Peter Trieu and Brian Rowbotham were invited to speak to a group of bank specialist at UBS. The bankers wanted to take this information over to China to explore business opportunities between the two countries.

1. Cross Border Income
and Estate Tax Planning
Rowbotham
& c o m p a n y llp
November 11, 2014
UBS
Brian Rowbotham, CPA
Peter Trieu, Esq., LL.M.
Rowbotham and Company
br@rowbotham.com
ptrieu@rowbotham.com
415-433-1177

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Agenda
 U.S. Income Tax
 U.S. Estate and Gift Tax
 Pre-Arrival Planning

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Income Tax
Planning and Reporting
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Income Tax of U.S. Persons
 U.S. residents taxed on worldwide income
 Certain amount of foreign earned income excluded
from taxation- $100,800 (2015)
 Must reside in foreign country for entire tax year
 Foreign tax credit available for income taxes paid to
foreign country
 Three principal ways to become a U.S. tax resident:
 Substantial presence test (formula)
 Lawful permanent resident (Green Card)
 Citizen
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Substantial Presence
 Substantial Presence Test Met
 Present in the U.S. at least 31 days in the current year; and
 Present in the U.S. for 183 days according to a formula:
Year Actual Days Multiplier Days Counted
2014 120 1 120
2013 120 1/3 40
2012 120 1/6 20
180
 Exceptions
 Taxpayer has a closer connection to a foreign country
 Treaty tie breaker
 Available to green card holders
 No exemption from reporting requirements (e.g. FBARs)
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Income Sourcing
 Nonresidents taxed only on U.S. sourced income
 Source of income rules are largely codified by income category
 Interest income- generally is an individual debtor's place of residence and a
corporate debtor's place of incorporation. IRC §§861(a)(1) and 862(a)(1).
 Dividend income- generally is the place of the paying corporation's incorporation.
IRC §§861(a)(2)(A) and 862(a)(2).
 Income from personal services- generally is the place where services are
performed. IRC §§861(a)(3) and 862(a)(3).
 Rentals and royalties- sourced either to the geographic location of the property
or the place of permitted use of the property. IRC §§861(a)(4) and 862(a)(4).
 Income from a disposition of a U.S. real property interest- determined according
to the situs of the property. IRC §§861(a)(5) and 862(a)(5)
 Income from the sale of inventory is sourced to the place of sale.
IRC §§861(a)(6) and 862(a)(6).
 Income from the sale of other property- generally sourced by the residence of
the seller. IRC §865(a)
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Reporting Requirements
 Non-U.S. Trust & Gift 3520 35% of distribution
 Non-U.S. Trust 3520A 5% per month up to 25%
 Non-U.S. Partnership 8865 $10,000/ year per entity
 Non-U.S. Disregarded Entity 8858 $10,000/ year per entity
 Non-U.S. Corporation 5471 $10,000 / year per company
 Transf. to a non-U.S. corp. 926 25% of value up to $10,000
 Non-U.S. Financial Asset 8938 $10,000/year up to $50,000
 Non-U.S. Bank Account FinCEN 114 50% of highest balance/year
Potential Penalties
IRS Form for Non-compliance

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Statement of Specified
Foreign Financial Assets
 Individual US taxpayers who are required to file an income tax
return must file Form 8938 if foreing financial assets exceed
following thresholds:
 Single living in US: $50K at 12/31 or $75k during year
 Married living in US: $100K at 12/31 or $150k during year
 Single living abroad: $200K at 12/31 or $300k during year
 Married living abroad: $400K at 12/31 or $600k during year
 Specified foreign financial assets include:
 Financial accounts (savings, checking, brokerage, CDs)
 Stocks and bonds
 Partnership interests
 Insurance contracts
 Beneficiary interests in estate or trust
 Excluded Assets: real estate; currency; US mutual funds, brokerage
accounts, IRAs, or 401k accounts invested in foreign securities

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Foreign Bank Account Reports
 U.S. persons holding any financial interest in, or authority over,
bank or other financial accounts in a foreign country must report
these accounts
 U.S. person
 U.S. citizen or resident
 An entity formed under laws of U.S. (corporations, partnerships, LLCs,
estates, trusts)
 A U.S. person has a financial interest in account if owner of record is
 Such U.S. person (self)
 Person acting on behalf of the U.S. person (agent)
 An entity majority owned by the U.S. person
 A grantor trust where U.S. person is owner
 A trust in which U.S. person has majority present beneficial interest

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Voluntary Disclosure
 Offshore Voluntary Disclosure Program (OVDP)
 File 6 years of returns, and 8 years of FBARs
 27.5% in lieu of penalty
 Highest account balance in last 8 years
 Assets acquired with unreported income
 Assets producing unreported income
 Streamlined Processing
 File 3 years of returns, and 6 years of FBARs
 Taxpayers residing in U.S.- 5% miscellaneous penalty
 Taxpayers residing outside U.S.- No penalties
 Must prove failure was non-willful
 Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or
conduct that is the result of a good faith misunderstanding of the requirements of the
law.

