On Jan 28, 2:32*pm, "removeps-gro...[at]yahoo.com" <removeps-
gro...[at]yahoo.com> wrote:
- quote -


Well, whatever you exercised as a California resident would be subject
to California tax on a residence rather than a source basis. All of
the gain on the first 2 shares is taxable on a residence basis,
regardless of its source. The only part that was exercised as a
nonresident was the last 3 shares, which were earned by the
performance of services over the 5 years, 2 of which were in
California. So 40% of the bargain element is California source
income. Yes, you would pay California tax on more of the income than
if you had waited to exercise all of the options after the move, but
that's just the way the system works: residents are taxable on all
income; nonresidents are taxable on source income. Good tax advice
and a good crystal ball are good things to have <G> .

Katie in San Diego

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On Jan 28, 12:59 pm, Katie <katiej_1...[at]yahoo.com> wrote:

- quote -

This date of grant and prorated stuff does not make total sense to
me. Say you were granted options while working in CA, and 20% vest
each year, and after 2 years you move to TX, and you exercise all
options at the 5 year mark. Then 2/5 or 40% of your stock option
income is CA source. However, if before leaving CA, that is at the
two year mark, you exercise all your vested options you pay CA tax on
all of it. When you later exercise the remaining shares in TX, is 40%
of your profits on these remaining shares still considered CA income?

With numbers, say there are 5 shares in the grant, strike price $100,
after 2 years stock is $300, after 5 years it is still $300. If
exercise all shares in TX at 5 year mark, profit is x=5*$200=$1000,
and CA portion is x*0.4=$400. If you exercise all vested shares in CA
before leaving, then profit is x=2*$200=$400 and all of it is subject
to CA tax. But at 5 years you exercise the remaining 3 shares, and
profits are y=3*$200=$600. If 40% of this is subject to tax, then it
means in net $400+$600*0.4=$640 of your stock option income is subject
to CA tax.

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Katie <katiej_1958[at]yahoo.com> wrote:

- quote -

I'll just note that the above memo pre-dates that IRS's 2004 "final
ruling" on ISO's, which changed the time at which income might be
recognized on options, and which led to a large decline in employer
use of ISO's relative to stock grants, founder's stock, and similar
non-option compensation. The above FTB memo only applies to
options, not grants.

Steve

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On Jan 28, 9:10*am, "removeps-gro...[at]yahoo.com" <removeps-
gro...[at]yahoo.com> wrote:
- quote -


For California specifically, see FTB Technical Advice Memo 2001-0463
(http://www.ftb.ca.gov/law/Technical_Advice_Memorandums/
2001/20010463.pdf).

There is some variation among states on this, but in general, the
source of income from the exercise of an NQSO, or the exercise of an
ISO that is disposed of in a disqualifying disposition, is the place
where the taxpayer performed the services to earn the option. This
income is generally reported on a W-2. Unless the option plan
specifies otherwise, the income is considered to have been earned
during the period from the date of grant to the earlier of the date of
exercise or the date of separation from the employer's service. Some
states, e.g. New York, consider the earning period to end at the date
of vesting. If an individual performed services in more than one
state during the earning period, the income is prorated by the days to
determine its source.

There is also variation among the states in the treatment of the
capital gain from an ISO when the option is exercised and the stock is
sold in a qualifying disposition. In that case there is no ordinary
income recognition at the date of exercise (except for AMT purposes),
and the difference between the option price and the sale price is all
capital gain. California treats the entire gain as income from an
intangible asset, sourced at the residence of the owner of the asset;
therefore stock acquired by the exercise of an ISO and sold in a
qualifying disposition would not create California source income if
the taxpayer was a nonresident at the date of sale. On the other
hand, New York considers the gain to the extent of the excess of the
fair market value of the stock at the date of exercise and the option
price to be compensation for services, even though it is capital gain
and not ordinary income, and prorates it in the same way as the
bargain element of an NQSO. Any excess gain is sourced at the
residence of the taxpayer. See New York Technical Service Bureau
Memorandum TSB-M-07(7)I, 10/04/2007.

