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February 16, 2018 - Phil Hodgen

Section 199A Works for Nonresident Aliens

Section 199A Deductions

Reader B.B. from Miami Beach asked a such a simple1 question:

Are NRAs with pass-through U.S. entities eligible for the [IRC Section 199A] deduction?

What follows is my incomplete answer. A complete answer would require me to fully understand Section 199A. And I would rather die in a fire than become intimate with Section 199A.

Foreshadowing the Denouement

Short answer: I think so.

Let’s be precise. I am talking about a nonresident alien who has effectively connected income. With that clarification, I think a Section 199A deduction is allowed because:

  • Section 199A doesn’t say a nonresident alien is forbidden from taking the deduction; and
  • A nonresident alien with effectively connected income will have the right type of income–the kind of income that generates a Section 199A deduction.
... continue reading
Friday Edition
February 2, 2018 - Phil Hodgen

GILTI: In Which Foreign Corporation Income is Made Taxable

Poker players are always looking for tells — inadvertent signals by their opponents. The Tax Cuts and Jobs Act has a tell. Our Federal government has told us what they think of us.

They think we are incipient felons.

If you had any doubt about our how our Federal Overlords view us, new Internal Revenue Code Section 951A should clarify things for you. This new law introduces a new acronym: GILTI.

Not Quite Territorial Taxation

The new tax laws are great if your name is Apple or Google.

But for American entrepreneurs living abroad and running regular businesses, (tax) life is worse in 2018 than it was in 2017.... continue reading

Friday Edition
January 19, 2018 - Phil Hodgen

The Evident Accounting Complexity of Section 951A

There has been a lot of ballyhoo over the last few years about mega-multinationals (like Apple and Google) and their international tax structures. The amounts of money stashed abroad are staggering. But frankly, spending time complaining about Apple and Google’s tax planning is a mug’s game — the political ideologue’s version of smugly judgmental nattering about the Kardashians.

Meanwhile, real people roam the surface of Planet Earth, living real lives. Think of a normal American citizen living abroad, running a consulting business with $1 million of revenue and $500,000 of expenses. That’s real, and his problems are worth talking about.

Our American citizen abroad is the human embodiment of a multinational business enterprise.... continue reading

Friday Edition
January 10, 2018 - Phil Hodgen

My desk has a hole in it from repeated blows received from my forehead

I received an email this morning from a correspondent: an Enrolled Agent working outside the United States.

Hope all is well. My new year was off to a good start until I had to call the IRS today regarding a client matter. They asked me for my SSN or ITIN. Told them I was a nonresident alien and did not have one. They said the new policy to combat identity theft is they cannot talk to me unless I have a SSN or ITIN. The fact that I have a PTIN, a CAF number and an EIN and have been an EA since 1996 did not matter.

... continue reading
Friday Edition
January 5, 2018 - Phil Hodgen

Foreign Earned Income Exclusion and Self-Employment Income

Self-employed people are enterprises engaged in commerce without using a business entity, like a corporation or limited liability company. Human-scale businesses can be large, and even be multinational enterprises: doing business within the grasp of multiple countries’ tax systems.

An American entrepreneur living and doing business abroad is by definition a multinational business: his country of residence and the United States both assert the right to tax him.

For purposes of demonstrating basic tax principles, let’s assume we have an American management consultant living and working in Dubai. No spy stuff, just commerce.

The Taxes

An American living and working abroad is fully taxable by the United States, simply because he is a U.S.... continue reading

Friday Edition