Foreign Earned Income Exclusion after repatriation
WJB57
multiple years. Several years after repatriation to the states, he
recognizes income which was earned while abroad. This could be stock
options granted while abroad, restricted shares granted while abroad
that vested after repatriation, compensation deferred while abroad and
received after retirement in the US, etc. Can he use the foreign
earned income exclusion on this income?
He passed the bona fide residence test and tax home test in the year
he earned the income, but certainly not in the year he recognized the
income, since he was living in the US when the income became taxable.
(Let's assume there are no foreign tax credits, so the issue is
strictly whether he can use the foreign earned income exclusion in the
year he has the taxable income.)
I have seen this done by a local tax practitioner for a former expat
colleague of mine, but I am not sure she fully understood the issues
or had much experience with foreign income. Any thoughts?
Thanks.
--
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D. Stussy
news:30386c8b-5dea-43a1...@h2g2000vbd.googlegroups.com...
> A US citizen lives and works as an expat in a foreign country for
> multiple years. Several years after repatriation to the states, he
> recognizes income which was earned while abroad. This could be stock
> options granted while abroad, restricted shares granted while abroad
> that vested after repatriation, compensation deferred while abroad and
> received after retirement in the US, etc. Can he use the foreign
> earned income exclusion on this income?
>
> He passed the bona fide residence test and tax home test in the year
> he earned the income, but certainly not in the year he recognized the
> income, since he was living in the US when the income became taxable.
>
> (Let's assume there are no foreign tax credits, so the issue is
> strictly whether he can use the foreign earned income exclusion in the
> year he has the taxable income.)
>
> I have seen this done by a local tax practitioner for a former expat
> colleague of mine, but I am not sure she fully understood the issues
> or had much experience with foreign income. Any thoughts?
If he didn't meet the tests in the year he's required to recognize the
income, he's SOL as far as I know.
BTW, if he's an ex-pat, he's NO LONGER a citizen.
Wallace
>
> BTW, if he's an ex-pat, he's NO LONGER a citizen.
rubbish.
Alan
>>
>> BTW, if he's an ex-pat, he's NO LONGER a citizen.
>
> rubbish.
>
someone who has relinquished their US citizenship or long term US
residency.
Lanny Williams
> A US citizen lives and works as an expat in a foreign country for
> multiple years. Several years after repatriation to the states, he
> recognizes income which was earned while abroad. This could be stock
> options granted while abroad, restricted shares granted while abroad
> that vested after repatriation, compensation deferred while abroad and
> received after retirement in the US, etc. Can he use the foreign
> earned income exclusion on this income?
>
> He passed the bona fide residence test and tax home test in the year
> he earned the income, but certainly not in the year he recognized the
> income, since he was living in the US when the income became taxable.
>
> (Let's assume there are no foreign tax credits, so the issue is
> strictly whether he can use the foreign earned income exclusion in the
> year he has the taxable income.)
>
> I have seen this done by a local tax practitioner for a former expat
> colleague of mine, but I am not sure she fully understood the issues
> or had much experience with foreign income. Any thoughts?
>
> Thanks.
>
Two factors affect the answer here. First, the rules say that income
paid for services rendered abroad must be paid within two years of being
earned to be eligible for the exclusion. Thus, a contract completion
bonus paid at the end of four years would be only paritally eligible.
Second, the payment must be made on account of current service. Stock
options, retirement pay, etc. are not paid for current service and do
not qualify.
On first reading, the exclusion rules may seem straighforward, but in
actual practice, there are many pitfalls. I've been doing expat returns
for many, many years and I've seen a lot of them done wrong by otherwise
qualified accountants. If you are not familiar with the rules and
encounter anything but current earnings, you need help from someone who
knows the rules.
Lanny K Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans
Bangkok, Thailand
Stuart A. Bronstein
>> BTW, if he's an ex-pat, he's NO LONGER a citizen.
>
> rubbish.
