Showing posts from October, 2014

Be Careful in Your Choice of Tax Advisors

On September 12th, the Treasury Inspector General for Tax Administration (TIGTA) released itsannual reporton IRScompliance trends.  Individual income tax return examinations conducted by the US Internal Revenue Service decreased in 2013 for the third year in a row, falling to USD1.4 million or one for every 104 tax returns.  Just over 80 per cent were done by correspondence, with only one of every 541 returns being examined in a face-to-face interview.  This is to be expected given the ongoing staff and budget cuts but that’s not an opportunity to take them for granted. 

The IRS are still pretty good at their jobs. 
Every week, I hear from tax payers who often do not like what I have to say.  Some are considering products or structures that appears too good to be true.  My view remains the same – if something appears too good to be true, it typically is.  Be very careful.  Not that I am rushing to judgment but Gary Stern is the latest professional to become ensnared in the coils of t…

IRS Information Letter on Treatment of "Green Card" Holders (Noncitizen Lawful Residents) - Release Date: 9/26/2014

The IRS has released this Information Letter 2014-0033, with information about the U.S. tax regime for "green card" holders. 

The background is that non-citizen residents of the U.S. are subject to U.S. tax.  Key excerpts are:
An alien individual is classified as a resident of the United States with respect to any calendar year if he or she (i) is a lawful permanent resident of the United States at any time during such calendar year (commonly referred to as the “green card test”), (ii) meets the substantial presence test in section 7701(b)(3), or (iii) makes the first-year election provided in section 7701(b)(4). Code § 7701(b)(1)(A). An individual who is neither a citizen of the United States nor a resident of the United States within the meaning of section 7701(b)(1)(A) is classified as a nonresident alien. Code § 7701(b)(1)(B). 
Section 7701(b)(6) provides that an individual is a lawful permanent resident of the United States if he or she has the status of having been lawf…

American Expats and the Net Investment Income Tax

So a few clients have been asking about the Net Investment Income Tax (NIIT). The purpose of the NIIT is to ensure that individuals with high income levels earned from non-wage sources contribute to the expanded health care program in a similar manner as individuals subject to withholding tax on their wages. In other words, the NIIT is designed to cover the cost for expanded Medicare coverage. My first response was back on April 5th -

Now questions are around whether American Expats are actually liable for this tax? The issue is whether the NIIT is a Medicare tax, subject to exemption under a social security totalization agreements (SSTAs), or an income tax, against which foreign tax credits can be applied. The US has SSTAs with 24 countries. The purpose of SSTAs is to avoid double taxation of income with respect to Social Security and Medicare taxes. Thus, a US citizen living abroad in a country that h…

When FATCA Meets FIRPTA: Some Preliminary Comments

In view of the frenzy in the profession over compliance with the new FATCA rules, it seems appropriate to take an overview of how FATCA applies to a major source of inbound investment by foreign individuals – "FIRPTA" investments in U.S. real property. This commentary considers the extent to which FATCA might apply to the most common structures that are used. What is most striking, however, is that the FATCA rules provide for explicit exceptions for a substantial portion of FIRPTA - related income.
It is assumed in this commentary that the investment in U.S. real property is made by an individual who is a nonresident alien (NRA) for U.S. income tax purposes, and a "nonresident not a citizen of the United States" (i.e., a non-U.S.-domiciled alien) for U.S. estate and gift tax purposes. The following structures are examined in this commentary: (1) direct investment in U.S. real property by the NRA; (2) investment through a directly owned "United States real prope…