Comparisons
International Tax Comparisons
Commonly confused concepts explained side by side: when each applies, when both apply, and why the difference matters.
- Form 5472 vs. Form 5471: Which ownership direction matters?Form 5472 generally reports certain transactions involving foreign-owned U.S. reporting corporations, while Form 5471 reports specified U.S. persons’ involvement with foreign corporations. They address different ownership directions, and a cross-border structure can create obligations under both rules.
- Form 1040 vs. Form 1040-NR: Which return applies?Usually, U.S. citizens and resident aliens use Form 1040, while nonresident aliens with a filing obligation use Form 1040-NR. Your federal tax residency, not your passport, mailing address or preferred tax result, determines the starting point.
- ECI vs. FDAP: How nonresident income is taxedECI is income effectively connected with a U.S. trade or business, generally taxed on a net basis. U.S.-source FDAP income that is not effectively connected is generally taxed at 30% of gross income unless a statutory exemption or treaty reduces the tax; the categories are not simply “active” versus “passive.”
- Resident vs. nonresident alien: Federal tax statusUsually, a noncitizen is a resident alien for federal income tax if they meet the green card test or substantial presence test, subject to exceptions. Resident aliens generally report worldwide income; nonresident aliens generally face tax on U.S.-source income and income effectively connected with a U.S. trade or business.
- LLC vs. C corporation for foreign ownersIt depends: an LLC is a legal entity whose federal tax classification can be disregarded, partnership or corporation, while a domestic C corporation generally pays 21% federal tax on taxable income. Default LLC treatment generally places income tax at the owner level; neither structure is always better, and Form 5472 can apply to both under the relevant rules.
- Form 3520 vs. Form 3520-A: Foreign trust reportingForm 3520 reports certain transactions with foreign trusts, U.S. ownership of foreign trusts, and certain large foreign gifts or bequests. Form 3520-A is the annual information return for a foreign trust with a U.S. owner; it does not replace the owner’s separate Form 3520 obligations.
- In-depth articleFBAR vs. Form 8938: What Is the Difference?Two separate reporting regimes, two different agencies, two different sets of thresholds — and many taxpayers are required to file both for the same accounts.
- In-depth articleShould You Claim the Foreign Tax Credit or the Foreign Earned Income Exclusion?Both relieve double taxation, but they work differently and lead to different results. How Form 1116 and Form 2555 compare, and what usually drives the decision.