Deferred Compensation Non-U.S. Person & Expatriation
Deferred Compensation Non-U.S. Person & Expatriation: When it comes to expatriation, one of the most common misconceptions involves deferred compensation. Deferred compensation breaks down further into eligible and ineligible deferred compensation. Eligible Deferred Compensation (tax is usually deferred until distribution) is not the same as Ineligible Deferred Compensation, which is deemed distributed the day before expatriation. So, what happens to compensation earned by a covered expatriate outside of U.S., and while the expatriate is not regarded as a U.S. resident or Citizen?
It depends, but since many of our clients have healthy foreign pension plans earned prior to U.S. status, it is very important.
Notice 2009-85 – Services Performed Outside the United States
“Section 877A(d)(5) provides that the rules of sections 877A(d)(1) and (2) shall not apply to any deferred compensation item to the extent attributable to services performed outside the United States while the covered expatriate was not a citizen or resident of the United States.
Thus, in the case of an eligible deferred compensation item, the amount of a taxable payment under section 877A(d)(1)(A) with respect to such item will not include the portion of such item that is attributable to services performed outside the United States before or after the expatriation date while the covered expatriate was not a citizen or resident of the United States.
To the extent that a portion of an ineligible deferred compensation item is attributable to services performed outside the United States before or after the expatriation date while the covered expatriate was not a citizen or resident of the United States, the amount includible in income under section 877A(d)(2)(A) with respect to such item will not include such portion.
Until further guidance is issued, taxpayers may use any reasonable method that is consistent with existing guidance (including Treas. Reg. § 1.861-4(b)(2), Revenue Ruling 79-388, and Revenue Procedure 2004-37) and is based upon a reasonable, good faith interpretation of section 877A(d)(5) to determine the portion of a deferred compensation item that is attributable to services performed outside the United States while the covered expatriate was not a citizen or resident of the United States.”
Interested in Expatriation from the U.S.?
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Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
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