PFIC | TaxConnections

04 Feb 2014

NIIT-Picky Nuances for Americans Overseas or With Offshore Investments

If you meet the requirements, your 2013 tax return will reflect the new 3.8% Medicare surcharge imposed on high wage earners. This tax is more commonly called the “Net Investment Income Tax” or (“NIIT”). Many people are confused with the taxation of capital gains and the NIIT. There is even greater confusion because the rules governing application of the NIIT contain nuances with regard to Americans working overseas and with regard to so-called nonresident alien individuals (NRA).

Let’s start with some basics:

What is the NIIT / 3.8% Medicare Surcharge?

The NIIT is, broadly speaking a 3.8% surtax on “net investment income”. It applies only to Read More

Written by Virginia La Torre Jeker, J.D. | Posted in Expatriate • Individual

06 Jan 2014

IRS Gives Good News on Passive Foreign Investment Companies

Creeping up to the New Year, the Internal Revenue Service (“IRS”) showed an uncharacteristic sign of holiday goodwill. On December 30, 2013 the IRS issued Temporary Treasury Regulations providing guidance with regard to so-called “passive foreign investment companies” (“PFIC”). The areas covered in the Regulations include guidance in determining ownership of a PFIC (specifically, attributing ownership of PFIC stock through partnerships, estates and trusts), the annual filing requirements for shareholders of PFICs and guidance on the exception to the requirement for certain shareholders of foreign corporations to file Form 5471, “Information Return of U.S. Persons with Respect to Certain Foreign Corporations.’

Broadly speaking, the US tax laws impose a special tax and interest charge on a US person that is a shareholder of a PFIC when the investor receives an “excess distribution” from the Read More

Written by Virginia La Torre Jeker, J.D. | Posted in FATCA • FBAR • IRS

16 Oct 2013

US Tax Disaster – Offshore Funds, Life Policies, Portfolio Bonds

What Every American Investor Must Know

Many American investors are confused by sales pitches of expat investment advisors who are unfamiliar with United States tax laws. While it is true that no tax may be payable in the fund’s jurisdiction (Isle of Man, Guernsey or the UAE, for instance), significant US taxes are payable by the American owner. Confusion abounds when Americans invest in foreign mutual funds, life policies, savings plans, portfolio bonds and similar fund arrangements as compared to when they invest in US-based funds.

Generally, with a US fund virtually all of the income and the gains are distributed annually to investors and reported directly on their US tax returns. The fund sends both the investor and the IRS a form 1099 detailing the shareholder’s income earned in the fund. Foreign investment vehicles are not subject to this kind of disclosure. The American investor must flounder along and determine the proper US tax treatment of his investment.

The US tax laws are clearly designed to deter US persons from investing in offshore funds, whether the investment is made directly or indirectly (e.g., through a BVI company, non-US trust etc.). They prevent the income or gains from escaping US taxation and, impose harsh sanctions on the US investor eliminating any possible tax deferral. Read More

Written by Virginia La Torre Jeker, J.D. | Posted in Expatriate • FATCA • Individual • IRS • North America

08 Feb 2013

IRS changes instructions for Forms 5471 and 8621

Form 5471:

IRS now requires a creation of Refrence ID of the foreign corporation and this must be completed for all years ending on or after December 31, 2012.
According to AICPA – “ The most notable change and one that the AICPA has recently addressed in a comment letter to the IRS, is the constructive ownership exception which was previously available to Category 3 and 4 filers only. The exception has now been extended to all Category 5 filers where ownership in the foreign corporation is solely through application of constructive ownership principles and the U.S. person through whom the U.S. shareholder constructively owns an interest in the foreign corporation files Form 5471 reporting all required information. “
Other changes can be found in “What’s new” section of Form 5471.

Form 8621:

In the filer identification section, a line has been added to request the reference ID number of the PFIC or QEF.
New Part I, Summary of Annual Information was added to reflect the new annual filing requirement of section 1298(f) which was added by section 521 of the Hiring Incentives to Restore Employment Act of 2010. However, this new Part I is not required until the underlying regulations are published. For now, they have been marked as Reserved For Future Use. Form 8621 will be revised when Part I becomes effective.
The elections in Part II of the form have been reordered and the filing requirements for new elections F, G, and H have been modified. Please complete Part II carefully with these changes in mind.
See instructions for all changes very carefully.