A quick search discloses no definition of ex-patriot either in the
Code or Regulations. The courts seem to use the word to refer to
anyone who has left is country of origin but not necessarily someone
who has given up his citizenship.
--
Stu
http://downtoearthlawyer.com
Wallace
"Alan" <sfcn...@yahoo.com> wrote in message
news:hgb9bp$nm$1...@news.eternal-september.org...
> On 12/16/09 10:21 AM, Wallace wrote:
>>>
>>> BTW, if he's an ex-pat, he's NO LONGER a citizen.
>>
>> rubbish.
>>
> For tax purposes, the US Treasury refers to expatriates as someone who has
> relinquished their US citizenship or long term US residency.
no, that is not true as I see it. Ex-pat is a loose term, not solely related
to tax issues.
the US Treasury has "expatriation tax provisions" that pertain to "US
citizens who have renounced their citizenship and long-term residents (as
defined in IRC 877(e)) who have ended their US resident status for federal
tax purposes".
Alan
> "Alan"<sfcn...@yahoo.com> wrote in message
> news:hgb9bp$nm$1...@news.eternal-september.org...
>> On 12/16/09 10:21 AM, Wallace wrote:
>>>>
>>>> BTW, if he's an ex-pat, he's NO LONGER a citizen.
>>>
>>> rubbish.
>>>
>> For tax purposes, the US Treasury refers to expatriates as someone who has
>> relinquished their US citizenship or long term US residency.
>
> no, that is not true as I see it. Ex-pat is a loose term, not solely related
> to tax issues.
>
> the US Treasury has "expatriation tax provisions" that pertain to "US
> citizens who have renounced their citizenship and long-term residents (as
> defined in IRC 877(e)) who have ended their US resident status for federal
> tax purposes".
>
pointing out that Mr Stussy's comment about ex-pats not being
citizens is not unusual as the Treasury when referring to
individuals affected by the tax regime under IRC sections 877,
2107 and 2501 identifies them as expatriates.
WJB57
>
> Two factors affect the answer here. �First, the rules say that income
> paid for services rendered abroad must be paid within two years of being
> earned to be eligible for the exclusion. �Thus, a contract completion
> bonus paid at the end of four years would be only paritally eligible.
>
Lanny: if the payment four years after repatriation (is that what you
meant?) is partially eligible, why isn't a stock option exercise four
years after repatriation partially eligible too?
Do the vesting rules have an impact here? For example, the restricted
shares or stock option may have vesting provisions that limit their
use before several years have lapsed.
Thanks.
Wallace
> On 12/16/09 1:58 PM, Wallace wrote:
>> "Alan"<sfcn...@yahoo.com> wrote in message
>> news:hgb9bp$nm$1...@news.eternal-september.org...
>>> On 12/16/09 10:21 AM, Wallace wrote:
>>>>>
>>>>> BTW, if he's an ex-pat, he's NO LONGER a citizen.
>>>>
>>>> rubbish.
>>>>
>>> For tax purposes, the US Treasury refers to expatriates as someone who
>>> has
>>> relinquished their US citizenship or long term US residency.
>>
>> no, that is not true as I see it. Ex-pat is a loose term, not solely
>> related
>> to tax issues.
>>
>> the US Treasury has "expatriation tax provisions" that pertain to "US
>> citizens who have renounced their citizenship and long-term residents (as
>> defined in IRC 877(e)) who have ended their US resident status for
>> federal
>> tax purposes".
>>
> I don't disagree that the word is a loose term. I am only pointing out
> that Mr Stussy's comment about ex-pats not being citizens is not unusual
> as the Treasury when referring to individuals affected by the tax regime
> under IRC sections 877, 2107 and 2501 identifies them as expatriates.
I am not disagreeing with you, but Mr. Stussy seems to twist the original
poster's scenario: "A US citizen lives and works as an expat in a foreign
country for
multiple years."
Clearly, this US Citizen was working in a foreign country as a "loosely
defined" expat. Mr. Stussy's comment that this US Citizen is no longer a US
Citizen is, well, rubbish.
