Yes, that's exactly what happens and it's called "phantom income." It's one of the downsides of partnership investments. You're taxed on your share of partnership earnings whether or not they distribute that cash to you. Think of it this way: the partnership is not a separate taxpayer - it's a pass-through entity. So when the partnership earns $100, and you own 10%, it's treated as if YOU earned $10 directly, regardless of whether they distribute that $10 to you or keep it in the business. The lockup only affects when you can withdraw your capital, not when income is recognized for tax purposes.

No, you don't get taxed twice. When you eventually receive distributions, they're generally not taxable again (assuming they don't exceed your basis in the partnership). The distribution is basically a return of capital that you've already paid tax on. Your basis in the partnership increases by your share of income (that you've already paid tax on) and decreases by distributions. This accounting mechanism prevents double taxation.

Thanks for this info! Did you end up filing Form 3520 for your TFSA, or did you go with just FBAR and 8938? I'm trying to understand what the majority of people in this situation are doing.

I initially filed Form 3520 for my TFSA for two years, following advice from my first cross-border tax specialist. It was a paperwork headache and added considerable complexity to my returns. After consulting with another tax professional who specializes specifically in US-Canada issues, I switched to reporting my TFSA on FBAR and Form 8938 only, with a note explaining the account's status. This professional provided me with several IRS memorandums and case examples supporting the position that most standard TFSAs don't meet the technical definition of foreign trusts requiring 3520 filing.

This is so frustrating! So even if I properly report the TFSA now, any interest, dividends, or capital gains inside it are still taxable for US purposes? That completely defeats the whole purpose of having a TFSA.

Thank you for this detailed information. I've been worried about the 5-year rule. Since I started school in Fall 2013 and left in March 2019, have I already exceeded the 5-year limit for the student exemption? Or does it work by calendar years rather than academic years?

The 5-year rule works by calendar years, not academic years. So if you were first present as a student in 2013, then 2013, 2014, 2015, 2016, and 2017 would be your five exempt years. Starting in 2018, you would need to count days toward the substantial presence test. However, there's an important exception - you can still claim the exemption beyond 5 years if you can establish that you do not intend to reside permanently in the US and you have substantially complied with the requirements of your visa. Since you left the US and canceled your OPT, you have a strong case that you didn't intend to remain permanently, which might allow you to claim the exemption for 2018 and the partial year 2019 as well.

I tried using TurboTax for my international student filing and it was a disaster. It's really not designed for nonresident aliens or Form 8843. I ended up having to do it manually. H&R Block has slightly better options for international students but still limited.

I've used both! TaxSlayer has a better interface imo and I never had the AGI verification issue with them. Their deluxe version is like $40 and includes one state return which is way cheaper than TurboTax or H&R Block. FreeTaxUSA is cheaper but TaxSlayer's extra guidance was worth it for me.

Thanks for sharing your experience! The interface quality is important to me, and $40 including a state return sounds reasonable. Did you find TaxSlayer's guidance helpful for more complex tax situations? I have some investment income and a side business I need to report.

Interesting to hear you've had such a good experience! Do you think there might be something specific about certain tax situations that causes the AGI verification issues for some people? Also, have you ever had to amend a return with them, and if so, how was that process?

I think the AGI verification issues might be related to specific scenarios like amended returns or returns with unusual adjustments. Since my tax situation is complex but consistent year-to-year, that might be why I haven't had problems. I did have to amend a return once due to a late-arriving K-1 form. The amendment process with FreeTaxUSA was actually pretty straightforward. They walk you through which forms need to be updated, generate the 1040-X, and provide clear instructions for mailing the paper amendment. They don't offer e-filing for amendments, but that's true for most tax software since the IRS only recently started accepting e-filed amendments.

Thanks for bringing this up! Would I qualify for an Offer in Compromise with only $2,400 owed? I always thought that was for people with massive tax debts. My financial situation isn't great, but I do have steady income - just not enough extra to pay this all at once.

There's no minimum amount required for an Offer in Compromise, but with only $2,400 owed, it might not be your best option. The application fee is $205 unless you qualify for low-income certification, and the process can take 6-24 months with no guarantee of acceptance. In your situation with steady income, a long-term payment plan is probably more practical. The IRS will likely approve a 72-month plan with payments around $40-50 per month on your balance. That's much easier to manage and doesn't require the extensive financial documentation an OIC needs.

This is so important. My roommate ignored a $1,500 tax bill for almost 2 years, and by the time they finally dealt with it, it had grown to over $2,800 with penalties and interest. The IRS even started garnishing their wages which was way worse than just setting up a payment plan would have been.