bill wrote:
- quote -

Yes and the earned income would be reflected on the 1065
Schedule K-1 line 15a.

--
Alan
http://taxtopics.net

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"A.G. Kalman" <glendale202-mtm[at]yahoo.com> wrote:
- quote -

Income from a Bed-and-Breakfast would pretty clearly be
earned income, based at the prsumed short term occupancy as
well as the meal provided and daily maid service.

Bill

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Bill Lloyd <william.lloyd1[at]home.com> wrote:

- quote -

Well, let's see. Your arrangement with your husband does
sound like a partnership under U.S. tax rules. Assuming
that the partnership is created under foreign law, then it
would be a foreign partnership. Because you own 50% of this
partnership and you are "attributed" the ownership of the
other 50% that your husband owns, this would be a Controlled
Foreign Partnership. As such, this would require the filing
of Form 8865.

Since there is likely no written document, you may be able
to create a written document specifying that the partnership
is formed under U.S. law. However, this would not
necessarily be helpful. You would then need to file Form
1065 instead of Form 8865 and it may complicate your
Canadian filing requirements.

You could argue that no partnership exists and that your
arrangement is merely sharing of expenses. If you were
successful with this, then you would not need to file Form
8865 or Form 1065.

So far, we have only discussed the U.S. tax implications.
You need to consider the Canadian tax implications. In the
U.S., and many other countries (I don't know about Canada),
if a nonresident [I am assuming you are not a resident of
Canada] purchases real estate within that country and rents
that real estate to others, the rental income is subject to
some sort of tax. Either the gross rental income is subject
to a withholding tax, or the net rental income is subject to
an income tax. I suspect that Canada has similar rules.
Canada likely wants its piece of the pie since the property
generating the income is located in Canada. You may have
filing requirements to the Canadian tax authorities and owe
Canadian tax.

If you do pay tax in Canada, you should be able to claim
those taxes as a foreign tax credit against your U.S. taxes.
However, there are various limitations on utilizing foreign
tax credits.

A simplified approach might be to have your husband
recognize all of the income and pay tax on it in Canada.
This would remove the partnership complication as well as
removing the "cross-border" complication.

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Bill Lloyd wrote:

- quote -

Assuming we are not dealing with a Canadian Province that
follows community property laws, you have a partnership that
requires the filing of a Form 1065 and the K-1. Be sure to
review the rules regarding when partnership income is
treated as earned income vs unearned income for purposes of
the foreign earned income exclusion. If capital investment
is an important factor in producing the income, earned
income could be zero (no services provided) or limited to
30% of the profit or the value of the services provided.

--
Alan
http://taxtopics.net

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Bill Lloyd wrote:

- quote -

That would be correct, except that it's a foreign
partnership, which probably wouldn't prepare a 1065, but
only the Canadian equivalent. (If there is such a thing.)

I think I'd go with the first choice, but only reporting
half of the income and expenses (converted to US currency).

However -- in theory, she would also have to worry about
capital gains on her personal use of canadian currency (or
checking accounts). I don't know the IRS rulings on this,
but there's clearly no difference in US tax law between a
stock certificate and a CDN$100 bill.

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A married couple had a business in Canada. They are both
long term residents of Canada but she is a US citizen and
husband is Canadian. They were operating a bed and
breakfast business in the Niagara Falls area as equal
partners (50% each of profit or losses). Husband does not
file US tax returns.

I am not sure how wife should report her share of profit on
her US tax return. I spoke to the IRS and they said it
should be reported on Schedule C using US tax laws and
currency with an explanation that it was a partnership and
only half of net income was hers. Another IRS agent I spoke
to said it should go on a Schedule K-1 (Form 1065). Would I
be correct in reporting all income and expenses on Schedule
C and then transfer her share to the K-1or just ignore K-1
as their business was a spousal partnership and not one that
probably was meant for form K-1. I am aware of Form 2555 -
the Foreign Earned Income Exclusion and will be claiming it
for her as profit was only about 5,000 Canadian. The
Foreign Earned Income Exclusion will offset her business
income but I am just in a quandry as to what the proper way
to report her share of the business income on the 1040.

Thanks for any assistance.

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