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Estate and Gift Tax Planning
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Estate & Gift Taxation- Resident
 Residents are taxed on worldwide assets
 Residency determined by one’s domicile
 Facts and Circumstances- home, family, declarations
 Green Card Holder Resides in U.S.: Likely U.S. domiciliary
 Green Card Holder Resides outside U.S.: Likely non-domiciliary
 Visa: Likely non-domiciliary
 Life-time Exemption- $5,430,000 (2015)
 Annual Exclusion- $14,000 (2015)
 Unlimited Marital Deduction- U.S. citizen
spouse only
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Estate & Gift Taxation- Nonresident
 Nonresidents taxed only on US sited assets
 Estate tax exemption- $60,000
 Gift tax exemption limited to annual exclusion-
$14,000 (2015)
 Gifts to noncitizen spouses limited to $147,000 (2015)
 Transfer Certificate (Form 5173) required to transfer
US assets to foreign beneficiaries

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Nonresident – US-Sited Property
Gift Tax Estate Tax
 Cash in U.S. Banks Yes No
 U.S. Bonds No Yes
 Non-U.S. Govt. Bonds No No
 U.S. Stocks No Yes
 Partnership [U.S.](1) No No
 Real Property in U.S. Yes Yes
 Tangible Property in U.S. Yes Yes
(1)- Debate over treatment of partnership interests as being sited to residence of owner

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What is a Foreign Trust?
 A foreign trust is any trust that is not a
domestic trust. IRC 7701(a)(31)(B).
 A trust is a domestic trust if both “court
test” and “control test” are met. IRC
7701(a)(30)(E).
 Court Test- a court within the U.S. is able to
exercise primary supervision
 Control Test- only U.S. persons have authority
to control all substantial trust decisions

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Outbound- Grantor Trusts
 The U.S. grantor of a foreign trust that has one or more U.S.
beneficiaries is treated as the owner of the trust's assets, under the
grantor trust rules. IRC § 679.
 Migration- A nonresident alien individual who becomes a resident of the
United States within 5 years after transferring property to a foreign
trust will be treated as if he or she made the transfer on the residency
starting date. IRC § 679(a)(4).
 Status applies regardless of the terms of the trust and regardless of
any powers or interests the U.S. grantor or any other person may
have with respect to trust income and corpus.
 Grantor is taxable on the income of a trust even if he never receives
any distributions and has no control or power.
 Grantor is taxable on trust income only in those years in which there is
a U.S. beneficiary.

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Outbound- Transfers of
Appreciated Assets
 Any transfer of property by a U.S. person to a foreign trust or estate is, for federal
income tax purposes, treated as a sale or exchange made for an amount equal to the
fair market value of the property transferred. IRC § 684(a).
 Transferor must recognize as gain the excess of the fair market value of the property
transferred over the transferor's adjusted basis.
 A U.S. person may not recognize loss on the transfer of an asset to a foreign trust.
 Exception: Gain should not be recognized on transfers to a foreign trust that has a
U.S. beneficiary, because the grantor would be deemed to own the trust under §679.
IRC § 684(b).
 Exception: Gain is not recognized on a transfer to a foreign trust or estate that
occurs at the transferor's death. Regs. §1.684-3(c).
 Exception: Gain is not recognized on a transfer to an unrelated foreign trust in
exchange for assets equal in fair market value to the transferred assets. Regs.
§1.684-3(d).
 A domestic trust that becomes a foreign trust is deemed to have transferred all of its
assets to a foreign trust, to the extent that those assets are attributable to transfers
by U.S. persons. IRC § 684(c).

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Inbound- Nongrantor Trusts
 A trust is treated as a grantor trust only if the person
deemed to own the trust is a U.S. citizen or resident.
§672(f)(1).
 Exception- power to revest absolutely in the grantor exercisable
solely by the grantor. §672(f)(2)(A)(i).
 Exception- the only amounts distributable from trust during the
lifetime of the grantor are amounts distributable to the grantor
or the spouse of the grantor. §672(f)(2)(A)(ii).
 A U.S. beneficiary of a trust created by a foreign grantor
is, nonetheless, treated as the grantor of the trust to the
extent the U.S. beneficiary has made prior gifts to the
foreign grantor. §672(f)(5).

