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October 12, 2009 - Phil Hodgen

Foreign earned income doesn’t cover interest and dividends

I just received an email from someone based on the www.foreignbankaccountamnesty.com site. It raised a question that comes up often, so I figured I would answer it online.

Question: Are dividends or interest payments received by US citizens living overseas received from foreign financial institutions also included in above definition and application of foreign earned interest, or is only income earned from work/employment meant by the term “foreign earned income”?

As part of the ongoing offshore bank account so-called amnesty, I came across many expatriate Americans who assumed that the foreign earned income exclusion covers any foreign-source income — including bank interest.... continue reading

Foreign Business Activities in the USA US Real Estate Investments Voluntary Disclosure
October 8, 2009 - Phil Hodgen

Impressive complexity in tax returns

I just got off the phone an accountant in an unnamed Asian city who has prepared an impressive and immaculate amended 2008 income tax return for one of her clients (who is also my client).

It is an impressive job because the preparer did a thorough job without shortcuts. This, I know from personal experience, causes brain damage.

The foreign earned income exclusion, PFIC rules, foreign tax credit, AMT, etc. rules make a normal person’s tax returns quite frankly almost impossible to do correctly. The system is designed to cause failure by taxpayers.

I defy any non-tax person — even if you have a Ph.D... continue reading

Foreign Business Activities in the USA Nonresidents with US Activities Voluntary Disclosure
August 28, 2009 - Phil Hodgen

A rare reported U.S. case on trust protectors

Trust protectors are a rare breed in U.S. trusts. Our firm knows about using protectors because we do so much work with offshore (i.e., non-U.S.) trusts, where use of a protector is common. Case law from U.S. courts defining a protector’s rights and responsibilities are even rarer.

The Missouri Court of Appeals has a recent opinion involving a protector (warning: PDF). Cut to the chase — the Protector was a fiduciary, had an obligation to monitor the trustee’s (bad) behavior, and replace the trustee if necessary.

Memo to all personnel

Here are life’s lessons (re-learned) from this case:

  • If you are a lawyer drafting a trust, do not blithely add a trust protector provision until you know what you’re doing.
... continue reading
Foreign Business Activities in the USA Nonresidents with US Activities Tax and Trusts
July 9, 2009 - Phil Hodgen

Real estate holding structures for nonresidents – tax law changes coming

This is a distant early warning to nonresidents with U.S. real estate investments. The warning applies to multi-national corporations as well (businesses that operate in the United States and elsewhere in the world) but I am going to focus on real estate investors here.

RISK

An proposed change in U.S. tax law may double the tax you pay when you sell the real estate.

WHO MAY BE AT RISK

Anyone owning U.S. real estate through a holding structure that contains a corporation for which an election has been made to treat it as a disregarded entity.

SUGGESTED ACTION

Examine your holding structures (that wedding cake of trusts, corporations, partnerships, and limited liability companies that you pay for every year) and plan to change those structures before the end of 2010.... continue reading

Foreign Business Activities in the USA US Real Estate Investments
May 11, 2009 - Phil Hodgen

FBAR requirements apply to nonresidents too

The U.S. government requires “U.S. persons” to file Form TD F 90-22.1 (PDF) to report ownership or control of financial accounts located outside the United States.

Nonresidents of the United States will be pleased to know that stealth changes to this Form now may also impose this filing requirement on them. A “U.S. person” is now includes “a person in and doing business in the United States.” (See the instructions for Form TD F 90-22.1).

So who might be included?

  • A U.S. company has a director who is a nonresident of the United States. The director comes to the United States every now and then on company business.
... continue reading
Foreign Business Activities in the USA US Real Estate Investments Voluntary Disclosure