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TaxRobin
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Category: Tax
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Experience:  International tax
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Tax returns, I previously asked if I would need to file

Customer Question

For US Tax returns, I previously asked if I would need to file a 5471 if I sold my shares that I owned in a UK Ltd Company. You advised that I would be a Cat 3 filer as a director so would still need to file.
The shares were sold to my domestic partner, however we are not legally married.
1. As this was to my domestic partner, does that create any constructive ownership issues or is that only the case if we are legally married?
2. If there are constructive ownership issues what does this mean?
Submitted: 9 months ago.
Category: Tax
Expert:  TaxRobin replied 9 months ago.
HelloThe IRS would see a connection if your relationship was recognized by law in your resident location. In other words, if your relationship is recognized where you live then yes, you would still be seen as connected to the ownership and control.A “related party” is defined in Code Sec. 267 as including family members, a taxpayer and a corporation controlled directly or indirectly (through attribution from other family member stock holdings) by the taxpayer (more than 50% of the value of the stock), and a partner and a controlled (directly or indirectly) partnership.Family members are defined as related parties include brothers and sisters, spouse, ancestors, and lineal descendants.
Customer: replied 9 months ago.

Thank you. I believe the law in the UK does not recognise cohabitation so that would not give rise to an interest. For example, unless named in a Will, all assets owned by my partner would not automatically transfer to me but would legally be owned my partner's family and vice versa.

Can you please explain how this impacts if any on the paragraph you have provided as I don't know if the IRS would see a cohabiting partner as a related party.

Expert:  TaxRobin replied 9 months ago.
If you transferred to your spouse or in US Common Law Spouse then you would still have a connection and interest by the relationship to the person.

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