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I moved to the US on the 21st of December 22 (E2 Spouse Visa). Before leaving I sold my UK company which completed on the 20th of December 22. The deal was structured so that part was cash payable on at the point of sale, and the other part was to be held as loan notes which were to be paid when the company had sufficient profits. I was advised by the UK tax adviser that there would be no tax to pay in the US as the deal was completed outside the US and I did not satisfy the residency test during that year. MY CPA (based on information I've submitted so far ) seems unsure.

Any assistance is greatly appreciated.

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    This site staffed by willing volunteers with some knowledge of personal finance. When things get too complicated we always say "talk to a tax professional". THis question falls in that category. Your tax advisor seems to have given you an answer, even if your CPA is unsure. We strongly recommend you talk to another professional with specialised knowledge in the area, such as a US based tax advisor with experience of overseas work. Dec 15, 2023 at 15:24
  • It would also help if you asked a specific question vs a general request for Advice
    – JohnFx
    Dec 15, 2023 at 18:19

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So I am assuming that you did not pass the Substantial Presence Test for 2022. You will probably pass the Substantial Presence Test for 2023 and later years, so you will be a resident alien for those years.

You are subject to US taxes on your worldwide income when you are a resident alien, and you are only subject to US taxes on your US-sourced income when you are a nonresident alien. So, assuming this income is non-US-sourced, the question is whether it is taxed before or after you became a resident (Jan 1 2023).

If you receive parts of the proceeds of a sale later, that is considered an "installment sale". See Publication 537 for details on installment sales. Normally, you are taxed on each installment in the year you received it, and you are not taxed in a given year on the parts that have not yet been received in that year. So if you receive part of the proceeds of your sale in a later year, then that portion of it would be taxable in the year you received it, instead of in the year of sale. I believe that a "loan note" is not considered receiving income, because it is just a promise to pay you money, and there is the possibility that they might not fulfill that promise. So if you receive an installment in 2023 or after, then it would be subject to US tax, even if it is not US-sourced income. (Of course, you can still claim Foreign Tax Credit on it if it is taxed by another country, and you can claim potential tax treaty benefits if there are any.)

It is possible to elect out of the installment method, but you would have had to make this election by the due date of the tax return for the year of sale, which for 2022, would have been April 15, 2023, which has already passed. (If you had filed your tax return timely, you would have had 6 more months to make the election, but even in that case, it has already passed.) So I don't think you can elect out anymore.

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  • Just a nit - E2 is not an immigrant visa and the OP is not a permanent resident. They do not pass the substantial presence test for 2022 and can potentially have a dual-status return. This is not an installment sale, since the remaining parts are conditioned. This is similar to an RSU grant that vests over time.
    – littleadv
    Dec 15, 2023 at 18:57
  • @littleadv: Oops I misread it.
    – user102008
    Dec 15, 2023 at 19:14
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You have a professional tax adviser on either side of the pond, so why are you here?

Generally the US taxes worldwide income, and as a cash based taxpayer (as individuals by default are), you're taxed on income when you receive it, not when you accrue it.

Since the notes are conditional on a future event, you have not received it yet (nor have you accrued it, for that matter), and when you do - you're a US tax resident.

So given the facts described I'd disagree with the UK adviser, but I'm not a lawyer or professional tax adviser. You have a CPA - have them evaluate your situation given the full facts and circumstances.

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