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foreign partnership??

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I posted this on another board and got zero responses that gave any insight, so here goes:

Long time client's employer has always sent out W2 with a US address & last year (and this year) the W2 has a code V in box 12. Nothing weird there. Employer's name has INC on the end of it. Last year after a lot of back & forth from the client he said he sold the options that were on the W2, even though no 1099-B was received, so I reported it as as a same day sale.

This year I get client's docs and there is a K1 with a Cayman island address for the employer (W2 still has a US address) and the employer name ends in LTD. The explanatory letter with the K1 says that technically the employer is a partnership and the K1 is just for information purposes, not filed with the IRS. There are dividends reported (in the tens of thousands) and a distribution of a bit over $100,000. The letter goes on to say that the distribution would be taxable if above the basis in the partnership, stresses that the dividends add to basis, and to consult with a tax advisor since partnership taxation is pretty complicated.

The code V amount is about $86.000; I don't think any of the distribution will be taxable.  He did not sell any of the shares he exercised; they were converted to partnership shares.

Anyways, I look at this and think PFIC or something equally as onerous. Ownership in a foreign partnership that acts like a corp on US soil. The letter also said they aren't filing the K1 because they have no US source income (!).  Apparently the company had a majority share bought in 2013 by a private equity firm and they set up a Cayman shell holding company to 'create a more efficient tax structure'.  For the private equity firm, that is.  After my first post I got more info from the client; he only owns less than 1%.  He received only dividends and a cash distribution from the partnership and his basis is currently greater than the distribution.  I'm tracking basis.  I'm not sure if I have to file an 8938.

anyone have any thoughts on this?  I'm going to get any info the company sent the client as soon as he gets back from vacation.

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I can probably help.  I prepared similar returns when I worked in the Caymans (now back upstate NY).  As your facts could go in multiple directions, it would be better to discuss on a tel.  How do I contact you (or can you contact me - I am a novice at this board posting).

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