I visited your website recently.
I have a need to discuss international tax matter with
you.
I am a US citizen - dual citizen of India. I have been
residing in US since 1996.
Prior to coming to USA, I had purchases some stocks in
India (using Indian rupees) back in 1993. This stocks have appreciated in value
and I did some sale recently. There is no long-term capital gain tax in India
(zero). Also, these income in India is held in Non-Repatriable NRO account
(Reserve Bank of India DOES NOT allow these funds to be repatriated out of India
since it was originally bought using Rupees income in India). I file income tax
return in India regularly and there was no capital gain tax from the above
transaction.
Question is - do I have to pay US income tax (15%) on this
capital gain or is there an exception to worldwide income rule here ? I
have been told by some people (not a CPA) that IRS does not tax you in such
cases where money is non-repatriable. Hypothetically, one could make non-Repat
gain in India for $100M and at 15% rate if IRS asks him to pay $15M tax how
could he even pay that kind of tax in a lifetime if he is simply salaried
employee making $100K per year in the US? Someone even guessed (can't rely) that
tax needs to be reported to IRS but it becomes payable only when funds in
India become repatriable.
Can you please advise.
Thanks
--------------------------------------------------------------david ingram replies:
This situation used to be covered since 1974 by Revenue Ruling 74-351. However, this ruling was declared partially obsolete in May, 2007.
1. The profit is absolutely taxable to you as a US citizen whether you are physically in the United states or living in India. US citizens are taxale in the US on their worldwide income no matter where they live and no matter where the money is paid from. If they are truly non-resident, they may be eligible to exempt up to slightly over $80,000 of earned income (from services NOT investment).
2. As the holder of this foreign financial accouont in India, you shouldhave been filing Treasury Form TDF 90-22.1 which you can find at
http://www.irs.gov/pub/irs-pdf/f90221.pdf
failure to file this form (as you can see by reading the fine print at the bottom of the form) is a minimum fine of $10,000 (as of June 20, 2007) to a maximum fine of $500,000 PLUS up to 5 years in jail.
3. If the currency is blocked, you can elect to defer the tax until
a. you actually get the money unblocked OR
b. you actually use the money by spending it on a trip to India or giving it to your mother or using it in some other manner. For instance, you might have someone give you $10,000 US in the States and then they use the $10,000 worth of rupees when they get to India. The deferral is taxed at that time.
4. Note that extending the payment can increase the tax if the value of the currency increases relative to the US dollar as has happened in the last two or three years.
Assuming you are using the money somehow in India, you are likely better off paying the tax to the US with other funds. Keeping track of the deferral process can be a bookkeeping nightmare and is NOT worth it for small sums.
-------------------------------------------------------------------------------
David Ingram wrote:
However, I regularly search for the words"PAYING CUSTOMER" and
always answer them first if they did not get spammed out. As an example, as I
write this on Oct 18, 2007 since June 16th (124 days), my 'spammed out' box has
34,939 unread messages, my deleted box has 11854 I have actually looked at and
deleted and I answerd 1078 email questions for clients and strangers. I
have also put aside 622 messages that I am maybe going to try and answer because
they look interesting. -e
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Therefore, if an email is not answered in 24 to 36 hours, it is lost in space. You can try and resend it but if important AND YOU TRULY WANT OR NEED AN ANSWER, you will have to phone to make an appointment. Gillian Bryan generally accepts appointment requests for me between 10:30 AM and 4:00 PM Monday to Friday VANCOUVER (Seattle, Portland, Los Angeles) time at (604) 980-0321. expert US Canada Canadian American Mexican Income Tax help.
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Calls welcomed from 10 AM to 9 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) expert US Canada Canadian American Mexican Income Tax help.
$1,700 would be for two people with income from two countries
Catch - up returns for the US where we use the Canadian return as a guide will be $150 to $500.00 depending upon numbers of bank accounts, RRSP's, existence of rental houses, etc.
Just a guideline not etched in stone.
David Ingram expert income tax and immigration help and preparation of US Canada Mexico non-resident and cross border returns with rental dividend wages self-employed and royalty foreign tax credits family estate trust trusts income tax convention treaty advice on bankruptcy
It is very unlikely that blind or unexpected email to me will
be answered. I receive anywhere from 100 to 700 unsolicited emails a
day and usually answer anywhere from 2 to 20 if they are not from existing
clients. Existing clients are advised to put their 'name and PAYING
CUSTOMER' in the subject and get answered first. I also refuse to be a
slave to email and do not look at it every day and have never ever looked at it
when I am out of town. e bankruptcy expert US Canada Canadian American
Mexican Income Tax help
Therefore, if an email is not answered in 24 to 36 hours, it is lost in space. You can try and resend it but if important AND YOU TRULY WANT OR NEED AN ANSWER, you will have to phone to make an appointment. Gillian Bryan generally accepts appointment requests for me between 10:30 AM and 4:00 PM Monday to Friday VANCOUVER (Seattle, Portland, Los Angeles) time at (604) 980-0321. expert US Canada Canadian American Mexican Income Tax help.
david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
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My Home office is at:
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Cell (604) 657-8451 -
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Disclaimer: This question has been answered without detailed
information or consultation and is to be regarded only as general
comment. Nothing in this message is or should be construed as advice
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author and any and all non-contractual duties are expressly denied. All
readers should obtain formal advice from a competent and
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David Ingram gives expert income
tax & immigration help to non-resident Americans & Canadians from
New York to California to Mexico family,
estate, income trust trusts Cross border, dual citizen - out of
country investments are all handled with competence &
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Phone consultations are $400 for 15
minutes to 50 minutes (professional hour). Please note that GST is added if
product remains in Canada or is to be returned to Canada or a phone consultation
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Tax help.
This is not intended to be definitive but in
general I am quoting $900 to $2,900 for a dual country tax
return.
$900 would be one T4 slip one W2 slip one or two
interest slips and you lived in one country only (but were filing both
countries) - no self employment or rentals or capital gains - you did not move
into or out of the country in this year.
$1,100 would be the same with one rental
$1,300 would be the same with one business no
rental
$1,300 would be the minimum with a move in or out
of the country. These are complicated because of the back and forth foreign tax
credits. - The IRS says a foreign tax credit takes 1 hour and 53
minutes.
$1,600 would be the minimum with a rental or two in
the country you do not live in or a rental and a business and foreign tax
credits no move in or out
$1,700 would be for two people with income from two countries
$2,900 would be all of the above and you moved in
and out of the country.
This is just a guideline for US / Canadian
returns
We will still prepare Canadian only (lives in
Canada, no US connection period) with two or three slips and no capital
gains, etc. for $175.00 up.
With a Rental for $375
A Business for $375 - Rental and business likely
$500
And an American only (lives in the US with no
Canadian income or filing period) with about the same things in the same range
with a little bit more if there is a state return.
Moving in or out of the country or part year
earnings in the US will ALWAYS be $800 and up.
TDF 90-22.1 forms are $50 for the first and $25.00
each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00
each.
18 RRSPs would be $900.00 - (maybe amalgamate a
couple)
Capital gains *sales) are likely $50.00 for
the first and $20.00 each after that.
Catch - up returns for the US where we use the Canadian return as a guide will be $150 to $500.00 depending upon numbers of bank accounts, RRSP's, existence of rental houses, etc.
Just a guideline not etched in stone.
This from "ask an income trusts tax and immigration expert"
from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily
basis with expatriate tax returns with multi jurisdictional cross and
trans border expatriate problems for the United States, Canada, Mexico,
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