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Inbound- Taxation of Distributions
 The U.S. beneficiaries of a nongrantor foreign trust include in their
income trust distributions to the extent of their share of DNI. IRC
§§652(a), 662(a).
 Loans by a foreign trust to a U.S. grantor or beneficiary, or someone
related, is treated as a distribution. IRC § 643(i).
 Exception- “qualified obligations”. Notice 97-34.
 Uncompensated use of trust property by a U.S. grantor or beneficiary,
or someone related, is treated as a distribution. IRC § 643(i).
 Accumulation distributions from a foreign trust are subject to an
“interest” charge on the beneficiary's tax for each year of
accumulation. IRC 668.
 Interest charge is in addition to tax on the distribution.
 A foreign trust makes an accumulation distribution in any year in
which the trust distributes more than its current year's DNI, if it has
Undistributed Net Income (UNI). IRC §665(b).

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Planning with Foreign Trusts
 A U.S. grantor with one or more U.S. beneficiaries
 Grantor trust under §679;
 In nongrantor period, accumulation distributions subject to the interest charge.
 A U.S. grantor with only foreign beneficiaries
 Nongrantor trust (i.e. §679 does not apply);
 Gain must be recognized under §684
 A foreign grantor and one or more U.S. beneficiaries
 Grantor trust status allows tax-free accumulation and distribution of
income/corpus;
 Nongrantor trust status still allows tax-free accumulation, but distributions
subject to interest charge
 Consider making distributions only when beneficiaries are non-U.S.
 Consider domesticating trust to avoid interest charge.
 Creation prior to migration to U.S. may result in U.S. grantor trust status.
 Avoid result by creating 5 years prior to migration
 Embrace result, and reap benefits of reducing estate for estate gift tax purposes tax-
free (i.e. IDGT)

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Pre-Arrival and
Pre-Departure Planning
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Pre-Arrival: Exercise Stock Options
22
2012 2013 2014
Arrival in U. S.
Exercise
Options
August November
Early exercise avoids taxation of “in the money options”
May
Options awarded in 2011
Alternative
1
Exercise
Options
June
Alternative
2
Worldwide
Taxation

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Pre-Arrival: Eliminate Foreign Holding Structures
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FP
Foreign
Corporation
U.S.
Foreign
Asset
U.S.
Assets
U.S. Residence
Direct
Ownership
U.S.
Trust
U.S.
Partnership
• Foreign Corporation Creates Ordinary Income to U.S. Person
• Tax Reporting is Very Complex
• Liquidate Prior to Becoming U.S. Resident
• Electing pass-through treatment sufficient; also provides stepped-up basis
Foreign
Disregard

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Top Tax Rates
Income Tax - Operating Income
Capital Gains on Sale
Estate Tax Risk [40% Rate]
39.6% 39.6% 39.6% 39.6%
20% 20% 20% 20%
Yes Yes * Yes * No
NR
USRP
NR
USRP
NR
USRP
NR-1
USRP
NR-2
(4)(1) (2) (3)Direct and Indirect Ownership (a)
(1) Foreign Person
(2) U.S. or Foreign LLC
(3) U.S. or Foreign Partnership
(4) U.S. or Foreign Trust
Top Tax Rates
Income Tax - Operating Income
Second Level Dividend Tax
Capital Gains on Sale
Estate Tax Risk [40% Rate]
35% 35% 35% 39.6%
30% 30% 30% -0-
35% 35% 35% 20%
Yes No No No
NR
USRP
NR
USRP
NR
USRP
(8)(5) (6) (7)Corporate Ownership (b)
(5) U.S. Corporation
(6) Foreign Corporation
(7) Foreign / U.S. Corporation
(8) Hybrid Structure
USRP
NR
99%
1%
(for 99% owner)
(a) For nonresident individuals and high net worth families.
(b) For corporate and institution investors.
Foreign Investment in U.S. Real Property (USRP)
Limited Liability
Company
Partnership Trust
U.S. Inc. Foreign Corp.
U.S. Inc.
Foreign Corp. Foreign Mgmt.
Corp.
Foreign Hybrid

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Pre-Departure: Sale/Gift to Foreign Family
US FP
Foreign
TrustUS
LLC
-founder
shares
Foreign
Corp
Sale
US
LLC
-founder
shares
Notes:
•US resident owns assets likely
to substantially appreciate
•US resident sells/gifts to foreign
family member
•Family member sells at
appreciated value free of US tax
•Family member contributes
funds to foreign grantor trust
•Trust benefits family member
during life
•Distributions to US resident
treated as gift from abroad
•Trust should domesticate after
death, benefit US resident and
successive generations
Gift

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Pre-Departure: WING/NING TRUST
CA
WING/NING
Trust
Notes:
•CA resident owns substantially
appreciated assets
•CA resident contributes assets
to WING/NING Trust
•Gift is incomplete
•Trust is nongrantor
•Trust sells assets
•No CA taxation
•CA resident leaves CA
•Distributions to non-CA resident
not subject to CA tax

