November 16, 2017 - Haoshen Zhong

Pre-1997 Unit Trust Funds

Pre-1997 unit trusts

This scenario is loosely based on some analysis we did for a client:

I bought 10% of units in a private unit trust in a foreign country back in 1990. All other unit holders are nonresident aliens. We could transfer the units by giving notice to the trust without seeking permission. All unit holders are personally liable for the debts of the trust in proportion to their unit holding. It invested in stocks and bonds. It and its nonresident alien shareholders never filed anything in the US tax system.

In this post, I will discuss why this unit trust was a PFIC when it was bought and why it underwent a deemed liquidation in 1997.... continue reading

November 13, 2017 - Phil Hodgen

Foreign Trust Distributions and How They’re Taxed

Congress Hates Foreign Trusts

Congress hates foreign trusts.1 We know this because:

  • Distributions to U.S. beneficiaries from some foreign trusts (foreign nongrantor trusts, to be precise) can face a tax rate of up to 100%. You receive $100 and must pay $100 in tax? Yes.
  • Penalties are staggering if you don’t file the right paperwork2 on time: 35% of contributions and 35% of distributions not reported.

I like to convert foreign trusts to domestic trusts in order to eliminate these problems. Beneficiaries of domestic trusts do not have to file the offending forms (eliminating the penalty risk), and do not face the horrific tax cost imposed on distributions.... continue reading

Friday Edition
November 7, 2017 - Phil Hodgen

How to Make Zero Capital Gain Tax When Moving Assets Between Spouses

The net worth test is something that may cause an expatriate to become a covered expatriate. Instead of just having a paperwork problem (Form 8854, specifically), a covered expatriate has a paperwork problem plus a potential tax problem.

You become a covered expatriate by satisfying one (or more) of three requirements. Being rich ($2,000,000 or more in personal net worth) is one of those three requirements.

Our expatriation cases frequently require some financial engineering to reduce our client’s net worth to below $2,000,000 — in order to avoid covered expatriate status. And that frequently means shifting assets to the soon-to-be expatriate’s spouse.... continue reading

November 2, 2017 - Haoshen Zhong

Distributions from a PFIC under a QEF Election

This is a question we received through an email:

I own stock of a PFIC. I made a qualified electing fund election for the PFIC stock. The QEF received a distribution of qualified dividends during the year. Later, I sold the QEF for a loss. Can I use the loss to offset income from the QEF?

In this post, I will introduce how QEF works and why the loss from the sale of the stock cannot be used to offset the passthrough of income from the QEF.

What are PFICs?

Passive foreign investment company (PFIC) is a specific classification under US tax law.... continue reading

October 24, 2017 - Phil Hodgen

Green Card Received in 2011? Give It Up in 2017 or Face Exit Tax

Deadline for 2011 Immigrants

If you received your green card visa in 2011 and you are thinking about terminating your permanent resident status, do it in 2017 if you want to avoid the exit tax entirely.

Eight Years

If you hold green card status for at least eight years and then want to leave the United States, the exit tax rules will apply to you.

The result may not be painful, but it is better to avoid the exit tax rules entirely if you plan to leave the United States anyway.

If you received your green card in 2011, you have held the permanent resident status in seven years already: 2011 through 2017 inclusive.... continue reading