Tax Planning & Compliance Flashcards

Under the mobile workforce / multi-state taxation rules, an employee who works in multiple states during an RSU vesting period is typically taxed by each state based on:

Answer: The portion of the vesting period the employee worked in that state (apportionment)

Most states apportion RSU income based on the number of days (or portion of the vesting period) worked within that state, regardless of the employee's residency at vesting.

A U.S. citizen employed abroad by a U.S. company exercises NQSOs. Under the foreign earned income exclusion (Section 911), the NQSO spread:

Answer: Cannot be excluded under Section 911 if the options relate to services performed in the U.S.

Section 911 excludes foreign earned income, but only the portion of the NQSO spread attributable to services performed outside the U.S. while a bona fide foreign resident qualifies.

When a foreign national employee is granted U.S. stock options and later returns to their home country before exercise, the tax sourcing of income typically follows:

Answer: A proration based on U.S. workdays during the vesting period versus total vesting period workdays

U.S. tax treaties and IRS guidance generally source option income to the country where services were performed during the vesting period, requiring proration of workdays.

Under FBAR (FinCEN 114) reporting rules, a U.S. person holding equity in a foreign company through a broker account must file if:

Answer: The account value exceeds $10,000 at any time during the calendar year

A U.S. person must file FinCEN 114 (FBAR) if the aggregate value of all foreign financial accounts exceeds $10,000 at any point during the calendar year.

A company doing a cashless (same-day-sale) NQSO exercise for a departing nonresident alien employee must withhold:

Answer: 30% (or lower treaty rate) on the U.S.-source portion of the spread

U.S.-source NQSO income paid to a nonresident alien is subject to 30% NRA withholding (or lower treaty rate) on the U.S.-sourced portion under IRC Section 1441.

Under the constructive receipt doctrine, a voluntary deferral election for an RSU must generally be made:

Answer: Within 30 days after RSU grant, before a substantial risk of forfeiture is established

To avoid constructive receipt and comply with Section 409A, a deferral election for RSUs must typically be made at least 12 months before vesting, or within 30 days of grant if a substantial risk of forfeiture exists.

For equity awards subject to U.S. backup withholding, the applicable rate as of 2024 is:

Answer: 24%

Backup withholding applies at the rate of 24% when a payee fails to provide a valid TIN or is notified by the IRS of underreporting.