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Expatriation
 The expatriation tax provisions apply to U.S. citizens who renounce their
citizenship and to long term residents who give up their green cards
 An exit tax applies that is equivalent to a tax on a “deemed sale” of assets
 Tax applies to persons with assets with fair market value in excess of $2M,
or have an average income tax liability exceeding $160,000 (for 2015), over
most recent past 5 years.
 A long term resident is a U.S. green card holder who has held the green
card in at least 8 years.
 Years during which a nonresident return are filed are not counted
 Filing a treaty-based nonresident returns may be considered an expatriating
act.
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Brian Rowbotham, Managing Partner
Brian Rowbotham has over 35 years of experience advising individuals and businesses on complex domestic and international tax issues.
Current engagements include:
•Income and estate tax planning for executives entering the U.S. from Asia and Europe
•Software and social media companies based in Asia, Europe and the U.S
•Global investment funds with portfolio and real estate investments in the US, Europe and Asia
•U.S. companies with manufacturing and distribution located outside the U.S.
•Corporate structuring and expansion including cross border M&A transactions, licensing and IP transfers
•Complex tax audits and representation before the IRS related to recent IRS voluntary tax compliance programs where significant non-
reporting penalties have been assessed
Speaking Engagements: Mr. Rowbotham is a guest lecturer at the Haas Business School at the University of California, Berkeley. He has
given presentations worldwide on tax and investment related issues to professional organizations, including: STEP programs in Geneva, Jersey
– Channel Islands, Mumbai, Zurich, Los Angeles and the Silicon Valley; International Tax Planning Association and the Offshore Investment
programs in Luxembourg, Hong Kong, Shanghai, Puerto Rico, and Singapore. He has been a speaker at the World Economic Forums in
Mumbai and New Delhi and maintains close ties to the Indian business community in the U.S. and abroad. Locally, he has given presentations
to the CPA Society and to the San Francisco Bar Association.
Articles and Publications: Mr. Rowbotham was recently a speaker at the AICPA conference on International tax planning for executives living
abroad in Washington DC. He was featured on the cover of the California CPA publication for his lead article on Doing Business in China. He
has been a contributor to many international tax and investment journals, including a feature article in Thompson Reuters Venture Capital
Journal about the lack of corporate governance that lead to the financial collapse. He was awarded the 2012 Distinguished Service award by
the San Francisco Chapter of the California CPA Society. He was the past president of The San Francisco Tax Club and is a member of the
Foreign Tax Club in Northern California.
Experience & Education: Mr. Rowbotham founded the firm in San Francisco in 1991. He was formerly with Price WaterhouseCoopers in their
London and San Francisco Offices, and formerly with Arthur Andersen. Mr. Rowbotham is a Certified Public Accountant, and earned his
bachelors degree and MBA, with honors, from the University of California, Berkeley Haas School.

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Peter Trieu, Tax Director
Peter Trieu is the Tax Director at Rowbotham & Company. His practice focuses on
advising clients regarding domestic and international tax planning and compliance. He
also assists clients with their estate plans. His clients include entrepreneurs, multi-
national families, high net-worth individuals and businesses. Prior to joining the firm, Mr.
Trieu worked for several years as a Trusts and Estates attorney.
Mr. Trieu has been a guest lecturer at the Haas Business School at the University of
California, Berkeley, and has been a speaker for several U.S. and international tax
planning organizations. He has also written numerous articles including some published
in CalCPA magazine.
Mr. Trieu is an attorney licensed to practice law in the State of California. He
earned a Bachelor of Arts in Business-Economics with a minor in Accounting from
University of California, Los Angeles. He graduated cum laude from University of
California, Hastings College of Law, where he had a concentration in taxation,
and earned a Master of Laws (LL.M.) in Taxation, with honors, at Golden Gate University.

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Harriet Leung, Audit Partner
Harriet Leung, Partner of Advisory Services at Rowbotham & Company, heads the firm’s
substantial Asia practice of high net worth individuals and works with many technology
startup companies in multi-media gaming and social media. Ms. Leung also advises
companies in the financial due diligences, audit and business advisory areas. She has
substantial experience servicing companies that were seeking listings on both foreign and
U.S. stock exchange markets. She has successfully represented and worked with
companies in Asia completing reverse mergers into the U.S. public companies.
Ms. Leung has spoken at various tax and financial conferences in China, Hong Kong,
Thailand and the U.S. Ms. Leung serves on the Board of Directors for the Hong Kong
Association of Northern California where she recently organized and chaired a highly
successful event on tax and immigration planning
Ms. Leung is originally from Hong Kong, and moved to the U.S. in 1991. She has a
Bachelor’s degree in Accounting and an MBA in Finance with honors from Golden Gate
University, and is a Certified Public Accountant in California.

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ROWBOTHAM &
C o m p a n y
Accountants and International Tax Consultants
www.rowbotham.com