I went through this exact same confusion last year! The key thing to understand is that "effectively connected with U.S. trade or business" has a very specific meaning - it's not just about having a bank account in the US while you're here temporarily. For your situation, Exception 1(a) is almost certainly the right choice. Since your bank gave you a letter stating the account is subject to IRS information reporting, and you're just keeping savings there (not running a business), this falls under passive income reporting. Exception 1(b) would only apply if you were actually operating a business in the US and the bank account was directly related to that business activity. Just being temporarily in the US with a savings account doesn't qualify. I'd recommend going with Exception 1(a) and including your bank's letter as supporting documentation. The IRS is pretty clear that any interest-bearing account subject to their reporting requirements qualifies under this exception, regardless of how much interest you're actually earning.

I just wanted to add my experience since I went through this exact same situation about 6 months ago. Like you, I was completely confused about which exception to choose, and I ended up making it more complicated than it needed to be. After reading through all the IRS instructions multiple times and calling my bank for clarification, I learned that the key question is really simple: Are you using this bank account for business purposes or personal savings? Since you mentioned you're just keeping savings there while temporarily in the US, Exception 1(a) is definitely the right choice. The "effectively connected with U.S. trade or business" language in Exception 1(b) is very specific - it means you're actually running a business or engaged in commercial activity in the US, not just maintaining a personal account. My bank's letter was similar to yours - it just stated that the account was subject to IRS information reporting. That's all you need for Exception 1(a). The IRS approved my application in about 8 weeks with no issues. One tip: Make sure to include a copy of your bank's letter with your W-7 application as supporting documentation. It directly supports your choice of Exception 1(a) and shows the IRS exactly why you need the ITIN. Good luck with your application! You're overthinking it - Exception 1(a) is the way to go for your situation.

Has anyone done the math on approximate costs for setting up each option? I'm a web developer making around $140k and currently operating as a single-member LLC. My CPA suggested considering C corp status but wasn't clear on whether I should file the election or do a full conversion.

For someone at your income level ($140k), the tax election route is probably your best bet initially. I made a similar transition last year as a freelance consultant earning about $130k. The key consideration at your revenue level is that you're likely not retaining massive amounts in the business yet, so the main benefits you're looking for are probably the self-employment tax savings and ability to deduct health insurance premiums. With the LLC taxed as C corp election, you'll pay yourself a reasonable salary (I do about $85k of my $130k through payroll) and take the rest as distributions. This saves you roughly $2,400 annually in self-employment taxes compared to straight LLC taxation. Plus you get the health insurance benefits others mentioned. The conversion to actual C corp makes more sense when you're planning to retain significant earnings in the business or need the formal corporate structure for investors. At $140k, you're probably taking most profits out anyway, so the simpler LLC structure with corporate tax treatment gives you 90% of the benefits with way less hassle and cost. My advice: start with the tax election, see how it works for a year or two, then reassess if you need full conversion as your business grows.

Something important that hasn't been mentioned yet - you need to check the TRUST DOCUMENT itself. Many irrevocable trusts have specific provisions about how trust assets should be managed, and some even explicitly address whether properties should be income-producing. As trustee, you're bound by the terms of the trust. If the document says the properties should be maintained for eventual use by beneficiaries, you might be violating your duties by trying to rent them out. Conversely, if it says assets should be managed to produce income, you could be in breach by leaving them vacant. This isn't just a tax question - it's a fiduciary responsibility question. I'd strongly recommend having an attorney who specializes in trust administration review the document before making any decisions about tax treatment.

Be really careful here! I tried something similar with my family trust properties and got audited. The IRS agent specifically focused on whether I had a genuine profit motive or was just trying to create tax losses. What saved me was having documentation showing: 1) Multiple attempts to rent the properties (saved emails with real estate agents, copies of listings) 2) Competitive market analysis showing reasonable rent expectations 3) Records of property improvements specifically aimed at making them rentable 4) A written business plan showing projected income and expenses Without these, I would have been toast. The agent told me they see lots of trustees trying to claim "ghost" rental properties that are really just sitting empty with no real attempt to rent them.

I just want to point out that intentionally breaking up deposits to avoid reporting requirements (called "structuring") is actually illegal, even if the money is 100% legitimate. I've seen people mention this but want to emphasize it - depositing the full $4k at once is actually LESS suspicious than doing 4 separate $1k deposits.

I'm sorry for your loss. As others have mentioned, $4,000 is well below the $10,000 threshold for mandatory bank reporting to the IRS, so you should be fine depositing it all at once. One thing I'd add that might help ease your mind - keep a simple written record of what this money was for. Something like "Cash inheritance from Uncle [Name] - designated for funeral expenses, deposited [date] to pay credit card used for funeral costs." This isn't required for the bank, but it's good practice for your own records in case you ever need to reference it later. Also, while this cash won't trigger any IRS reporting, remember that inheritance itself generally isn't taxable income to you as the recipient - it's the estate that would handle any tax obligations. So even from a tax perspective, you're in the clear. Take care of yourself during this difficult time.

Before u switch make sure ur looking at the RIGHT prior year AGI. Its gotta be from the ACTUAL return u filed last year not what u put in turbotax this year

Check your 2023 tax return (the actual filed copy, not what's in TurboTax) for line 11 - that's your AGI from last year. The IRS is super picky about this matching exactly, down to the dollar. If you amended your 2023 return or there were any IRS adjustments after filing, you'd need to use the adjusted AGI amount instead. You can get your actual filed AGI from your tax transcript on the IRS website if you're not sure.