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December 28, 2017 - Haoshen Zhong

Tax Cuts on PFICs: Not Much Changed

Effect of the tax cut on PFICs

These are some notes I took about how the tax cut affects passive foreign investment companies (PFICs)–or does not affect PFICs.

The short answer is that not much changed, particularly if you are an individual. PFICs stay more or less as bad as they were before. The dramatic changes to tax law that just passed do not affect PFIC owners much.

Code references are to the amended provisions

The Code citations used in this post refer to provisions as amended by the tax cut–unless, of course, the citation notes that it refers to the provisions without amendment.... continue reading

PFIC and CFCs
December 19, 2017 - Phil Hodgen

Green Card Yanked at the Border but want to be a U.S. Taxpayer Anyway?

An email from a New York CPA I know (hi M.S.) raised an interesting procedural question. A green card holder is married to a U.S. citizen. The green card holder files Form I-407 but wishes to continue filing jointly with his wife.

A guy files the I-407 (forced to at border) on (Month) 15, 2017, but he is married to a U.S citizen and wishes to continue to file jointly as a U.S .resident alien for tax. He is living outside the U.S.

Does he have to by law file Form 8854 and file dual status for 2017 as at (Month) 15, 2017?

... continue reading
Expatriation
December 14, 2017 - Haoshen Zhong

QEF Election for a Fiscal Year Company in the Year of Immigration

This is a war story:

I have owned shares of a foreign company that rents out a warehouse for years. It operates on a fiscal year ending 31 March, 2017. I immigrated to the US on 1 February, 2017. I believe it is a PFIC. I would like to make a QEF election. When do I make this election, and is there anything else I need to do?

In this post, I will explain why the shareholder would make a QEF election with his 2017 tax return, why he does not need to do a deemed sale election, and how the passthrough of income works for 2017.... continue reading

PFIC and CFCs
December 8, 2017 - Phil Hodgen

How an Income Tax Treaty’s Saving Clause Works

I received a question from a reader, and it is a good way to explain the saving clause of an income tax treaty.

The question, from reader E.C., is simple:

Are U.S. Social Security benefit payments to a U.S. citizen who is a resident of Italy taxable in Italy or in the U.S.?

Tax Treaties

Income tax treaties are agreements between two countries. Treaties attempt to make live easier for residents of one country who have income from the other country.

So, for instance, a U.S. citizen living in Italy is:

  • taxable by the United States (because he is a U.S.
... continue reading
Friday Edition
December 5, 2017 - Phil Hodgen

Roth IRA Taxation for Covered Expatriates

Let’s talk about how a covered expatriate’s Roth IRA is taxed at the time of expatriation.

Summary

Make-Believe Distribution

A Roth IRA is treated as if there is a make-believe distribution to a covered expatriate on the day before renouncing U.S. citizenship or abandoning green card status.

Income Taxation of the Distribution

The income tax cost of the make-believe distribution is zero if:

  • the Roth IRA has been in place for five taxable years (see the explanation below), and
  • the covered expatriate is age 59.5 or older.

If those two conditions are not satisfied, part of the fictional distribution will be taxable.... continue reading

Expatriation