Tag Archives: FORM 1040NR

Saving International Taxes with Tax Treaty’s Tie Breaker Rules for the Green Card Holder

The tax treaty tie breaker rule can allow a green card holder not to be a U.S. tax resident. 

The tax treaty tie breaker rule overrides the U.S. tax code.  The tax treaty tie breaker rule requires an individual to be a resident of the country where he has the closest connection. 

With the tax treaty tie breaker rule a green card holder who is a citizen of a country with a tax treaty may non-resident for U.S. income taxes.  Tax treaties override the U.S. tax code.

As a non-tax resident, you live and work in the U.S. but only pay tax on your U.S. income and not your foreign income.

Here is what happens:  If you are a dual-resident taxpayer (a resident of both the United States and another country), a tax treaty’s “tie-breaker” rule determine if you are a U.S. income tax resident.   

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IRS Updates Foreign Trust Tax Planning and Reporting

Offshore Trust International Tax Strategy and Planning is a sophisticated concept used by the wealthy. Learn more in my book, International Taxation in America, available at Amazon.

Offshore Trust International Tax Strategy and Planning is a sophisticated concept used by the wealthy. Learn more in my book, International Taxation in America, available at Amazon.

There are many legitimate reasons why you might create a foreign trust or have transactions with a foreign trust.  

 Foreign trusts can be a wonderful foreign tax planning entity.   They can protect assets.  They can give you control of how your heirs will manage their inheritance.  Lastly, a trust can move from country to country.    This called a change of trust situs. 

The IRS has updated their website. I assembled the information below from various IRS web pages.  The IRS updated information is in blue below.
If you need to learn more ways to save taxes, then get my easy to read book from Amazon on this link for $9.50.

 Here are the key concepts:
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IRS Hits Foreign Investors in U.S. LLCs and Partnerships Hard.. very Hard

No audit is necessary!   The tax law allows the IRS to automatically assessed that tax on the gross income and disallow all expenses when a Form 1120F  is not filed or is filed late.   

International tax planning and strategy

Applying for an IRS ruling on your international tax planning will save you taxes in the long run.

U.S. international tax law disallows all business expenses when a Form 1040NR or Form 1120F is filed late or has not been filled.    

Here is an IRS explanation.  The legal advice is in blue below:

Third Party Communication: * * *
Date of Communication: Month DD, YYYY

ID: CCA_2015032710120101

From: * * *
Sent: Friday, March 27, 2015 10:12:01 AM
To: * * *
Cc: * * *
Bcc: * * *
Subject: FW: IRC 882(c)(2) and TEFRA (POSTS-143012-14)

The section 882 limitations on deductions is not a partnership items because it is not something the partnership must determine under Subtitle A. I.R.C. 6231(a)(3) and 703.

Instead, the limitation is a partner-level affected item similar to partner limitations on partnership deductions under the at risk (sec. 465), passive loss (sec. 469) and outside basis limitations (sec. 704(d) rules. See Treas. Reg. 301.6231(a)(5)-1(a) through -1(d).

Consequently, the deductions should be disallowed through an affected item notice of deficiency issued under section 6230(a)(2)(A)(i).

Under Roberts v. Commissioner, 94 T.C. 853, 860 (1990), we do not have to open and close a TEFRA partnership proceeding before issuing such affected item notice of deficiency. But for the purposes of the affected item notice, we will be bound by the amounts reflected on the partnership return, before application of the partner-level limitations on those amounts.

Example of the tax trap for the foreign investor in LLC or partnership

A foreign investor uses a foreign corporation to be a ten percent  member in a U.S. LLC.  Domestic LLC’s are classified as a partnership.    The partnership has income of  $10,000,000 and expenses of $8,000,000.   The foreign corporation share of the $2,000,000 of net income is $200,000.   However, foreign corporation is late in filing its form 1120F.

Section 882 denies a tax deduction of all of the expenses when a return (form 1120F) is filed late or is not filed.  Thus, the IRS can assess tax on $1,000,000 (ten percent of the income of $10,000,000).  Under section 882, the foreign investor is denied a tax deduction for all of the expenses incurred by the partnership.

This is the case despite that LLC timely filing its partnership return.  Usually, the IRS would have to audit the partnership.  However, the legal advice explains that the IRS can merely assess the foreign corporation.

U.S. Estate Taxation of the Foreign Investor using a Foreign Corporation

The shareholder of the foreign corporation will owe U.S. estate taxes. The U.S. has an estate tax and not an inheritance tax.  U.S. estate tax law ignores the corporation.  Here is why on this link.

Eight Hours International Tax Seminar for the California Society of CPAs – Live & Webcast on September 28th

international tax strategy,

International tax planning conference on September 28th, live and webcast from San Francisco.

If you are on this page now, it means you missed the seminar.  However, I have some of the videos and information for your education.  

This is what has happened to the IRS: The courts are hammering the IRS in most international tax issues. From captive insurance companies to cost sharing agreements (the most popular method to shift income offshore), the courts are hammering the IRS. Inversions (moving your headquarter or computer server offshore) continue to provide tax savings.

The Key to Saving Taxes is the IRS Tax Form: Originally used to allow the IRS to track big publically traded multi-nationals, these forms now provide the blueprint to tax savings. Each time the IRS loses in court, they place a question regarding the tax method on a tax form. They think this will scare you away. But, tax planners are reverse engineering the IRS questions and are fine tuning their methodology.

If you have thoughts of going offshore or have an international business, then suggest you spend two hours with my offshore tax book.  Below is the first chapter.  The book is available as an audiobook, Kindle or paper.   It is by far the best international tax book on the market.

You can get the Kindle edition of the best offshore tax book at Amazon for $9.50 on this link.  

Here is  the Form 1040NR, taxation of the nonresident alien and foreign trust, video.