The Section 6013(h) Election for Nonresidents to File a Joint Tax Return

People who are not citizens of the United States and are not residents of the United States are called “nonresident aliens”. The U.S. will impose income tax on them only if they earn income from U.S. sources.

Noncitizens of the United States who are residents of the United States (for income tax purposes, not necessarily for immigration law purposes) must pay U.S. income tax on all of their income, earned anywhere in the world.

There are three ways that a noncitizen of the United States becomes a “resident alien” taxpayer:

• Have a permanent resident visa (aka green card);1
• Spend too much time in the United States (this is called the substantial presence test);2 or
• Choose to be treated as a resident alien by filing the right kind of paperwork–a special tax election.

Pension Valuation for the Net Worth Test

The net worth test rates you as a covered expatriate if your net worth is $2,000,000 or more.1 Pensions and retirement plans are assets that you include in calculating your net worth.2

How do you figure out how much your pension is worth?

There is scant (and by “scant” I mean nothing at all) guidance on how to compute the value of your pension benefits. The Instructions to Form 8854, for instance, say absolutely nothing at all.3

Notice 2009-85 merely points you to Notice 97-14 for guidance on how to calculate your net worth.... continue reading

Liquidating Distribution From a PFIC

Liquidating distribution from a PFIC

This is a question I received in an email:

I invested in a PFIC. The PFIC decided to liquidate. It sold all its investments, paid its major liabilities, then paid most of the cash proceeds to its investors. Then, after paying miscellaneous, small debts and winding up its business, it distributed the remainder of its cash to the investors. I lost money on the investment. Do I have to pay PFIC tax on the distributions?

This post describes why both the first and second distributions are treated as proceeds from the sale of the investor’s PFIC shares, and why only the gain over investment is subject to tax.... continue reading

Who Can File a Joint Tax Return

U.S. citizens living abroad will often (gasp) marry someone who is not a citizen of the United States. The married couple lives happily outside the United States, so the noncitizen spouse is not a resident of the United States in the eyes of the IRS.

Everything is fine until tax return season. The U.S. citizen looks at the “filing status” part of Form 1040, and silently wishes for that “Married Filing Jointly” status. (Filing a joint tax return with your spouse usually means that you pay less tax).

A U.S.... continue reading

Is My Investment in a Foreign Corporation?

This is a question we get through email and client work fairly often.

I made an investment into a foreign investment vehicle. Maybe it is a partnership rather than a PFIC?

This post is something of a sequel to this post, describing why a unit trust is likely a PFIC, despite being organized as a trust under local law. This post’s focus is on distinguishing between partnerships and corporations.

What are PFICs?

Passive foreign investment company (PFIC) is a specific classification under US tax law. When a US person owns shares in a PFIC, the US person is subject to extremely punitive tax and reporting rules.... continue reading