United States

Individual - Other issues

Last reviewed - 07 February 2024

Treatment of flow-through business entities

Certain legal entities are 'flow-through entities' (e.g. partnerships, S corporations). Income accrued by such entities is not taxed at the entity level. Instead, the income 'flows through' to the owners or shareholders, who then are taxed on the revenues.

P.L. 115-97 provided a 20% deduction to domestic owners of flow-through entities against their qualified business income for tax years beginning after 31 December 2017, and before 1 January 2026. Complex rules apply with respect to this new deduction.

Proposed passive foreign investment company (PFIC) regulations

At the end of January 2022, the IRS issued proposed regulations (the 2022 proposed regulations) regarding the treatment of domestic partnerships and S corporations that own stock in PFICs and their domestic partners and shareholders. The proposed regulations would be exceedingly burdensome for partners of domestic partnerships and shareholders of S corporations, and Treasury and the IRS are seeking comments from practitioners.

The current PFIC regulations adopt an entity approach whereby domestic partnerships and S corporations holding PFICs are generally responsible for making elections (e.g. qualifying electing fund and mark-to-market), calculating inclusion amounts, and reporting (e.g. filing Forms 8621).

The proposed PFIC regulations adopt an aggregate approach whereby the responsibility for making elections, calculating inclusion amounts, and reporting is pushed down to the partner and S corporation shareholder level. Furthermore, partners and S corporation shareholders would have to inform the partnership or S corporation through which they are indirect owners of PFICs of any elections made so that the partnerships and S corporations could track relevant attributes impacted by these elections.

Foreign exchange issues

Although the United States has no foreign exchange controls, any 'United States person' who has a foreign financial account (or a signature authority over such account) during the year may be required to file a report with the US Treasury Department by 15 April of the following year, although an automatic extension is currently provided until 15 October of the following year. The term 'United States person' has been expanded to include a citizen or resident of the United States or a person in and doing business in the United States. The form need not be filed if the value of all foreign financial accounts does not exceed USD 10,000 at any time during the year.

In addition, if cash equal to or in excess of USD 10,000 is brought into or sent out of the United States at any time in the year, it must be reported to the US Customs Service.

Work permits

Individuals who plan to move to the United States for temporary assignments must apply for and obtain, from the US Citizenship and Immigration Services (USCIS), visas that permit them to work in the United States. Typically, the visa will be a non-immigrant visa, such as an E, H, or L visa. Those who plan to remain on a non-US payroll and work for a relatively short time period in the United States (i.e. several weeks) may be able to obtain a B-1 visa (business visitor visa). The type of visa will depend on the nature of the proposed function in the United States and the proposed duration of the stay. A visa that permits an individual to work in the United States for several years may take several months to obtain. As the USCIS rules are extremely complex, professional advice from an immigration attorney should be sought well in advance of any intended move to the United States.

A non-immigrant visa is usually limited to a fixed number of years. An immigrant visa, for permanent residence (a green card), allows individuals to remain indefinitely in the United States, even if they change employment or cease to work at all. Obtaining a green card is more complex than obtaining a non-immigrant visa, the process usually takes much longer, and the tax implications of having one are complex. Thus, advice should be sought prior to making application for permanent residence to make sure that all of the benefits and obligations that are involved are correctly understood.