TaxProTalk.com

My client has been living and working in US all of 2015. She has rental property in the UK and a small business in the UK ( and she says none of that money came into the US). Because her income was under the threshold she did not have any taxes to pay in the UK. So if I put these income items on her 2015 US tax return will owe about $6,000 in taxes, with no offsetting FTC. Am I missing something here? Please let me know if there is something I am not thinking of so that she does not have to pay so much in US taxes?

Is she a citizen of some particular country? Is she a resident alien of some particular country?

She is a citizen of UK

She is a E2 visa holder (she and her family).

Is she filing 1040 or 1040NR? What does that visa signify? I don't have the types memorized.

I was planning to file her on a 1040. She doesn't have a green card. E2 is a work visa.

he E-2 nonimmigrant classification allows a national of a treaty country (a country with which the United States maintains a treaty of commerce and navigation) to be admitted to the United States when investing a substantial amount of capital in a U.S. business. Certain employees of such a person or of a qualifying organization may also be eligible for this classification. (For dependent family members, see “Family of E-2 Treaty Investors and Employees” below.)

It doesn't sound like you are missing anything. US residents pay taxes on their worldwide income.

Firstly, the rental profit will be lower for US purposes than for UK purposes, because the US requires that your client claims depreciation on the building (but not the land) on a straight line 40 year basis.

Secondly, you do not state the form of the UK business. Is this a sole trade, a Limited Company or some other entity?

Thirdly, FBARs and 8938s and PFICs (including in ISAs) are frequently overlooked.

Fourthly, does your client have any carryover on Form 1116 from the previous year? If 2015 was the first year of residence, is this a dual status return and - if so - are you reporting the foreign income only for the period of US residence?

Oh my goodness. So many things I had not thought of!

They came to the US in 2014 and elected to be treated as citizens. There is a large 1116 carryover. I do not know why the properties and business in the UK were not included on the 2014 tax return. Pricewaterhouse Cooper prepared the 2014 tax return. (I am wondering if that could have something to do with the tax year of UK.)

And when I prepare the 1040 with the foreign income do I use the income form the UK that would have been on the 2015 tax return ending in April 2015?

I really want to learn to do these correctly as my son lives in Sweden and we want to add this type tax return to our joint business.

If the clients filed 7701(4)b and 6013(g) elections for 2014 - but income or assets or information returns were omitted - the 2014 return will need to be amended. The US tax year is the calendar year.

Did the clients fail to tell PwC about their worldwide income and foreign financial accounts/assets?

PHall wrote:Oh my goodness. So many things I had not thought of!

This area of the law – the foreign stuff – is a field unto itself and is absolute minefield. Normally, practitioners can identify issues and figure things out pretty quickly. But this area of the law is not one of them…