March 18, 2018 - Phil Hodgen

Upcoming Section 965 Workshop and a Collection of Links

The Tax Cuts and Jobs Act completely rewrote Section 965 to force a one-time repatriation of deferred earnings and profits in foreign corporations. It forces income recognition in the 2017 tax year, so there is not a lot of time to figure this one out!

Rufus Rhoades will give a one-hour free workshop on March 23, 2018 at 9:00 am Pacific Time. Register here; it’s free.

I call this a workshop because the intention is for Rufus to talk a bit about the new law, then we will open it up for questions and input. Some of you out there are smart about Section 965, so please share with us.... continue reading

American Business Abroad PFIC and CFCs Speeches, Publications, and Events
March 16, 2018 - Phil Hodgen

In Which Form 5472 is Required and not Required

Does a treaty election to be taxed as a nonresident of the United States trigger a Form 5472 filing requirement? The Schrödinger’s cat meme gives us the answer. Yes and no.

The Setup

Imagine a green card holder living outside the United States. She is the sole shareholder of a domestic corporation.

For various good and valid reasons, our green card holder decides to make an election under the applicable income tax treaty’s tiebreaker rules to be treated as a resident of the foreign country where she lives, and thereby be treated as a nonresident of the United States for income tax purposes.... continue reading

Friday Edition
March 13, 2018 - Phil Hodgen

The New Tax Law and Expatriation: New Reasons to Renounce

Our trusted servants in Washington DC blessed us with a new tax law, effective December 22, 2017. The new law–the Tax Cuts and Jobs Act of 20171  –did not change the expatriation tax rules, but it did make expatriation more attractive to a certain group of Americans abroad.

Tax Cuts and Jobs Act of 2017

The Tax Cuts and Jobs Act2 changed many, many parts of the Internal Revenue Code. The international tax rules, in particular, have been massively changed.

But Congress did not touch Sections 877A or 2801 of the Internal Revenue Code. Those are the two special-purpose statutes that impose tax on people who renounce US citizenship or abandon their green cards.... continue reading

March 8, 2018 - Haoshen Zhong

The GILTI Software Developer, Making a Corporate Rate Election

The GILTI software developer, electing corporate tax rules

If you were paying attention to the tax law rewrite last year, you may have heard the term “global intangible low-taxed income” (GILTI). It is supposed to establish a minimum tax on foreign source income for multinational corporations. It also affects US citizens and residents.

Two posts ago, we covered what happens under the default GILTI rules if a US citizen owns a software company abroad. In summary:

  • Almost all the profits of his company is taxed to him each year as GILTI regardless of whether the company distributes the profits.
  • The GILTI is taxed at ordinary income tax rates, overriding qualified dividend rules for companies in treaty countries.
... continue reading
March 2, 2018 - Phil Hodgen

Form 8833, Nonresident Status Under a Treaty, and Penalties

Simple question:

A taxpayer who wishes to invoke an income tax treaty to claim nonresident alien status for U.S. income tax purposes–must Form 8833 be filed to claim this status?

The answer is no. A taxpayer may claim nonresident alien status for U.S. income tax purposes without filing Form 8833 to tell the IRS about this tax reporting position.

The follow-up question is also interesting:

What’s the worst that can happen if the IRS audits an income tax return and claims that Form 8833 is missing?

The worst that can happen is that the IRS can impose a $1,000 penalty. But the IRS cannot disallow the treaty claim to nonresident status.... continue reading

Friday Edition