FATCA, NISA....losing touch with reality

Read this about Article 24 paragraph 6 of the treaty.....start on page 102 at the bit titles "Paragraph 6"

http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/teus-uk.pdf

It looks like the FTC "resourced by treaty" basket has to be used on items like US dividends because the UK will only give credit for the 15% US withholding.

I also go at least yearly to the Dermatologist. I have had numerous decent sized chunks cut out of me by the time I hit 50. Just had two small things cut out a month ago.....might as well just dip my whole body in liquid N.

You might have to plan on yearly trips back to your US derm.  I was due for a 6 month check and my GP did refer me to dermatology (Chapel Allerton Hospital)  I presented my med. records and explained my predicament to the doc.  He looked at one mole on my leg (which wasn't one I worried about), said it was OK and then told me what I have to do if something is "suspicious", go to GP who will look at it and will refer only if they don't like the look of it.  No on-going routine exams.
So I keep slathering on the sunblock.

You might have to plan on yearly trips back to your US derm.  I was due for a 6 month check and my GP did refer me to dermatology (Chapel Allerton Hospital)  I presented my med. records and explained my predicament to the doc.  He looked at one mole on my leg (which wasn't one I worried about), said it was OK and then told me what I have to do if something is "suspicious", go to GP who will look at it and will refer only if they don't like the look of it.  No on-going routine exams.
So I keep slathering on the sunblock.

That's why I am likely to keep my insurance at least until I know what my local surgery is like. With my insurance I can walk into certain places (like the Duchy in Harrogate or another place that takes private patients) and just ask them to start whacking away on things. The surgery's I had in and near Harrogate were great and just did it because I was concerned about something and I didn't need my insurance. It always seems to just depend on the one you go to....some have really good reps, some don't. My step-daughter is just in her 3rd year of nursing. She just took a new job in Leeds(Jimmy's) and says they are a LOT more helpful to each other and the patients in Leeds than at Harrogate.

People in Harrogate are stuck up. The rest of Yorkshire think they are snobs.

SO I think I've been guilty of looking at the internet and believing what I saw when it comes to FTC baskets and pensions.

So OAP would you agree with this.

Dividends, interest, rent, capital gains.....passive basket
Pensions, earned income..........general basket

The "certain income resource by treaty" red herring is addressed in this exchange by people way more knowledgable that me.

http://talk.uk-yankee.com/index.php?topic=60995.0

Check the definitions for passive and general in the instructions for 1116.

IMHO, dividends, interest, rent, and capital gains are passive income.

Earned income goes in the General basket.

Pensions:

IMHO:

The taxpayer should consult either a qualified accountant, or the IRS.

A qualified accountant may strongly advise that income from a registered UK pension in the drawdown phase should go into the General basket. There is an interpretation of the Code which strongly substantiates this position. If the IRS disagrees with this position, it will be the place of the accountant to justify the position taken.

If the taxpayer requests, from the IRS, a written (unofficial) position to determine which basket the income from a registered UK pension in the drawdown phase is placed, the IRS may strongly advise it goes in the Passive basket.  If the IRS were to later disagree with their position, it will be the place of the taxpayer to justify the position taken.

IMHO

No (unofficial) written or spoken advice from either an IRS agent, or an IRS Email or telephone Help Site constitutes official/legal advice.

IMHO

And did I mention, all this is IMHO only.

Check the definitions for passive and general in the instructions for 1116.

IMHO, dividends, interest, rent, and capital gains are passive income.

Earned income goes in the General basket.

Pensions:

IMHO:

The taxpayer should consult either a qualified accountant, or the IRS.

A qualified accountant may strongly advise that income from a registered UK pension in the drawdown phase should go into the General basket. There is an interpretation of the Code which strongly substantiates this position. If the IRS disagrees with this position, it will be the place of the accountant to justify the position taken.

If the taxpayer requests, from the IRS, a written (unofficial) position to determine which basket the income from a registered UK pension in the drawdown phase is placed, the IRS may strongly advise it goes in the Passive basket.  If the IRS were to later disagree with their position, it will be the place of the taxpayer to justify the position taken.

IMHO

No (unofficial) written or spoken advice from either an IRS agent, or an IRS Email or telephone Help Site constitutes official/legal advice.

IMHO

And did I mention, all this is IMHO only.

... and what does it matter which basket the UK pensions go into when claiming a tax credit with form 1116?

"... and what does it matter which basket the UK pensions go into when claiming a tax credit with form 1116?"

On initial consideration, probably little.

