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May 12, 2017 - Phil Hodgen

Independent Contractors Who Become U.S. Residents

Inspiration: Swizec

This newsletter is inspired by a geek with a hat. Swizec is someone whose blog I follow from afar. I also watch for him on Hacker News, where he pops up from time to time. Interesting guy, does interesting things.

So when he wrote a blog post about his international tax catastrophe, I read it with interest.

In brief, Swizec came to California from Slovenia, spent too much time here, and became a resident for tax purposes for multiple years. He ended up with a massive tax bill for Federal and State income tax.

As a bonus multiplier, he ended up owing tax in Slovenia, too.... continue reading

Friday Edition
April 28, 2017 - Phil Hodgen

Snatch Form 2555 Victory from the Jaws of Procrastination Defeat?

Snatching Victory from the Jaws of Defeat

You messed up, and time has gone by. You wanted to claim the foreign earned income exclusion on a tax return, but the filing deadline for that tax return was more than a year ago.

You are very late. Maybe you filed a tax return and missed making the claim for the foreign earned income exclusion. Maybe you did not even file a tax return at all.

Let’s talk about how you can claim the foreign earned income exclusion. To do this we will talk about the rules, and a recent Tax Court case that demonstrates the rules in action.... continue reading

Friday Edition
April 14, 2017 - Phil Hodgen

Nonresident? Have a U.S. LLC? There’s a New Form to File

New This Year: Form 5472 for U.S. LLCs

Nonresidents (human and otherwise) who own assets in the United States may face a new paperwork requirement, starting this year.

Nonresidents who own 100% of U.S. limited liability companies are now required to file Form 5472.

Form 5472 tells the U.S. government the name of the ultimate beneficial owner, and reports transactions between the LLC and related people.

This new requirement exists so the U.S. government can collect information about you, in order to share it with the government of your home country.

For most people, the first time they will need to file this form is in 2018, for the 2017 calendar year.... continue reading

Friday Edition
March 31, 2017 - Phil Hodgen

Form 5471, Constructive Ownership, and Exceptions

“You Don’t Own It But the IRS Treats You as if You Do”

Sometimes the IRS treats you as something you’re not. They might think that you own stock of a foreign corporation even if you don’t.

You really aren’t a shareholder:

  • You cannot exercise the voting power that a shareholder has — because you are not a shareholder.
  • You do not receive dividends — because you are not a shareholder.

Yet the IRS says you are a shareholder, at least for some (but not all) requirements of U.S. tax law.

None of the benefits, but plenty of U.S. tax downside potential.... continue reading

Friday Edition
March 17, 2017 - Phil Hodgen

U.S. Citizens Married to Noncitizens Who Own Foreign Corporations

This week I am going to highlight the “constructive ownership” rules in U.S. tax law. This means that the IRS can pretend that you own something — we will talk about stock of foreign corporations — even though you don’t really own it.

We will talk about U.S. citizens married to noncitizens. First, a simple example, then a more complicated (and realistic) example. The realistic example — one I have seen many times — yields a “Who knows what the answer is!” conclusion.

Here is the practical advice:

If you are a U.S. citizen living abroad, married to a noncitizen, look out for the combination of foreign corporations owned by trusts.

... continue reading
Friday Edition