August 24, 2017 - Haoshen Zhong

Asset Held in Trust for the PFIC Asset Test

Asset held in trust and the PFIC asset test

This is a war story from client work:

I own shares of a private company. It is the trustee of a family trust. Should I include the trust’s assets when I determine whether the private company is a PFIC?

In this post, I will discuss the approach we use to this type of question and show why the way the arrangement works in the foreign country is important to answer this question.

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

August 18, 2017 - Phil Hodgen

Yes, A Married Person Can Claim Head of Household Filing Status


“Head of Household” filing status is desirable–it can save you some tax.

Proving you qualify for head of household status is not easy.

Among other things, head of household filing status is for unmarried taxpayers only.

But it is possible for U.S. citizens (or resident aliens) who are married to nonresident aliens to qualify for head of household filing status. All you need is to maintain a household, and a dependent who is not the nonresident alien spouse.

The Requirements

The requirements for claiming head of household status are:

  1. Be unmarried at the close of the tax year.2
  2. Not be a surviving spouse.
... continue reading
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August 15, 2017 - Phil Hodgen

Net Worth Test: Use Gift Tax Resident or Income Tax Resident Rules?

The tax rules for expatriation are still (almost a decade after being enacted) approximately as precise as fog. An accountant friend, Ed R. (he does not have a website, otherwise I would link to it), sent me an email after my webcast about expatriation, with an example of this.

Are You a “Gift Tax Resident” or an “Income Tax” Resident?2

Here’s the problem. The exit tax is an income tax rule, but the IRS tells us to use the gift tax rules for defining net worth so you can figure out if an individual is a covered expatriate or not.... continue reading

August 10, 2017 - Haoshen Zhong

Gain from a PFIC Bought and Sold in the Same Year

This is a question we received through an email:

I bought shares in a foreign mutual fund and sold it in the same year. I made a gain on the sale. I am sure the mutual fund is a PFIC. Do I have any excess distributions to report?

In this post, I will discuss why the gain probably is an excess distribution.

What are PFICs?

Passive foreign investment company (PFIC) is a specific classification under US tax law. When a US person owns shares in a PFIC, the US person is subject to extremely punitive tax and reporting rules. They are designed to discourage US persons from investing through foreign investment vehicles.... continue reading

August 4, 2017 - Phil Hodgen

Nonresident Real Estate Investors, Zero Income, Mandatory Tax Return Filing

This discussion is inspired by an email I received from A.A., a CPA living and working outside the United States.1

Nonresident Real Estate Investors, Zero Income, and U.S. Tax Return Filing Requirements

When are nonresidents required to file U.S. income tax returns? Let’s ignore the obvious situation–when they earn income in the United States.

Let’s look instead at a vastly more interesting question. When must a nonresident individual file a U.S. income tax return (Form 1040NR) even when there is zero income earned in the United States?

Because yes, nonresidents with zero income must sometimes file U.S. income tax returns.... continue reading

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