WJB57
>
> I don't disagree that the word is a loose term. I am only
> pointing out that Mr Stussy's comment about ex-pats not being
> citizens is not unusual as the Treasury when referring to
> individuals affected by the tax regime under IRC sections 877,
> 2107 and 2501 identifies them as expatriates.
>
Just to be clear, the individual to whom I am referring is a US
citizen who was on a temporary assignment in a foreign country. (This
is true for me as well). He never renounced his citizenship while
abroad. I apologize if the term "expat" confused the issue, as I was
using a term frequently used by fellow US citizens who work abroad
temporarily.
Brew1
> > BTW, if he's an ex-pat, he's NO LONGER a citizen.
>
> rubbish.
>
>
Form 8854, Expatriation Information Statement, expatriation tax
provisions apply to citizens who relinquish their citizenship and
residents who end their residency. To me, that means in IRS-speak if
you are an expat American, you are no longer a citizen.
Wallace
"Brew1" <brew...@gmail.com> wrote in message
news:28afaf80-2d39-41fb...@p23g2000vbl.googlegroups.com...
> On Dec 16, 12:21 pm, "Wallace" <pleasenos...@microsoft.com> wrote:
>> > BTW, if he's an ex-pat, he's NO LONGER a citizen.
>>
>> rubbish.
>>
>>
> I would agree with Alan's interpretation. In the instructions for
> Form 8854, Expatriation Information Statement, expatriation tax
> provisions apply to citizens who relinquish their citizenship and
> residents who end their residency. To me, that means in IRS-speak if
> you are an expat American, you are no longer a citizen.
why would you apply IRS speak to the OP? Clearly, the OP was using non-IRS
speak.
D. Stussy
> > I don't disagree that the word is a loose term. I am only
> > pointing out that Mr Stussy's comment about ex-pats not being
> > citizens is not unusual as the Treasury when referring to
> > individuals affected by the tax regime under IRC sections 877,
> > 2107 and 2501 identifies them as expatriates.
>
> Just to be clear, the individual to whom I am referring is a US
> citizen who was on a temporary assignment in a foreign country. (This
> is true for me as well). He never renounced his citizenship while
> abroad. I apologize if the term "expat" confused the issue, as I was
> using a term frequently used by fellow US citizens who work abroad
> temporarily.
Then he's not expatriated.
Being an "expat" means he has renounced his citizenship. Such is NOT a
temporary thing.
Stuart A. Bronstein
>> Just to be clear, the individual to whom I am referring is a US
>> citizen who was on a temporary assignment in a foreign country.
>> (This is true for me as well). He never renounced his
>> citizenship while abroad. I apologize if the term "expat"
>> confused the issue, as I was using a term frequently used by
>> fellow US citizens who work abroad temporarily.
>
> Then he's not expatriated.
>
> Being an "expat" means he has renounced his citizenship. Such
> is NOT a temporary thing.
That's not how the courts use the term. And that's not how the
code uses the term, either. If it were, then the opening phrase in
�877 would not start out with, "Every nonresident alien
individual..." but would say "Every expatriot...."
And �2107 would not impose a tax, as it does, on "every decedent
nonresident not a citizen of the United States," but on "every
deceased expatriot."
And �871(l)(2) wouldn't talk about "nonresident alien individuals
who are expatriate United States citizens,..." but simply
"expatriate United States citizens."
--
Stu
http://downtoearthlawyer.com
Stuart A. Bronstein
> I would agree with Alan's interpretation. In the instructions
> for Form 8854, Expatriation Information Statement, expatriation
> tax provisions apply to citizens who relinquish their
> citizenship and residents who end their residency. To me, that
> means in IRS-speak if you are an expat American, you are no
> longer a citizen.
The instructions for Form 8854 talk only about one kind of
expatriation - one where the person is not now a US citizen. It
doesn't mean that the word can't apply to others who left the country
but are still citizens - the form just doesn't apply to them.