To modify your example slightly, for California purposes, if a
taxpayer was granted an NQSO or ISO while employed in California, or
became employed in California subsequent to the grant date and worked
for the employer in California for some time, and then moved to Texas
and exercised the option (and, if ISO, disposed of the stock in a
disqualifying disposition), the taxpayer would owe California tax on
the bargain element (FMV at date of exercise minus option price) to
the extent of the proportion of days worked in California to total
days worked for the employer from the grant date to the earlier of the
date of exercise or the date of separation from the employer's
service. For California the vesting date is not significant.

Katie in San Diego

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On Jan 27, 10:59 pm, Katie <katiej_1...[at]yahoo.com> wrote:

- quote -

So if shares are granted in California and they vest while in
California, and you move to Texas, do you owe California tax on the
profits? And if the shares are granted in California and vest in
Texas after you move to Texas, and you exercise in Texas also, do you
still owe California tax?

--
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On Jan 27, 6:17*pm, rdad...[at]panix.com (Dick Adams) wrote:
- quote -


No, it wasn't Willie and the Supremes, it was Congress. The law you
are thinking of is HR 394 (4 USC Sec. 114), which prohibits states
from taxing CERTAIN KINDS of retirement income of nonresidents on a
source basis. This bonus is NOT one of the types of income that are
listed in the federal statute. Another example of an unprotected
deferred compensation item is the bargain element of an NQSO or an ISO
with a disqualifying disposition. States may, and do, tax that income
to nonresidents on a source basis.

These are the kinds of income that are protected by HR 394:

(a) Payments (including lump sum distributions) from qualified
retirement plans, such as IRC § 401 plans, § 403(b) annuities, IRAs,
§457 plans, government and military plans, and §501(c)(18) trusts.

(b) Payments from nonqualified plans receivable in a series of
substantially equal payments, not less frequently than annually, over
the recipient’s life or joint life expectancy or over a period of not
less than 10 years.

(c) Any payment from a nonqualified plan established to provide highly
compensated employees with benefits not available from a qualified
plan due to ERISA restrictions, and received after termination of
employment.

In addition, P.L. 109-264, signed by the President on August 3, 2006,
amends 4 U.S.C. § 114 to add payments to nonresident retired partners
to the list of retirement income items that states are barred from
taxing on a source basis. The law prohibits states from taxing
retirement income paid by a partnership to a nonresident retired
partner under any written plan, program or arrangement that was in
effect immediately before the partner retired.

As you can see, this deferred bonus does not fit into any of the
protected categories. Therefore it is taxable by the state where the
services were performed regardless of the residence of the taxpayer
when the income is received.

As for Hypothetical Mary, her bonus is clearly taxable in Michigan on
a source basis to the extent it arose from services she performed in
Michigan, so you lose your money (and she loses hers <G> ). If Texas
imposed an income tax, it would be taxed in Texas too. One state
would probably allow credit for the tax paid to the other.

Katie in San Diego

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Katie <katiej_1958[at]yahoo.com> wrote:

- quote -

Katie, I really do know better than to disagree with you, but I
have to do so.

IIRC it was Willie and the Supremes who ruled that pensions
accumulated in one State, but received in another are sourced
in the receiving State.

Consider an employee Mary who works for XYZ Corp in Michigan
and is transferred to an XYZ subsidiary in Texas as of 1/1/2009.
Her 2008 bonus is paid to her in Texas on 2/2/2009. If I were
a betting man (which I am), my money is on her 2009 bonus being
Texas sourced 2009 income.

I await your cite to once again prove you are right.

Dick

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removeps-groups[at]yahoo.com <removeps-groups[at]yahoo.com> wrote:
- quote -

My knowledge of French Taxation is limited to correctly
spelling Fench (sic) and Taxation. But I suspect he may have
legally avoid paying them by having his income deposited in a
bank account that was not in France. That nuance will need to
be explained by someone else.

