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October 17, 2017 - Haoshen Zhong

Cash Distribution from a Mark-to-Market PFIC Stock

Distributions from a PFIC under a mark-to-market election

This is a question we received through an email:

I own stock of a PFIC. I made a mark-to-market election for the PFIC stock. The PFIC made a distribution of cash during the year. How is the distribution taxed?

In this post, I will discuss why the distribution is mostly treated like a distribution from a normal corporation (with the exception that the dividend never can be a qualified dividend).

What are PFICs?

Passive foreign investment company (PFIC) is a specific classification under US tax law. It applies to a foreign corporation if it satisfies either:

  • An income test: 75% or more of its gross income is passive income, or
  • An asset test: 50% or more of its gross assets produce passive income or are held for the production of passive income.
... continue reading
PFIC and CFCs
October 13, 2017 - Phil Hodgen

How Should I Own My U.S. Real Estate?

How I Think About Real Estate Holding Structures

Foreign investors in U.S. real estate always have the same question:

How should I own the real estate that I am buying in the United States?

This is how I think when I think about that question. If you sit down in my conference room and talk to me, our conversation will follow this outline.

The Primary Risk: Estate Tax

For human investors, the primary risk is estate tax. (Ignore corporate investors and pension plans).

Estate tax is imposed on the value of U.S. assets owned by nonresidents when they die. The tax rate is 40%, and for all practical purposes the real estate asset is fully taxable.... continue reading

Friday Edition
October 10, 2017 - Phil Hodgen

How to Complete Form 8854, Part I

Expatriates have the rare pleasure of becoming intimate (in a one-time sort of way, usually) with Form 8854. Let’s take a look at Part I of the Form 8854.

  • What information are you asked to provide?
  • By what right does the IRS claim the power to force you to provide this information?
  • How do you answer the questions correctly?
Line 1 – Mailing Address, Telephone Number

The IRS wants to be able to find you after you expatriate. They’re coming to get you, Murdoch.

For this they need your mailing address1 and telephone number.2

Line 2 – Address of Principal Residence

If you don’t live at your mailing address, then you must provide your actual residence address.... continue reading

Expatriation
October 5, 2017 - Haoshen Zhong

Foreign Tax Credit on Sale of a PFIC

This is a question that sometimes comes in an email:

I am a US citizen living abroad. I sold a PFIC. I paid foreign tax on the gain. Can I use the foreign tax as a foreign tax credit?

We do not have a definitive answer to this question, because there is very little guidance from the IRS on this matter. This post discusses the positions you can take and our preferred approach.

What are PFICs?

Passive foreign investment company (PFIC) is a specific classification under US tax law. When a US person receives a distribution from a PFIC or sells shares in a PFIC for gain, there are special rules that apply.... continue reading

PFIC and CFCs