--
Stu
http://downtoearthlawyer.com
Lanny Williams
>> Two factors affect the answer here. First, the rules say that income
>> paid for services rendered abroad must be paid within two years of being
>> earned to be eligible for the exclusion. Thus, a contract completion
>> bonus paid at the end of four years would be only paritally eligible.
>>
>
> Lanny: if the payment four years after repatriation (is that what you
> meant?) is partially eligible, why isn't a stock option exercise four
> years after repatriation partially eligible too?
>
> Do the vesting rules have an impact here? For example, the restricted
> shares or stock option may have vesting provisions that limit their
> use before several years have lapsed.
>
> Thanks.
>
A payment, even four years later, is still a payment for services. A
stock option is not a payment. The option, itself, may or may not be
currently taxable. The taxable event is not the performance of a
service but the acquisition/sale of shares of stock.
Lanny K Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans
--
WJB57
>
> A payment, even four years later, is still a payment for services. �A
> stock option is not a payment. �The option, itself, may or may not be
> currently taxable. �The taxable event is not the performance of a
> service but the acquisition/sale of shares of stock.
>
Lanny: I respectfully disagree. The granting of a stock option is
clearly part of one's compensation for services. (I am not talking
about a program where an equal number of options that are granted to
every single employee. These are specific shares granted to managers
as part of one's bonus....part is granted in cash, part in shares).
The value of the compensation may not be determined until the option
is exercised, but you cannot argue that it isn't compensation for
services. I am talking about NQ stock options (or restricted
shares). In both cases, you have ordinary income upon exercise or the
lapsing of restrictions.
It wouldn't be hard to value the options or restricted shares two
years after repatriation, and consider that amount as foreign income
when you later exercise the options or lapse the restrictions. Is
that a totally unreasonable position to take?
Thanks.
Seth
D. Stussy <rep...@newsgroups.kd6lvw.ampr.org> wrote:
>Being an "expat" means he has renounced his citizenship.
According to which dictionary?
Google "Define:expat"
Definitions of Expat on the Web:
exile: a person who is voluntarily absent from home or country;
"American expatriates"
wordnetweb.princeton.edu/perl/webwn
An expatriate; a person who lives outside his or her own country; The
noun used attributively
en.wiktionary.org/wiki/expat
Expats - An expatriate (in abbreviated form, expat) is a person
temporarily or permanently residing in a country and culture other
than that of the person's upbringing or legal residence. The word
comes from the Latin ex (out of) and patria (country, fatherland).
en.wikipedia.org/wiki/Expats
(Plus a couple about an XML parser called that.)
Seth
Seth
WJB57 <adwa...@hotmail.com> wrote:
>
>>
>> Two factors affect the answer here. �First, the rules say that income
>> paid for services rendered abroad must be paid within two years of being
>> earned to be eligible for the exclusion. �Thus, a contract completion
>> bonus paid at the end of four years would be only paritally eligible.
>
>Lanny: if the payment four years after repatriation (is that what you
>meant?)
I take it to mean that if you work abroad for 4 years and get a
completion bonus at the end, half of it was earned during the first 2
years (and isn't eligible) and the other half was earned during the
last 2 years (and is eligible).
Seth
WJB57
>
> I take it to mean that if you work abroad for 4 years and get a
> completion bonus at the end, half of it was earned during the first 2
> years (and isn't eligible) and the other half was earned during the
> last 2 years (and is eligible).
>
> Seth
Publication 54 doesn't seem to address this issue clearly. They refer
to income received more than one year after it was earned. The stock
options or restricted shares are received two or three months after
the performance year has ended.
To my thinking, the stock options were "paid" to the employee while
his tax home was overseas and he was physically in the foreign country
virtually all year (except brief vacations to the states).
I actually see a different risk with this position. If the individual
(for example) received the options in early 2001 (for services in
2000), and took the foreign earned income exclusion for 2001 --
wouldn't taking the foreign earned income exclusion on his stock
option income income in 2009 be double dipping? He may have already
used the entire exclusion for income attributabe to that year.
