6.   Foreign Issues

2008 Changes

Foreign Earned Income and Housing Exclusions

Exclusion amount.   For 2008, the maximum foreign earned income exclusion has increased to $87,600.

Housing expenses—base amount.   The base housing amount has increased to $38.30 per day, or $14,016 for an entire calendar year.

Exemption for Certain Distributions From Mutual Funds Extended

The exemption from 30% tax on certain interest-related dividends and short-term capital gain dividends received from a mutual fund or other regulated investment company has been extended 2 years. It now applies to dividends for tax years of the company beginning before 2010. See Dividend Income in chapter 3 of Publication 519, U.S. Tax Guide for Aliens.

New Rules for Former U.S. Citizens and Former Long-Term Residents

If you expatriated after June 16, 2008, new expatriation rules apply to you if any of the following statements apply.

  • Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than $139,000 (if you expatriated or terminated residency before 2009).

  • Your net worth is $2 million or more on the date of your expatriation or termination of residency.

  • You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.

Note.

If you expatriated before June 17, 2008, the expatriation rules in effect at that time continue to apply.

See chapter 4 in Publication 519 for more information.

Withholding on Foreign Partners

A foreign partner can provide to a partnership a certification to reduce or eliminate the partnership's withholding tax obligation under section 1446 on the partner's allocable share of effectively connected taxable income from the partnership. Any certificate (including any updated certificates and status reports) submitted, or required to be submitted, after July 28, 2008, must comply with Regulations section 1.1446-6.

The foreign partner must use Form 8804-C, Certificate of Partner-Level Items to Reduce Section 1446 Withholding. The partner gives the form to the partnership. For more information, including when the partnership has to file the form with the IRS, see the Instructions for Form 8804-C.

U.S. Real Property Interests

For dispositions of U.S. real property interests after July 30, 2008, transferors can give a nonforeign certification to a qualified substitute. Qualified substitutes are explained in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, under U.S. Real Property Interest.

Generally, the treatment of a regulated investment company (RIC) as a qualified investment entity (QIE) was scheduled to expire at the end of 2007. The provision has been extended through 2009. The special rules that apply to distributions from a QIE attributable to the gain from the sale or exchange of a U.S. real property interest will continue to apply to any distribution from a RIC. See Qualified investment entities under U.S. Real Property Interest in Publication 515.

2009 Changes

Foreign Earned Income and Housing Exclusions

Exclusion amount.   For 2009, the maximum foreign earned income exclusion has increased to $91,400.

Housing expenses—base amount.   For 2009, the base housing amount has increased to $40.07 per day, or $14,624 for the entire calendar year.

New Treaties and Protocol

The United States has exchanged instruments of ratification for new income tax treaties with Bulgaria and Iceland and a new protocol to the income tax treaty with Canada. The effective dates are as follows:

Bulgaria. The provisions for withholding tax at source are effective for amounts paid or credited after 2008. For other taxes, the treaty is effective for tax periods beginning after 2008.

Canada. The provisions for withholding tax at source are generally effective for amounts paid or credited after January 31, 2009. For other taxes, the protocol is generally effective for tax periods beginning after 2008.

Iceland. The provisions for withholding tax at source are effective for amounts derived after 2008. For other taxes, the new treaty is effective for tax years beginning after 2008. An individual who was otherwise entitled to benefits under Article 21 (Teachers) of the former treaty can continue to apply those provisions. A person entitled to benefits under the former treaty can elect to have that treaty apply in its entirety for a twelve-month period following the date the new treaty would otherwise apply.


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