Hey all, wondering if anyone can shed light on this simple yet devastatingly complex question, it seems, as I have been unable to find a definitive answer ?:

I'm a UK citizen living and working in the US since 2017. Have been a US tax resident since 2017.

My question is:

Am I liable for tax on capital gains on investments (shares) purchased prior to becoming a US resident but sold during a tax year that I am a resident of the US?

To try and make this easier to understand, look at my example below -- note that the figures are just for simplification.



Eg/ Say I purchased 100 shares in a unit trust from Company X for a US equivalent price of $1 in 2014. I purchased an additional 100 shares in the same unit trust from company X for a US equivalent price of $1.20 in 2017.

I now have 200*shares in a unit trust from company X with a combined US equivalent purchase price of: $100+$120 = $220.

From the 200* shares purchased, 100* of the shares were purchased prior to becoming a US tax resident and the additional 100* were purchased when I was a US tax resident.

By 2019 I have held all shares in company X for longer than 1 * year.

During tax year 2019 i sell all of the 200 shares in company X for a US equivalent price per share of $1.50 = $300.

Is my IRS reportable capital gain tax on :

1. The entire capital gain of $300-$220 = $80 derived from both the shares qtys purchased in 2014 & 2017 and sold in 2019?

2. The gain made on shares purchased only in 2017 and sold in 2019? Sell at $1.50 = (100* $1.50) - (100*1.20 original purchase price in 2017) = $150-$120 = $30

3. Some other gain?

Note that in the example above the shares are purchased under a tax free UK savings scheme (ISA) which means in the UK, there is no taxation on any profit derived. That means the the gain of $80 from the sell will not be taxed at all in the UK.

Interested in answers that do not refer me to a tax professional!

Thanks

Mark

A UK unit trust is a PFIC. The gain is calculated using Form 8621 and taxed at PFIC tax rates. The gain allocated to prior years is taxed at the highest Federal rate plus an interest charge.

Thanks. So can you confirm that the tax liabilities extend back to when I was not a US taxpayer?

If you create a taxable event when you're a US tax resident then yes.

The official form and instructions will help with the calculations: https://www.irs.gov/forms-pubs/about-form-8621

Tom, Thanks. I did not know this. Jesus.

Yeh, have those. Like walking into a minefield with a blindfold on.

Have you been filing 8621s each year since 2017? If not you may wish to use the official SDOP to correct matters: https://www.irs.gov/individuals/inte...-united-states

Yeh, I have.

With the info provided and the sheer incomprehensible 8621 complexities for filling in once the fund was sold in 2019, the accountants have been retained.

Thanks