Any thoughts on this angle?
Thanks.
Stuart A. Bronstein
>> I take it to mean that if you work abroad for 4 years and get a
>> completion bonus at the end, half of it was earned during the
>> first 2 years (and isn't eligible) and the other half was
>> earned during the last 2 years (and is eligible).
>
> Publication 54 doesn't seem to address this issue clearly. They
> refer to income received more than one year after it was earned.
> The stock options or restricted shares are received two or three
> months after the performance year has ended.
Seems to me that IRC �911 makes it pretty clear. Any income
received after the year after the service was rendered does not
qualify for the exclusion. Non-qualified stock options are
normally taxed when granted.
> To my thinking, the stock options were "paid" to the employee
> while his tax home was overseas and he was physically in the
> foreign country virtually all year (except brief vacations to
> the states).
If he received stock options while abroad, during the appropriate
time period, he doesn't have to recognize income during that year.
But I'd think that the exclusion would not apply to income that
would be taxable either on the exercise or sale of the option,
particularly if it occurred after the two year period.
--
Stu
http://downtoearthlawyer.com
Arthur Kamlet
Stuart A. Bronstein <spam...@lexregia.com> wrote:
>WJB57 <adwa...@hotmail.com> wrote:
>
>>> I take it to mean that if you work abroad for 4 years and get a
>>> completion bonus at the end, half of it was earned during the
>>> first 2 years (and isn't eligible) and the other half was
>>> earned during the last 2 years (and is eligible).
>>
>> Publication 54 doesn't seem to address this issue clearly. They
>> refer to income received more than one year after it was earned.
>> The stock options or restricted shares are received two or three
>> months after the performance year has ended.
>
>Seems to me that IRC �911 makes it pretty clear. Any income
>received after the year after the service was rendered does not
>qualify for the exclusion. Non-qualified stock options are
>normally taxed when granted.
Do you mean NQSOs are normally taxed when exercised?
>> To my thinking, the stock options were "paid" to the employee
>> while his tax home was overseas and he was physically in the
>> foreign country virtually all year (except brief vacations to
>> the states).
>
>If he received stock options while abroad, during the appropriate
>time period, he doesn't have to recognize income during that year.
>
>But I'd think that the exclusion would not apply to income that
>would be taxable either on the exercise or sale of the option,
>particularly if it occurred after the two year period.
>
>--
>Stu
>http://downtoearthlawyer.com
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
removep...@yahoo.com
wrote:
> WJB57 <adwag...@hotmail.com> wrote:
> >> I take it to mean that if you work abroad for 4 years and get a
> >> completion bonus at the end, half of it was earned during the
> >> first 2 years (and isn't eligible) and the other half was
> >> earned during the last 2 years (and is eligible).
>
> > Publication 54 doesn't seem to address this issue clearly. They
> > refer to income received more than one year after it was earned.
> > The stock options or restricted shares are received two or three
> > months after the performance year has ended.
>
> Seems to me that IRC �ｿｽ911 makes it pretty clear. �ｿｽAny income
> received after the year after the service was rendered does not
> qualify for the exclusion. �ｿｽNon-qualified stock options are
> normally taxed when granted.
What I've seen is that NQSO's are normally taxed when exercised.
Also, section (B) says
(B) Attribution to year in which services are performed
For purposes of applying subparagraph (A), amounts received shall be
considered received in the taxable year in which the services to which
the amounts are attributable are performed.
Could they pro-rate the profits? So if he was granted the options in
the foreign country and worked there for 2 years, and exercised the
shares 3 years after moving back to the states while still working for
the same big company, then 2/5 of the profits are foreign earned
income. This pro-rate rule applies to stock options between states
(ie. you are granted shares in CA, move to TX, what happens -- see
"International tax treatment of deferred tax bonus payments").
