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September 1, 2017 - Phil Hodgen

When a Foreign Trust Files FinCEN Form 114

The Problem

This week, I want to highlight a risk: when an unanticipated FinCEN Form 114 filing requirement might apply to a trust.

There is a weird situation where a foreign trust (as defined for income tax purposes) may be required to file FinCEN Form 114. (FinCEN Form 114 is how you tell the U.S. government about your foreign financial accounts).

It’s weird, but intentional.

Short Attention Span Summary

Does the trust look like a normal domestic trust but get taxed as a foreign trust? Watch out. You have a potential FinCEN Form 114 filing requirement.

Look Domestic, Taxed Foreign

There are good reasons to create trusts that look like domestic trusts but are taxed as foreign trusts.... continue reading

Friday Edition
August 29, 2017 - Phil Hodgen

Expatriates Receiving Inheritances from U.S. Persons

Let’s say you have expatriated (gave up U.S. citizenship or your green card) and you expect to receive an inheritance from a U.S. person–perhaps your parents.

How is that inheritance taxed?

Correspondent KP emailed me to ask exactly this question. (Hint: you can email ask a question, too; just hit reply and suggest a topic or ask a question for me to answer in the newsletter).

Perhaps you have already answered this in the expatriation blog and I just couldn’t find it (in which case, please send me a link), or it might be worth considering as a future topic:

If a person has renounced US citizenship, filed the 8854, and IS -for all intents and purposes- considered to be a non-resident non-citizen, what US tax/reporting obligations come into play if said person inherits a US estate from a US citizen & resident relative?

... continue reading
Expatriation
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

PFIC and CFCs
August 18, 2017 - Phil Hodgen

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

Summary

“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
Friday Edition
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

Expatriation