Dick

--
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On Jan 11, 12:46*pm, gingerthis...[at]gmail.com wrote:
- quote -

Getting back to the original question ...

As others have said, the bonus is US source income and subject to US
tax regardless of your residence at the time you receive it. The same
is true for U.S. state income tax purposes. If you performed the
services to earn the bonus in a US state that imposes an individual
income tax, the bonus has its source in that state and will be subject
to state income tax there regardless of your residence at the time you
receive it. This is an item of income that is not protected from
source taxation by US federal law.

Katie in San Diego

--
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On Jan 24, 7:42 pm, adwag...[at]hotmail.com wrote:

- quote -

Because form 1116, line 9 asks you for the foreign tax paid. Line 13
is the maximum credit, which is line 9 plus any foreign tax credit
carryover, minus an adjustment to foreign taxes because of things like
the exclusion. They then do a calculation to determine the amount of
the credit, which is the smaller of line 13 and the US tax on your
foreign income, and the result is line 21. So if you repatriate to
the US and pay no foreign tax on income that was earned in the foreign
country but recognized only now, then line 9 on form 1116 for that
year will be zero, and so line 21 will also be zero. So unless you
have a carryover (line 10), I don't see how there can be a FTC. I'm
still trying to understand how the carryover is calculated.

--
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On Jan 25, 9:46 pm, rdad...[at]panix.com (Dick Adams) wrote:
- quote -

How come he never paid French taxes if he lived in France?

There are two things here. One is the foreign earned income
exclusion, currently 87600. The other is the foreign earned income
tax credit, which is partial or full rebate of foreign taxes paid.

The post to which I asked my question was talking about the credit,
not the exclusion. I don't see how you can take a credit if no
foreign taxes were paid.

- quote -

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removeps-groups[at]yahoo.com <removeps-groups[at]yahoo.com> wrote:

- quote -

It matters not. There was an airline pilot whose regular
flight was Paris to New York. He lived in Paris. The
Courts upheld his firght to the Foreign Earned Income
exmeption noting it did not care that he had never paid
French taxes.

Dick

--
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- quote -

Since I haven't seen the local foreign tax returns myself, lets
discuss the principles involved. I see no provision in Pub. 514 that
requires the income to have been taxed in a foreign jurisdiction. If
you have excess FTC's, can you not apply them to any foreign income
taxed in the US?

I understand the issue of not being able to use FTCs on income
excluded from US taxation. However, the issue I am focusing on is
deferred compensation in one form or another. It could be an IRA, a
401k, stock options, restricted stock or an executive deferred comp
plan. Under all of these five different plans, you will recognize the
income in later years, although you "earned" the income while living
abroad. In these situations, the use of the foreign income exclusion
(while living abroad) is irrelevant since none of these categories of
income would be taxable in the US in that year anyway.

Do you see any reason why FTCs - however generated - cannot be used
for income from any of these 5 different plans when recognized after
repatriation?

Best wishes.

--
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removeps-groups[at]yahoo.com wrote:
- quote -

Green Card departs the US without a reentry document and is
outside the US continuously for more than a year, the Green Card
is no longer valid as an entry document. It does not necessarily
mean that the person has abandoned their lawful permanent
residency (LPR) nor does it mean that the USCIS has revoked it.
What you have is a rebuttable assumption by the USCIS.

Those individuals who want to be outside the US for more than a
year and remain an LPR should obtain a reentry permit before
departing. The permit is good for two years. If you fail to apply
before leaving, or if you applied and the permit has expired
(more than two years) you can still apply for return to the US by
requesting an SB-1 visa. You do have to show that it was not your
intent to permanently reside in another country and abandon your
LPR. If it is your intent not to abandon your LPR, you should be
filing timely US tax returns. Failure to file after a year
outside the country, can be used as evidence by the USCIS that it
was your intent to abandon your LPR.