> > To my thinking, the stock options were "paid" to the employee
> > while his tax home was overseas and he was physically in the
> > foreign country virtually all year (except brief vacations to
> > the states).
>
> If he received stock options while abroad, during the appropriate
> time period, he doesn't have to recognize income during that year. �ｿｽ
>
> But I'd think that the exclusion would not apply to income that
> would be taxable either on the exercise or sale of the option,
> particularly if it occurred after the two year period.
Where is this two year period mentioned in IRC 911?
Stuart A. Bronstein
> Stuart A. Bronstein <spam...@lexregia.com> wrote:
>>
>>Seems to me that IRC �911 makes it pretty clear. Any income
>>received after the year after the service was rendered does not
>>qualify for the exclusion. Non-qualified stock options are
>>normally taxed when granted.
>
> Do you mean NQSOs are normally taxed when exercised?
My understanding is that nonqualified options are taxed (to the
extent the exercise price is below the market price at that time) at
the time of receipt. Is that incorrect?
--
Stu
http://downtoearthlawyer.com
--
Stuart A. Bronstein
> "Stuart A. Bronstein" <spamt...@lexregia.com> wrote:
>>
>> received after the year after the service was rendered does not
>> normally taxed when granted.
>
> What I've seen is that NQSO's are normally taxed when exercised.
To the extent there is taxable income, yes. But I believe that they
are also taxable when received, to the extent the market price
exceeds the exercise price when received.
>
> Where is this two year period mentioned in IRC 911?
Under �911(b)(1)(B), foreign earned income (e.g. available for the
exclusion) does NOT include amounts,
"received after the close of the taxable year following the taxable
year in which the services to which the amounts are attributable are
performed."
--
Stu
http://downtoearthlawyer.com
Arthur Kamlet
Stuart A. Bronstein <spam...@lexregia.com> wrote:
>kam...@panix.com (Arthur Kamlet) wrote:
>> Stuart A. Bronstein <spam...@lexregia.com> wrote:
>>>
>>>Seems to me that IRC �911 makes it pretty clear. Any income
>>>received after the year after the service was rendered does not
>>>qualify for the exclusion. Non-qualified stock options are
>>>normally taxed when granted.
>>
>> Do you mean NQSOs are normally taxed when exercised?
>
>My understanding is that nonqualified options are taxed (to the
>extent the exercise price is below the market price at that time) at
>the time of receipt. Is that incorrect?
Stu
I've never heard of NQSOs being taxed except at time of exercise, and
the board of directors almost always approves an exercise price equal
to the FMV at time of grant.
I didn't exactly answer your question, but for practical purposes,
NQSOs are set so there's no tax at time of grant.
When Enron or Worldcom executives attempted to backdate Board Minutes
to reflect a different grant date, they ended up in jail for a mighty
long time (though I think that was for ISOs, but same reasoning.)
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
--
WJB57
>
> My understanding is that nonqualified options are taxed (to the
> extent the exercise price is below the market price at that time) at
> the time of receipt. �Is that incorrect?
>
Stuart: In the case of my colleague and I, we have NQ options. They
are taxed as ordinary income when exercised. The income is calculated
as the difference between market price at exercise and the grant
(strike) price. This presents an awkward issue in this particular
circumstance, as "receipt" of the grant is directly following service,
but "recognition" of the income can be several years later (when the
options are exercised).
Proration of the income seems like a sensible approach. However, you
can also assert that the option had significant value on the day it
was granted. Options have value; however one cannot sell employer-
granted options, so it is difficult to determine this value.
Proration would just allocate the "in the money" value of the option,
which is easy to do, but not necessarily economically correct.
Stuart A. Bronstein
>>My understanding is that nonqualified options are taxed (to the
>>extent the exercise price is below the market price at that
>>time) at the time of receipt. Is that incorrect?
>
> I've never heard of NQSOs being taxed except at time of
> exercise, and the board of directors almost always approves an
> exercise price equal to the FMV at time of grant.
>
> I didn't exactly answer your question, but for practical
> purposes, are set so there's no tax at time of grant.
