"Non Resident Citizen"

[Possi]

Conversely speaking from my "resident alien" post earlier, I now have 2 different clients who live and work abroad.

They have income that is taxable in the US, as they are US citizens. (One now has rental property in the US, too.)

Where do I go for more help than TTB offers? I can't find in there, HOW and WHERE to claim this income. Seems to me it would need to go on a Sch C to pay the FICA.

Help... I'm drowning........
~possi

[S T]

That makes two of us

I have a similar situation US Citzen (actually dual citizen) living in Argentina, so maybe some of my posts will assist you, here is the link.

If you find out anymore, let me know.

http://www.thetaxbook.com/forums/showthread.php?t=11163&highlight=foreign

Sandy

[Possi]

form 2555

One of the 2 just sent their 2007 return and they qualified for the 2555 exclusion. They have lived in Bucharest for several years. They are the ones with the rental property now. Since that will generate a loss, I think I can follow their lead pretty easily.

The second one is a young man in his 20's who worked and went to school in US in 08, then moved to Jordan where he works and lives now. This is his first year doing this, so I am the first to do his return.

I might need to pass this one to an accountant.

(That is what I do if I don't feel confident with these topics I am unfamiliar with. Tonight, I was going through another return for a new client and there are 2 Installment sales. I have never done one of those, either. I will send him back to the accountant he came from. I really do not know why he stopped going there.)

Ok, I'm going to bed and I'll start in the morning. Maybe some answers will magically appear tonight.

=)

[erchess]

Installment Sale

I can't help you with your clients who have foreign income but Installment Sales are no problem at all. Please look at TTB 1040 Edition 6-13 to 6-16 inclusive. There are also examples at tab 13 of the Small Business Edition. 1040 Edition 6-13 refers you to the relevant IRS Pub and the Form Instructions both of which you can find on the IRS Website. What I would seriously say to you is that if you understand how to do Schedules A and C you are smart enough to understand how to do an installment sale. In fact I think you can do most of them just from what is at TTB 1040 Edition 6-13 to 6-16. There is one fine point that I didn't see in TTB but I feel sure is still in effect. If the Installment Sale buyer is a "Related Party" then the seller is taxed as though they made the contractually required payments unless the seller has initiated legal action against them. A "Related Party" would include the taxpayer's ancestors and descendants and the siblings of the taxpayer and the taxpayer's parents and the spouses and descendants of those folks as well as anyone with whom one has a close business relationship such as employer and employee, partners in a partnership or major shareholders in the same corp.

Just remember that an Installment Sale involves just a few basic concepts. The Buyer and Seller will have agreed upon a "Contract Sale Price" which is what they are saying the property would be worth if purchased for cash. They will also have agreed on a payment plan, usually with the same monthly payment but sometimes with this changing and sometimes a large "Balloon Payment" at the end. A variable or fixed rate of interest will have been agreed upon. Usually they will bring you a contract worked out between their lawyers with all the information you need including a schedule of payments known as an "Amortization Schedule" If for some reason they don't bring you all this then you probably don't want to take this client as your first or second installment sale. Sometimes people especially related parties and people inn rural areas will just shake hands on a deal. Or they may jot down a few notes on a piece of paper. All this is not necessarily a problem for an experienced tax professional and it need not be a problem for them either as long as they truly have the same understanding of the deal and all its terms and no unforeseen circumstances crop up.

Anyway each year the portion of what the buyer receives that is interest goes on F 6252 and ends up on Sch B while the portion that is profit from the sale is calculated on F 6252 and ends up on the 1040- I forget what line- as ordinary income

[Koss]

Foreign Earned Income

FICA may not be applicable.

Whether you are conscious of it or not, your concern over FICA may be flowing from the recent brouhaha over Treasury Secretary Geithner's failure to pay FICA for his earnings when he was working abroad.

But Geithner was working for the International Monetary Fund.

Geithner's work for the IMF is somehow treated as if he were working for a US employer, and that made him liable for FICA. But because the IMF isn't really a US employer, they were not required to withhold FICA.

Geithner's situation wasn't exactly unique. But your client may be working for a Jordanian employer with no ties to the US. If that's the case, he's probably not required to pay FICA.

And he may qualify for the Foreign Earned Income Exclusion. And if he doesn't qualify for the Foreign Earned Income Exclusion, he may qualify for the Foreign Tax Credit.

You wrote:

Where do I go for more help than TTB offers? I can't find in there, HOW and WHERE to claim this income.

Start with IRS Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad.

Then move on to read the instructions for Form 2555, Foreign Earned Income Exclusion, and Form 1116, Foreign Tax Credit.

You may e-mail me if you feel like it...

BMK

[thomtax]

Why to an accountant? Their need is for a tax professional to handle their situation. This is not something an accountant would probably be involved with. I worked for years as an accountant and would have never even thought of a situation like this.

LT

[Possi]

Didn't live there all year...

FICA may not be applicable.