I think we are now getting beyond the scope of this newsgroup.

--
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On Jan 23, 9:57 am, adwag...[at]hotmail.com wrote:

- quote -

Whether the foreign country allows a deduction for IRA contributions
in the US depends on the treaty. The US-Canada treaty does not have
the word "IRA" in it.

It seems that if you want to use 4k of your foreign earned income to
contribute to an IRA in the US, then you cannot take the foreign
earned income exclusion on this 4k, and you should not include this 4k
in your foreign tax credit -- by line 12 ("Reduction in foreign
taxes") of form 1116.

As for the not including the 4k in the foreign earned income
exclusion, how does it matter? Say the threshold is 87600.

- If your income is below 87600-4000=83600, say 80000, then only 76000
should be available for the credit, the other 4k should be taxed in
the US, but there is an above the line deduction of 4k. So line 7
would be 80k, line 21 would be -76k (not 80k), line 32 would be 4k,
making the AGI zero.

- If your income is 100000, then the income taxable in the US is
100000-87600=12400 after the exclusion and without any IRA deductions,
and then you get the above the line deduction of 4k, because you
consider the higher end income as contributing to the IRA. So line
7 is 100000, line 21 is -87600, line 32 is -4k, making the AGI 8400.

- If your income is 88600, then your US taxable income is 1000 after
the exclusion without any IRA deductions, so you should elect for your
earned income exclusion to be reduced by 3000 so that your US taxable
income if 4000, and take the above the line deduction of 4000. So
line 7 is 88600, line 21 is -84600, line 32 is 4000, and the AGI is
zero.

Not sure if this fibbing with Line 21 Other (by adding +4000 or +3000
to it) is kosher, as the instructions on form 2555 say to enter the
foreign earned income exclusion on Line 21 as a negative number, but
it certainly seems logical, otherwise lower income individuals would
not be able to take the IRA deduction.



- quote -

Was foreign taxed paid on this income? If no, then what was the value
of the FTC used?

- quote -

I agree!

--
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On Jan 23, 11:29 am, rdad...[at]panix.com (Dick Adams) wrote:

- quote -

Yes. The green card is valid for one year after you leave the US, so
you have to continue to file as a US citizen on your worldwide
income. If you file an extension form, the validity is extended to 2
years. That's it. Though there are probably exceptions for people
who are not able to return (like if the other country trapped them in
a prison, or they were seriously sick). However, if you are thinking
of giving up your green card, and have a lot of money, it might be
better to fill out the official forms with the secretary of state to
renounce your green card.

--
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Dick Adams wrote:
- quote -

Departing the US, does not in itself change your alien status.

When a foreign national works in the US (whether on a work visa
or not) you are subject to the substantial presence test to
determine your alien status. These workers can be resident
aliens, nonresident aliens or dual status aliens depending upon
when they arrive, how long they stay and when they leave.

--
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Let's back up. If you are a foreign national working in the U.S.,
the general rule is you need a Green Card or a work visa. Are
Green Card holders treated any differently for tax purposes than
are those with work visas when they depart the U.S.?

Dick

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Dick Adams wrote:
[snip]
- quote -

is not eligible compensation for making an IRA contribution.
Anyone who excludes 100% of foreign earned income can not
contribute to an IRA.

In addition, deferred compensation also fails the test as earned
income for purposes of making an IRA contribution.

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Dick Adams wrote:
- quote -

from an IRA that was created while working abroad. To be eligible for
exclusion, payment of the income must be made within two years of being
earned. Technically, an end-of-contract bonus may not be fully
excludable if the contract covered more than two years.

For FEIC purposes you must use the accrual method in calculating the
exlusion. Thus, even if the IRS were attributable, if the income for
the year was equal to the maximum exclusion, there would be no exclusion
remaining.

Lanny W. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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