That sounds right to me. The stock is recognized in the year
received - there just is no value there to tax at that time.
Which, for me, supports the notion that you can't extrapolate and
say that profit received on the sale of stock relates back to the
services performed for the receipt of the stock. The "income" for
the services was received and recognized when rendered. Anything
happenning after that time would be solely with respect to the
stock.
One issue is, when is the income "received" for purposes of �911?
If it's received on exercise of the option, if that's more than two
years after the services rendered, then it doesn't quality due to �
911(b)(1)(B)(iv).
If you want to argue that the income was "received" when the stock
was transferred, it wouldn't qualify as earned income in the
current year in any case.
--
Stu
http://downtoearthlawyer.com
Stuart A. Bronstein
>> My understanding is that nonqualified options are taxed (to the
>> extent the exercise price is below the market price at that
>> time) at the time of receipt. �Is that incorrect?
>
> Stuart: In the case of my colleague and I, we have NQ options.
> They are taxed as ordinary income when exercised. The income is
> calculated as the difference between market price at exercise
> and the grant (strike) price. This presents an awkward issue in
> this particular circumstance, as "receipt" of the grant is
> directly following service, but "recognition" of the income can
> be several years later (when the options are exercised).
I haven't researched this issue, so it could be there is some
esoteric rule that I'm not aware of.
But it seems to me that income from these stock options was
"recognized" in the year the options were granted - they just had
no taxable value.
> Proration of the income seems like a sensible approach.
How would you propose to pro-rate this? Assuming you're a cash-
basis taxpayer, income is recognized for tax purposes in the year
received. If you're an accrual taxpayer it's recognized in the
year accrued - which is when the services were performed. I don't
see how you can get around that.
> However, you can also assert that the option had significant
> value on the day it was granted. Options have value; however
> one cannot sell employer- granted options, so it is difficult to
> determine this value. Proration would just allocate the "in the
> money" value of the option, which is easy to do, but not
> necessarily economically correct.
If it's worth a lot of money to you, get a tax lawyer to give you a
formal opinion - it should cost between $5,000-$10,000 for a
complete analysis. Without looking into it more deeply, I'd be
skeptical that you'd win.
--
Stu
http://downtoearthlawyer.com
Seth
Stuart A. Bronstein <spam...@lexregia.com> wrote:
>How would you propose to pro-rate this? Assuming you're a cash-
>basis taxpayer, income is recognized for tax purposes in the year
>received. If you're an accrual taxpayer it's recognized in the
>year accrued - which is when the services were performed. I don't
>see how you can get around that.
The latter would be a neat trick: "For work you do in 2009, you'll get
paid 3% of the revenue received from that product for the next five
years." How much accrues in 2009? Assume you don't do anything for
that company after that.
The issue is similar for options: you can't accrue the income when
earned, because the amount can't be known until later.
Seth
WJB57
> Which, for me, supports the notion that you can't extrapolate and
> say that profit received on the sale of stock relates back to the
> services performed for the receipt of the stock. �The "income" for
> the services was received and recognized when rendered. �Anything
> happenning after that time would be solely with respect to the
> stock.
>
> One issue is, when is the income "received" for purposes of �911? �
> If it's received on exercise of the option, if that's more than two
> years after the services rendered, then it doesn't quality due to �
> 911(b)(1)(B)(iv).
>
Thanks to Stuart, Art, Seth, Lanny and others for their views on this
issue.
Let's change the facts to get away from the options. Say I am living
overseas in 2010 and elect to defer salary in an executive
compensation plan (a Rabbi trust). I repatriate and retire in 2011,
and take the first distribution from the deferred compensation plan in
2011. I assume you folks would agree that the pro-rata portion of the
distribution that related to the 2010 deferral is eligible for the
Foreign Earned Income credit? It was paid in 2011, less than a year
after being earned. Of course, the distributions in later years would
not qualify since they were received more than one year after the
service was performed.
Thanks.