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June 22, 2018 - Phil Hodgen

Form 8832, Community Property, and Foreign Business Entities

I received an email from Scott, a good friend who, well, does taxes in Mexico.

He had a question about an American couple in Mexico who are setting up a S de RL (Sociedad de Responsabilidad Limitada), which is similar to a U.S. LLC. One of the features of this type of entity is that it must have two owners. H and W. How convenient.

Mexico has community property laws for married couples, and Scott tells me that this S de RL is a community property asset of H and W.

Will this entity (S de RL) be treated as a corporation, partnership, or disregarded entity for U.S.... continue reading

Friday Edition
June 19, 2018 - Debra Rudd

Do Covered Expatriates Get to Use Their Suspended Passive Activity Losses?

Today’s topic: Do covered expatriates get to use their suspended passive activity losses?

Let us imagine that you are planning to expatriate in 2018, and that you will be a covered expatriate. You have a number of rental properties in the United States. Those rental properties have accumulated a substantial amount of passive activity losses (PALs) during the time that you have owned them. Because you are a covered expatriate, you will need to pretend you sold all those properties at fair market value on the day before your expatriation and report the gains or losses on your tax return as if you really sold the properties.... continue reading

Expatriation
June 11, 2018 - Phil Hodgen

Resident for Income Tax Purposes but Not Gift Tax Purposes

I received an email from a practitioner this morning and figured it’s worth a blog post.

Reader C in Sydney asked me:

Hi Phil,

Would a MFJ couple (US citizen and NRA Spouse) using Sec 6013(g) Election qualify for Unlimited Spousal transfer from decedent US Citizen?  Inquiring minds would like to know 🙂

Election to be a U.S. taxpayer

Nonresidents who are married to U.S. persons (citizens or residents for income tax purposes) can choose to be fully subject to U.S. income tax laws.  Ordinarily, a sane person would attempt to avoid this status, if possible.

But sometimes we do the math and it actually saves tax overall to do so.  ... continue reading

Americans Living Abroad
June 8, 2018 - Phil Hodgen

Community Property for Americans Married to Nonresidents

Let’s look at the taxation of income earned by spouses living in community property jurisdictions. When a U.S. person is married to a nonresident alien, the tax rules are different.

The normal rules: two U.S. taxpayers

The normal rules are described in IRS Publication 555.1 Where spouses are subject to community property rules and they file separately, community income is split equally between the two spouses. The community property jurisdiction might be California. Or it might be any one of a number of countries outside the United States.

Different rules for a nonresident alien spouse

When one of the spouses is a nonresident alien, the rules are different.... continue reading

Friday Edition
June 5, 2018 - Debra Rudd

Tax Return Filing Deadline for Expatriates

Filing deadline for expatriates is approaching

We are just a few short days away from a very important date. If you expatriated during 2017, chances are you need to file your tax return and Form 8854 by June 15, 2018. You also need to make full payment of any tax due by that date.

If you need more time to get the tax return ready, you can file for an extension to December 15. However, the payment due date remains June 15, 2018.

Today’s topic will be limited to a description of the filing and payment deadlines for expatriates and how to get an extension to file your tax return.... continue reading

Expatriation