Foreign Income

U.S. Income Taxation of Citizens and Residents Abroad (918)

 

Portfolio Description

The United States taxes its citizens and residents on their worldwide income, even if they live or work outside of the United States. Yet U.S. citizens and residents typically are subject to foreign country taxation on income when they live or work overseas. Such competing tax regimes create a potential for double taxation. Tax Management Portfolio, U.S. Income Taxation of Citizens and Residents Abroad, No. 918, describes the various ways in which the United States has addressed the problem of double taxation of individual taxpayers. Section 911 allows qualified individuals to exclude by election all or a portion of their foreign earned income from U.S. gross income, and to exclude or deduct certain foreign housing costs. To the extent that taxes paid to a foreign government are allocable to income excluded under Section 911, a taxpayer may elect on an annual basis to take a credit against U.S. income tax either for taxes paid or taxes accrued to a foreign country.

The very existence of multiple tax jurisdictions creates mechanisms for avoiding tax; by moving tax nexus to a jurisdiction with a lower rate of tax, a taxpayer could enjoy significant tax savings. Individuals who renounce U.S. citizenship or terminate U.S. residency with a principal purpose of tax avoidance are subject to tax determined under Section 877 for a 10-year period after the loss of citizenship or termination uf residency. In addition to examining the mechanisms of Section 877 in detail, this portfolio examines other techniques used by the United States to discourage tax-motivated expatriation, including the draconian measure of denying entry visas to tax-motivated expatriates.

This portfolio also examines the principles underlying the United States bilateral income tax treaties with foreign countries. Two main purposes for these income tax treaties are clarification of tax jurisdiction; and the arresting of double taxation. Finally, this portfolio examines miscellaneous tax issues that a U.S. citizen or resident is likely to encounter when living or working abroad, such as deductibility of moving expenses and dual social security coverage.

This Portfolio may be cited as Klasing, Fisher and Dougherty, 918 T.M. , U.S. Income Taxation of Citizens and Residents Abroad.

Martha A. Klasing, B.S., Southern Illinois University -- Carbondale; Master of Accounting (Taxation), University of Missouri-St. Louis; Senior Manager, KPMG LLP; Certified Public Accountant; member, American Institute of Certified Public Accountants; contributor: Tax Management International Journal; International HR Journal; Tax Management Compensation Planning Journal; frequent speaker on international tax issues and developments.

Arthur L. Fisher, A.B., Princeton University (cum laude); Master of Business Administration, Wharton School, University of Pennsylvania; Partner, KPMG LLP; Certified Public Accountant; member, American Institute of Certified Public Accountants; contributor: The Tax Advisor; International Tax Journal; frequent speaker on international tax issues and developments.

Clarissa M. Dougherty, B.A., University of Washington; Master of Professional Accounting (Taxation), University of Washington; Supervising Senior, KPMG LLP; Certified Public Accountant; member, New York State Society of CPA's; contributor: Tax Management International Journal; Tax Management Compensation Planning Journal; The Tax Advisor.