The crux comes when the FTC's generated from the pension income/UK tax paid (which can be substantial when in the 40% or 45% UK tax bracket) are applied to offset other income in that basket which may not generate sufficient FTC's. If the other income in that basket would not generate sufficient FTC's on their own, it's likely tax would be due.

Multiply the credits obtained, if using the additional carryover/carryback credits generated from the pensions, over a 7 or 8 year period, and the offsetting FTC's could be of substantial value.

People in Harrogate are stuck up. The rest of Yorkshire think they are snobs.

Oh.....I already knew this....pretty obvious as soon as I moved there. When I was living in town I lived in "Bilton".....nowhere near the snobby part of town. Harrogate had the rudest drivers I have ever seen.....and being a bicycle rider it was pretty scary at times. I spent 10 years in Germany.....and they can be pretty rude drivers but they respected pedestrians and bikers. It's a nice enough town I guess (terrible traffic though)....but I don't see why it has the high reputation that it has.

"... and what does it matter which basket the UK pensions go into when claiming a tax credit with form 1116?"

On initial consideration, probably little.

The crux comes when the FTC's generated from the pension income/UK tax paid (which can be substantial when in the 40% or 45% UK tax bracket) are applied to offset other income in that basket which may not generate sufficient FTC's. If the other income in that basket would not generate sufficient FTC's on their own, it's likely tax would be due.

Multiply the credits obtained, if using the additional carryover/carryback credits generated from the pensions, over a 7 or 8 year period, and the offsetting FTC's could be of substantial value.

Thanks, that makes sense.

The crux comes when the FTC's generated from the pension income/UK tax paid (which can be substantial when in the 40% or 45% UK tax bracket) are applied to offset other income in that basket which may not generate sufficient FTC's. If the other income in that basket would not generate sufficient FTC's on their own, it's likely tax would be due.

Baskets become important when you are claiming a reduced US tax treaty rate like the 15% on US sourced dividends. Of course if your income is such that your US tax on dividends is 0% why bother with the treaty. The UK might charge you 10%...can you then claim that back on your US taxes?....well no if the rate in the US is 0%, so there's no need for a 1116. This is a good argument for keeping your income inside the IRS 15% tax limit.

Pensions:

IMHO:

The taxpayer should consult either a qualified accountant, or the IRS.

A qualified accountant may strongly advise that income from a registered UK pension in the drawdown phase should go into the General basket. There is an interpretation of the Code which strongly substantiates this position. If the IRS disagrees with this position, it will be the place of the accountant to justify the position taken.

If the taxpayer requests, from the IRS, a written (unofficial) position to determine which basket the income from a registered UK pension in the drawdown phase is placed, the IRS may strongly advise it goes in the Passive basket.  If the IRS were to later disagree with their position, it will be the place of the taxpayer to justify the position taken.

What about a US registered pension?

On line 1a of 1116 you have to enter the amount of income from the foreign country. Well the pensions come from the US so none of it originates in a foreign country.....unless you resource 100% of it and treat it as a UK pension (I wonder if you then have to pay UK tax on 100% of it rather than 90%....I don't think so). The UK has primary taxing authority over UK residents and if you are taxed on an arising basis as a US/UK dual citizen then the UK is not obligated to give you credit for any US tax paid. So it looks to me as if US source pensions should be resourced to the UK, tax paid in the UK and then that amount claimed as a US FTC....so I'm back to US pensions going under basket d.......but I could be wrong.

The critical thing here (it seems to me) is that FTC is to avoid double taxation on foreign source income.....it's got nothing to do with US source income.....unless that US income can be resourced to look like foreign income. So any US income the the UK taxes you on has to be resourced to the UK for you to apply the FTC. So all US source income goes in basket d........If someone would like to nominate another basket please explain how to fill in 1116.

UK pensions would probably go in the general category...no need to resource them with the treaty.

What about a US registered pension?

Excellent question.  I have 2 UK and 2 US pensions, and one of the US pensions is unqualified so it is reported on a W-2, but is indicated as an unqualified pension on the W-2 so has no FICA payable but does get reported on the same line as a W-2 on the 1040, whereas the qualified pension is reported on a 1099-R just like annuity payments and IRA withdrawals.  For good measure the unqualified pension comes from a Louisiana registered company so I have to pay State taxes to Louisiana on that even though I haven't set foot in the place for 5 years.

I give up.......

The use of the treaty to resource US source income so that you can get credit for foreign tax paid on it is explained here.....it's for Germany, but the principles apply to the UK too. So all of us with US dividends and pensions will be using basket d a lot.

http://www.us.kpmg.com/microsite/tax/ies/tea/summer2000/stories/gaspar.html

So all of us with US dividends and pensions will be using basket d a lot.

I think I'll be a basket case by the time I have to file....