Whether you are conscious of it or not, your concern over FICA may be flowing from the recent brouhaha over Treasury Secretary Geithner's failure to pay FICA for his earnings when he was working abroad.

But Geithner was working for the International Monetary Fund.

Geithner's work for the IMF is somehow treated as if he were working for a US employer, and that made him liable for FICA. But because the IMF isn't really a US employer, they were not required to withhold FICA.

Geithner's situation wasn't exactly unique. But your client may be working for a Jordanian employer with no ties to the US. If that's the case, he's probably not required to pay FICA.

And he may qualify for the Foreign Earned Income Exclusion. And if he doesn't qualify for the Foreign Earned Income Exclusion, he may qualify for the Foreign Tax Credit.

You wrote:



Start with IRS Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad.

Then move on to read the instructions for Form 2555, Foreign Earned Income Exclusion, and Form 1116, Foreign Tax Credit.

You may e-mail me if you feel like it...

BMK

Tonight I will go over both of these publications more carefully. I don't think the student qualifies for the exclusion, but he may. Thanks for the links to study. I'll email you if I need to, but will try to figure it out myself. You have given me some good sources.

[Possi]

Thanks Erchess

I can't help you with your clients who have foreign income but Installment Sales are no problem at all. Please look at TTB 1040 Edition 6-13 to 6-16 inclusive. There are also examples at tab 13 of the Small Business Edition. 1040 Edition 6-13 refers you to the relevant IRS Pub and the Form Instructions both of which you can find on the IRS Website. What I would seriously say to you is that if you understand how to do Schedules A and C you are smart enough to understand how to do an installment sale. In fact I think you can do most of them just from what is at TTB 1040 Edition 6-13 to 6-16. There is one fine point that I didn't see in TTB but I feel sure is still in effect. If the Installment Sale buyer is a "Related Party" then the seller is taxed as though they made the contractually required payments unless the seller has initiated legal action against them. A "Related Party" would include the taxpayer's ancestors and descendants and the siblings of the taxpayer and the taxpayer's parents and the spouses and descendants of those folks as well as anyone with whom one has a close business relationship such as employer and employee, partners in a partnership or major shareholders in the same corp.

Just remember that an Installment Sale involves just a few basic concepts. The Buyer and Seller will have agreed upon a "Contract Sale Price" which is what they are saying the property would be worth if purchased for cash. They will also have agreed on a payment plan, usually with the same monthly payment but sometimes with this changing and sometimes a large "Balloon Payment" at the end. A variable or fixed rate of interest will have been agreed upon. Usually they will bring you a contract worked out between their lawyers with all the information you need including a schedule of payments known as an "Amortization Schedule" If for some reason they don't bring you all this then you probably don't want to take this client as your first or second installment sale. Sometimes people especially related parties and people inn rural areas will just shake hands on a deal. Or they may jot down a few notes on a piece of paper. All this is not necessarily a problem for an experienced tax professional and it need not be a problem for them either as long as they truly have the same understanding of the deal and all its terms and no unforeseen circumstances crop up.

Anyway each year the portion of what the buyer receives that is interest goes on F 6252 and ends up on Sch B while the portion that is profit from the sale is calculated on F 6252 and ends up on the 1040- I forget what line- as ordinary income

I will document your reply and keep it for future study. This was an installment sale from a couple of years ago. Before I took the client, I looked over his papers to be sure there wasn't a carryover of unfamiliar territory. I simply missed these sales.

Since they are carrying figures, I am going to send the return back to his CPA. Client came to me because his CPA isn't local, and he just moved here. I believe the integrity of the return needs to stay intact, so I feel good about my decision.

At 1:30 last night, I was not feeling so good about myself. I've been doing this work for 14 years, go to cont. ed. seminars, study hard and do my very best to keep my clients' money in their own pockets. So, for every 400 returns, if I need to send one or two out for better qualified preparers, I put on my "big girl panties" and send them out.

Then I thank God for knowing when to do that.

=)

Keep smiling....
~possi

[Lion]

Easier

But, Possi, when it's not the first year of an installment sale, it's easier. The computations have all been done; you have a percentage. You just plug in 2008 numbers and move on to the next form. You even have a template from prior years to follow. Keep the client and charge them just under what their CPA charged.

[Davc]

I will document your reply and keep it for future study.

You would do better to read the form and the instructions.

[Possi]

Thanks again

Thanks for all your assistance. I just keep on learning.
=)

[Burke]

Anyway each year the portion of what the buyer receives that is interest goes on F 6252 and ends up on Sch B while the portion that is profit from the sale is calculated on F 6252 and ends up on the 1040- I forget what line- as ordinary income

Good post about installment sales. One clarification, though. The interest does not go on F6252. In fact, line 21 and 23 specifically say "Do not include interest, whether stated or unstated." Only the principal received goes on that form, the interest goes directly to Sche B.
Once the profit percentage is calculated, the taxable portion of the principal received goes to Sche D or 4797, depending on what kind of property it is, and is given capital gain treatment when applicable.