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...another US TAX question...

...another US TAX question...

Old Feb 11th 2020, 4:23 pm
  #1  
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Default ...another US TAX question...

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
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Old Feb 11th 2020, 6:11 pm
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Default Re: ...another US TAX question...

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.
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Old Feb 12th 2020, 11:44 am
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Default Re: ...another US TAX question...

Thanks. So can you confirm that the tax liabilities extend back to when I was not a US taxpayer?
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Old Feb 12th 2020, 12:52 pm
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Default Re: ...another US TAX question...

If you create a taxable event when you're a US tax resident then yes.
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Old Feb 12th 2020, 1:06 pm
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Default Re: ...another US TAX question...

The official form and instructions will help with the calculations: https://www.irs.gov/forms-pubs/about-form-8621
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Old Feb 12th 2020, 1:10 pm
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Default Re: ...another US TAX question...

Tom, Thanks. I did not know this. Jesus.
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Old Feb 12th 2020, 1:11 pm
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Default Re: ...another US TAX question...

Yeh, have those. Like walking into a minefield with a blindfold on.
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Old Feb 13th 2020, 8:09 am
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Default Re: ...another US TAX question...

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
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Old Feb 13th 2020, 12:57 pm
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Default Re: ...another US TAX question...

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


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