Q:  I am an expatriate US citizen, cruising the South Pacific on my boat. The money from a house I own in the US is just starting to earn sizable capital gains. Should I file a return now, and get back on the US computers? How hard is it for IRS to gain access to information on offshore investments with foreign institutions?

A:  If you are truly an expatriate - usually someone who renounces U.S. citizenship -- then there is a full set of rules that apply. Earning capital gains does not make sense to me. If you sell a property, you receive a capital gain or loss. Rents are continuous in nature and represent ordinary income, not capital gains. You need to report a capital gains sale, even if you have not filed taxes for years. IRS is cracking down on off-shore accounts and has several ways to detect them, mainly through credit or debit card transactions, but also under agreements with certain foreign countries and sometimes with banks themselves. If you have more than $10,000 in one or more foreign bank accounts at anytime during the year, you are required to report it.

Q:  Are there tax consequences when a foreigner receives stock dividends from a U.S. corporation?

A:  Dividends from a U.S. company are considered U.S.-source income and are subject to a flat 30% tax which is collected through withholding and payment to IRS by the corporation paying the dividends.

Q:  My father, a non-resident alien, wants to help me financially with the purchase of a new home. If he gifts me money for the home, are there gift tax consequences?

A:  Yes. Because the gift is specifically earmarked for the purchase of U.S. real property, the transfer is considered a gift of U.S. real property (which is subject to gift tax) rather than an unrestricted gift of cash by a non-resident alien (which is not subject to gift tax). In your case, you need to make sure the funds are not tied to real estate investments in the U.S.

Q:  I've sustained a loss in a 401(k) plan, similar to what happened to Enron and Kmart employees. Is there any way these losses can be deducted on a tax return?

A:  No. Gains and losses generated within retirement plans are not subject to taxes, which means you do not pay taxes on the gains or receive tax deductions for losses. Your best option is to sue your employer for breach of fiduciary duty regarding the administration of the plan.

The browsable version of this page: March,2004 FAQ

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