen. They married.
  • W has never been an officer, director, or employee of the corporation. H continues to be the sole shareholder of the corporation to this day. There are no community property rules that give W a shared ownership in the corporation.

Would it surprise you to learn that W should have filed Form 5471 because she is a “100% shareholder”2 of H’s corporation?... continue reading

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International Tax Lunch

April: International Tax Lunch

When: April 14th, 2017 at 12PM PST

Who: Debra Rudd

Topic to be announced soon!

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