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Flashcards in Taxes: Taxation & Foreign Income Deck (4)
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1

Taxes:
Taxation & Foreign Income
General

General
- Treaties trump tax law
- Foreign taxpayers taxed only on US sourced income
- US Taxpayers taxed on all income
- if foreign corp receives more than 25% US Sourced income for previous 3 years, it is US sourced

2

Taxes:
Taxation & Foreign Income
Outbound Transactions

Outbound Transactions
- transfer of assets may trigger income
- if used in trade/business outside US gain is deferred unless inventory, installment obligations, or foreign currency

3

Taxes:
Taxation & Foreign Income
Controlled Foreign Corporation

Controlled Foreign Corporation
- more than 50% voting power or value of stock is owned by US citizens
Constructive Dividends:
- income not connected economically to the country where incorporated
- income from insuring risk of loss from outside the country in which organized

4

Taxes:
Taxation & Foreign Income
Worldwide Income

Worldwide Income
Mitigate Double Taxation
- Itemized deduction for foreign income tax paid
- or credit ( limited if US rate is greater)
- some can exclude
Limit
= (US Tax on worldwide income X Foreign Source)/ Worldwide taxable income
- must add personal exemptions to worldwide income
- back 1 and forward 10
- only passive income less than $300k are exempt
- foreign tax credit is usually better
Tests
- bona fide resident of at least 1 foreign country
- have a tax home and be present for 330+ days in 12 months

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