Search This Blog

October 31, 2015


By. Don D. Nelson, International Tax Attorney

  • Though most foreign assets are reportable on various specialized forms filed with your US tax return,. If you own foreign real estate and title is in your own name (or a Fideicomiso) and do not rent out the property, there is no reporting required on your US tax return or for that matter any other reporting due the US Government.
  • Foreign mutual funds (and most foreign money market funds) require filing of another special form with your tax return. If you do not file this form and make elections to report the income each year, you are penalized with higher taxes and interest when you finally sell your foreign mutual fund. These rules were put in many years when Congress was convinced by US Mutual Fund companies that there business would be hurt unless investment in foreign mutual funds was made unfavorable for tax purposes.
  • The 2015 the $100,800 US foreign earned income exclusion applies to earned income (wages or self employment) income earned abroad if you meed the physical presence test or bonafide resident test. You can see if you qualify in IRS Publication 54. It is not automatic and can only be claimed on your US tax return. The IRS can deny this exclusion if you file your return more than 18 months late. This exclusion does not apply to rental income, dividends, interest or capital gains or any income other than earned income.
  • You must report your rental net income in from your Mexican real estate on your US return and you may also owe taxes on it in the country in which it is located  even if you are not a resident. The Mexican income tax can be claimed as a credit directly offsetting any US income tax you owe on the rental income. 
  • If you own 10% or more of a foreign corporation you may have to file form 5471 with your US tax return if required by the rules governing that form. Failure to file that form in a timely manner may result in the IRS assessing a $10,000 US penalty for failure to file even if you owe no taxes.
  • The US has a tax treaty with approximately 66 countries. It also has in the past year entered into an OECD agreements with over 36 countries who have agreed to exchange income tax information with the other. At some point in the future what you do offshore  will not stay in offshore and visa versa due to these new OCED agreements.
  • If as a US Citizen you have lived and worked in abroad for a while and not filed your US tax return, the IRS currently has a “streamlined program” that may allow you to catch up by filing only the past 3 years US tax returns and past six year FBAR (foreign bank account reports). They will not penalize you under that program for failing to file FBAR forms or other foreign reporting forms. They have stated they may discontinue this program at any time. Now is the time to surface with the IRS and avoid potentially huge penalties.
  • FBAR (foreign bank account reporting forms) must be filed each year with US Treasury if at any time during the calendar year your combined highest balances in your foreign financial accounts exceeds $10,000 US. This form must be filed on line. Foreign accounts include foreign pension plans, cash surrender value in foreign insurance, foreign brokers accounts, and even gold if held for you in a foreign country a custodian. Failure to file this form or filing it late can result in penalties of $10,000 US or more.

Don D. Nelson is a US tax attorney who has been assisting Americans everywhere in the World for over 25 years with their US tax returns and tax planning. He is also a partner in Kauffman Nelson LLP, Certified Public Accountants. His website is located at His tax blog has the lastest tax developments of interest to those abroad at email address is He can be reached at his US phone number 949-480-1235.   

October 26, 2015

Expatriate Foreign Earned Income Exclusion for 2016 Increased

The foreign earned-income exclusion amount under tax code Section 911(b)(2)(D)(i) will increase in 2016 to $101,300 from $100,800, the International Revenue Service said Oct. 21 (Rev. Proc. 2015-53).
Section 911 allows qualified U.S. citizens and residents who work abroad to exclude a certain amount of their foreign-earned income and a portion of their foreign housing expenses from their gross income for U.S. tax purposes. They must meet either a physical presence test or a bona fide residence test. Taxpayers may elect the Section 911 income and housing exclusions even if no foreign taxes were paid on their foreign earnings.
Although employers generally must withhold U.S. federal income taxes from taxable wages paid to U.S. citizens and residents working abroad, the withholding requirements do not apply to wage payments subject to the foreign earned-income and housing cost exclusions claimed by expatriate employees that file Form 673, Statement for Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusion(s) Provided by Section 911, with the employer.

October 18, 2015

IRS Collecting $8 Billion from Offshore Tax Compliance Push

Read in Accounting Today how the IRS is collecting taxes from expatriate taxpayers.  They have over 54,000 taxpayers that have come forward in the Offshore Disclosure Programs or Streamlined Programs.  That still leaves a lot of taxpayers out there who have not yet complied with the US tax rules because there are approximately 8.3 million Americans living abroad.  Do not wait until they catch you through FATCA or through the over 36 signed OECD agreements where the US and other countries have agreed to mutually exchange tax information on their residents.

The IRS  has stressed that it remains committed to stopping offshore tax evasion wherever it occurs, and even though the agency has faced several years of budget reductions, the IRS continues to pursue cases throughout the world.


October 4, 2015

IRS Begins Sending Individual Account Information to Foreign Countries

The Internal Revenue Service has kicked off a new program under which it shares large amounts of individuals’ financial-account information with certain foreign countries, the agency said Friday.
The IRS said it received digital information about U.S. taxpayers’ foreign accounts from governments and firms around the world, and it sent information on foreigners’ U.S. accounts to government authorities in as many as 34 countries. While governments have exchanged such information in the past, the sharing wasn’t automatic and the scope was often far narrower. The deadline for the exchange to begin was Sept. 30.  Read more in the wall street journal and find out if your resident country is on the list!