1. AN INTRODUCTION TO U.S. INCOME
TAXATION FOR U.S. IMMIGRANTS
John R. Strohmeyer
713.226.6690
jstrohmeyer@porterhedges.com

2. THE U.S. TAX SYSTEM
 The United States uses a worldwide tax system
– All U.S. Taxpayers, both individuals and entities, must report and
pay taxes on their worldwide income and assets
– Most of the rest of the world uses a form of the territorial tax
system, which only taxes income and assets from within that
country’s borders
 Sources of U.S. Tax Law
– Internal Revenue Code
– Case law
– Administrative pronouncements from the IRS
– Bilateral Tax Treaties

3. U.S. TAXES
 Federal Income Taxes
– Federal Personal Income Tax
– Federal Corporate Income Tax
 Federal Employment Taxes
 Federal Wealth Transfer Taxes
– Federal Estate Tax
– Federal Gift Tax
– Federal Generation-Skipping Transfer Tax
 Taxes imposed by jurisdictions within the U.S., including
– State and local income taxes
– State and local gross receipts taxes
– State and local franchise taxes
– State transfer taxes

4. U.S. TAXPAYER INCOME TAX OBLIGATIONS
 File annual tax returns (Form 1040) to report and pay tax
on all worldwide income
 Patient Protection and Affordable Care Act—Maintain
minimum health insurance or pay Joint Responsibility
Payment
 Report foreign assets, including bank accounts, financial
investments, trust beneficiary information, and other
financial assets

5. U.S. INCOME TAXATION
 Federal Income Tax
– Graduated rates, top rate of 39.6% at $413,200 for single filers in
2015, $464,850 for married filing jointly in 2015
– 3.8% Medicare Tax on Net Investment Income starts at $200,000 for
single filers, $250,000 for married filing jointly
 Employment Taxes
– Hospital Insurance Tax (Medicare)
• 1.45% Employer Contribution on all wages
• 1.45% Employee Contribution on all wages
• Additional 0.9% on wages after $200,000 for single, or $250,000 for
married filing jointly
– Old-Age, Survivors, and Disability Insurance Tax (Social Security)
• 6.2% Employer Contribution on first $118,500 of wages in 2015
• 6.2% Employee Contribution on first $118,500 of wages in 2015
• Self-Employed pay both Employer and Employee portions (total 12.4%)

6. U.S. INCOME TAXATION
 Federal Income Tax for Trusts
– Graduated rates, top rate of 39.6% for income above $12,300
– Income distributed to beneficiaries is taxed to the beneficiary, not
the trust
– 3.8% Medicare Tax on Net Investment Income applies
 Not Subject to Employment Taxes
– Not subject to the Hospital Insurance Tax
– Not subject to the Old-Age, Survivors, and Disability Insurance
Tax (Social Security)

7. U.S. INCOME TAX SYSTEM
 Capital Gains Tax
– Tax on the gains realized from the sale of a non-inventory asset
• Gain = Amount Received – Basis
– Reduced income tax rate on Qualified Dividends and Long Term
Capital Gains to recognize peculiarities of taxing investments
• 0% tax rate for 10% and 15% tax brackets
– Single filer income up to $37,450
– Married filing jointly income up to $73,800
• 15% tax rate for 25%, 28%, 33%, & 35% tax brackets
– Single filer income between $37,451 and $413,200
– Married filing jointly income between $74,901 and $464,850
• 20% for 39.6% tax bracket
– Single filer income above $413,200
– Married filing jointly income above $464,850

8. FOREIGN ASSET REPORTING OBLIGATIONS
 No additional tax is imposed, but penalties are imposed
for non-filing
– FinCEN 114—Foreign Bank Account Report (“FBAR”) to report
foreign bank accounts with more than $10,000 (exclusions &
exceptions apply)
– IRS Form 3520—Annual Return To Report Transactions With
Foreign Trusts and Receipt of Certain Foreign Gifts
– Form 3520-A—Annual Information Return of Foreign Trust With
a U.S. Owner
– IRS Form 8621—Information Return by a Shareholder of a
Passive Foreign Investment Company or Qualified Electing Fund
– IRS Form 8865—Return of U.S. Persons With Respect to
Certain Foreign Partnerships
– IRS Form 8938—Statement of Foreign Financial Assets
 Because of space limitations, this list is not complete!

9. FOREIGN ASSET REPORTING OBLIGATIONS
 Foreign Account Tax Compliance Act
– The purpose of FATCA is to ensure the reporting of foreign
financial assets
• U.S. taxpayers must report certain foreign financial accounts and
offshore assets
• Foreign financial institutions must report financial accounts held by
U.S. taxpayers or foreign entities in which U.S. taxpayers hold a
substantial ownership interest
– 30% withholding on certain payments to accounts that are not
reported
– Because of these reporting requirements, U.S. taxpayers face
obstacles in accessing investments and financial institutions
outside of the U.S.A.

10. INCOME TAX RESIDENCY
 So, what makes someone a U.S. Taxpayer?
– U.S. Citizen
– Lawfully Admitted For Permanent Residence (Green Card)
– Substantial Presence Test
– First-Year Election
 Exceptions
– Certain exempt individuals (e.g., students & patients)
– Demonstrate a “Closer Connection” to another country
– Use the tie-breaker rules under an applicable bilateral tax treaty
 There is a different test to determine residency for the
Estate Tax and the Gift Tax
– It’s possible to be a resident for Income Tax purposes and not be
a resident for Estate Tax and Gift Tax purposes, and vice versa

11. U.S. CIVIL TAX PENALTIES
 Failure to File Penalty—5% of the amount required to be
shown on the return, increasing by 5% each month to a
maximum of 25%
 Failure to Pay Penalty—0.5% of the amount required to
be shown on the return, increasing by 0.5% each month
to a maximum of 25%
 Accuracy Related Penalty—20% on the amount of the
underpayment of tax
 Fraud Penalty—75% of any underpayment of tax due to
fraud
 Because of space limitations, this list is not complete!

12. WE CAN HELP WITH THE FOLLOWING SITUATIONS
 Before you become a U.S. taxpayer, obtaining a step-up
in basis for capital assets for U.S. tax purposes
 Before you become a U.S. taxpayer, minimizing U.S.
estate taxation of foreign-situs assets
 When you become a U.S. taxpayer, limiting U.S. income
taxation generated in trusts created for you or by you
 When you become a U.S. taxpayer, reducing income
attributed to you because of your ownership interest in a
foreign corporation
 When you become a U.S. taxpayer, restructuring
investments that exclude U.S. taxpayers

13. DISCLAIMER
 This presentation contains general information about
U.S. tax laws, and is made available for information
purposes only. Any information obtained through this
presentation is general and is not intended to be legal
advice, nor should you consider it as such. The
transmission and receipt of information contained in this
presentation do not form or constitute an attorney-client
relationship. Those viewing this presentation should not
act upon information on this site without seeking
professional legal counsel.
 This presentation may not reflect the most current legal
developments, verdicts, or settlements. Further, prior
results do not guarantee a similar outcome.