How to elect portability on 706 Form

How to elect portability on 706 Form: What You Should Know

Form 2555-EZ, Form 2555-EZ1, and Form 2555-EZ2 to claim the benefits of the Foreign Earned Income Exclusion from your U.S. tax return. The Foreign Earned Income Exclusion is an exclusion from U.S. taxable income for a foreign corporation to which you were a U.S. shareholder. The foreign corporation, its foreign branch, and its foreign affiliates can be domestic corporations or international corporations. The following benefits are available to a shareholder of foreign corporations who are U.S. persons (the spouse of a U.S. citizen, resident alien, or employee of a U.S. company, corporation resident in Canada, or a trust that qualify as domestic corporations): If you are a U.S. person, you can exclude from your foreign tax on your income from a trade or business or from services you perform in a trade or business, and, subject to certain special rules, from income or gain derived by you from disposing of capital property held for investment in a qualified trade or business or from furnishing services that qualify you for an exemption from U.S. income tax. The following items are subject to the foreign tax: Foreign property sold, leased, or otherwise transferred by you, or an unrelated party, to a foreign corporation or other qualifying entity. Any gain or loss from the disposal of property must actually be realized in the United States by the purchaser before the proceeds from disposition may be included in gross income. Nonresident aliens who own U.S. real property and U.S. real property situated in foreign countries are subject to U.S. taxation on the gain/loss, but in the case of real property situated in another country the capital gain is generally not excluded. See Publication 463, Sales of U.S. Real Property by a Resident Alien Whose Principal Business Is in (or Is Located in) the United States, for more information. For more information on nonresident aliens' U.S. tax obligations, see chapter 7 of Publication 519, Tax Guide for U.S. Citizens and Resident Aliens. Eligible Foreign Corporations For the purpose of claiming the foreign earned income exclusion, foreign corporations must have a “domestic” headquarters. “Domestic” means that a majority of the corporation's shareholders that are U.S. persons or are residents of the U.S. are U.S. citizens, residents, or U.S. companies.

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