Tag Archive for Personal Income Tax

Dear Mr. President… Why I Must Expatriate….

US and Canada

This letter was posted by Robert Wood on Forbes’ website. Robert is a US tax lawyer based in San Francisco, California. He received this letter in the course of his practice. I thought it was well worth passing on and have reproduced it in full:

“Dear Mr. President,

I am writing with a heavy heart as I, my husband, and our daughter are all seriously contemplating giving up our U.S. citizenship. We are doing this not to avoid paying U.S. taxes but because we strongly object to a system that is blatantly discriminatory and unfair to law-abiding Americans living outside the country. In addition, it has become too expensive, too difficult, and frankly, too frightening, to try to comply with all of the tax filing Read more

Canadians With US Rental Property – What Are The Cross-Border Tax Implications?

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Canadians earning income from US rental property can be fraught with unexpected tax problems, which could severely hurt their after-tax return on investment. It is important to consult a cross-border tax professional before the purchase to understand all the US and Canadian tax implications of owning US rental property and to make the best decision for their situation on the right structure to own and finance the purchase of US rental property.

This is the first of a series of articles on the cross-border tax considerations of investing in US rental property. If you are planning to purchase US rental property, you need to have some basic understanding of the following US and Canadian tax law before you can make a sound decision on how you should own and finance the purchase of US rental property. Read more

US Income Taxation of Nonresident Alien Individuals – What About Alimony Income?

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A nonresident alien individual (NRA) is generally subject to US income tax on two types of income categories:

Income that is “effectively connected” with a trade or business in the United States (so-called “ECI”); Income from US sources that is “fixed, determinable, annual or periodical” (so-called “FDAP” income)

ECI versus FDAP

When income is “effectively connected” with a US trade or business, the income is taxed at graduated rates. These are the same rates that apply to US citizens and residents (the highest marginal rate is 39.6%). Such “effectively connected income” ECI, is to be Read more

Overstayed Your Welcome? “Substantial Presence” In The USA

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Under US tax laws, any individual with a “substantial presence” in the United States runs the risk of being classified as a US person for tax purposes.  Those who are physically present in the United States for a long enough time may find themselves owing taxes on their worldwide income to the IRS even if they are neither a US citizen nor a green card holder, and even if they earn no income from US sources.

The Substantial Presence Test

The criteria often cited for meeting the substantial presence test is residing in the US for more than 182 days in a given calendar year.  This is very misleading, as the actual calculation used by the IRS is more complicated and looks at US residency over a Read more

Got’cha! Delinquent Taxes Owed to IRS, Now Owed Indefinitely? What About Tax Non-Compliant Expatriates?

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It was recently reported in the press that the Social Security Administration was collecting old debts of many deceased persons by intercepting the tax refunds of their children. After much unwanted publicity, the Social Security Administration announced it would stop doing this with regard to debts that were over ten years old. What implications does this case raise for tax noncompliant expatriates?

The case of the Social Security Administration is quite alarming and raises serious concerns for persons with unpaid US tax liabilities. It is widely reported and recognized that there has been a vast increase in expatriations. I suspect that some expatriations will involve taxpayers who were not fully tax compliant and I foresee that this area is ripe for IRS audit and controversy. Read more

US Tax Issues – Ownership of Real Property Abroad

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When purchasing a real property overseas, there are situations when it may prove advantageous or even necessary to do so through an offshore corporation, rather than owning the property individually. It is crucial to understand that this can also have significant US tax consequences for US persons. Fortunately, “checking the box” on Form 8832 provides a possible solution to this problem, taking advantage of the protections provided by the corporate entity while avoiding many of its tax repercussions.

Benefits of Corporate Ownership

Investment in real property through a vehicle offering limited liability, as opposed to direct ownership, offers numerous protections. Should any legal claims arise, such as in the case of tenant injury when renting out property owned through a corporation, the liability of Read more

Help, I Want to Expatriate, But They Won’t Let Me… Part II

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This is a two-part blog post with Part I available HERE.

Renouncing US Citizenship if the Individual is a Minor

“Jus soli” (the law of the soil) is a rule of common law followed by the United States, under which the place of a person’s birth determines his citizenship. In addition to common law, this principle is embodied in the 14th Amendment to the US Constitution which states, in part, that: “All persons born in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.” Citizenship is also determined under various US citizenship and nationality statutes, such as the Immigration and Nationality Act (INA). Read more

Swiss Continue To Cave In

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Kathryn Keneally, assistant attorney general in the tax division at the US Department of Justice (DOJ) stated just a few days ago that 106 Swiss banks have already signed on to the Swiss-DOJ non-prosecution program (Program) announced at the end of August 2013. The Program is designed to encourage all Swiss banks to come forward and admit the role they played in assisting US persons to evade tax. Participating banks that meet all of the demands made by DOJ are eligible for non-prosecution agreements (employees and agents of the banks are not protected). Any Swiss bank that was already a target of US criminal investigation could not apply – 14 Swiss banks are ineligible under this provision.

The number of banks signing on to the Program (approximately one-third, as it was Read more

Extension Tax Returns Still Due October 15, 2013 – Despite IRS Shutdown

TaxConnections Blogger Virginia La Torre Jeker reminds to file extensionTax filing time is here for Americans. Due date is October 15 for those on extension and many people are panicking. Despite the shutdown of certain IRS operation, the IRS has made clear that the Oct 15 due date is still in effect and people must still file timely. You can read more from the IRS about the effect of the lapse in appropriations here. Taxpayers should continue to file and pay taxes as they would under normal government operations. Individuals who requested an extension of time to file should still file their returns by Oct. 15, 2013 either electronically or on paper. The processing of paper returns will be delayed until full government operations resume. Payments accompanying paper tax returns will still be accepted as the IRS receives them. Tax refunds will not be issued until normal government operations resume.

What happens if the overseas filer still cannot get his return in on time? They are sometimes allowed an additional extension beyond October 15, discussed more fully below.

Additional Extension of Time for Taxpayers Out of the Country

Taxpayers who are out of the USA can request a discretionary 2-month additional extension of time to file their returns (that is, returns are due by December 15 for calendar year taxpayers).

To request this extension, you must send the Internal Revenue Service a letter explaining the reasons why you need the additional 2 months. Send the letter no later than the extended due date (October 15 for calendar year taxpayers) to the following address: Read more