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Demystifying the IRS Form 5471 Part 3. Schedule E

Demystifying the IRS Form 5471 Part 3. Schedule E

Tax Law
In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income (“GILTI”) provisions, each year certain U.S. persons with interests in foreign corporations must file an IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the third of a series of articles designed to provide a basic overview of the new Schedule E of the Form 5471. A controlled foreign corporation (“CFC”) paying a foreign tax and/or claiming a foreign credit must complete Schedule E of the Form 5471. This article is heavily based on the instructions to Schedule E of the Form 5471.Who Must Complete the Form 5471 Schedule EIndividuals with interests in CFCs…
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Demystifying the IRS Form 5471 Part 2. Schedule C

Demystifying the IRS Form 5471 Part 2. Schedule C

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income (“GILTI”) provisions, each year certain U.S. persons with interests in foreign corporations must file an IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the second of a series of articles designed to provide a basic overview of the new Schedule C of the Form 5471. Who Must Complete the Form 5471 Schedule C Schedule C of a Form 5471 is an income statement of a controlled foreign corporation (“CFC”). The Schedule C is designed to disclose a CFC’s functional currency and transactions in foreign currency. Because foreign currencies are treated…
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Will Your Form 5471 Be Dinged By the IRS’ $10,000 Penalty For Being ‘Substantially Incomplete’?

Will Your Form 5471 Be Dinged By the IRS’ $10,000 Penalty For Being ‘Substantially Incomplete’?

Tax Law
By Lynn K. Ching Certain U.S. taxpayers are required to file an annual report with the Internal Revenue Service (IRS) on Form 5471, with respect to specified interests and transactions related to their ownership in foreign corporations.  Form 5471 has long been regarded as one of the most difficult and complex U.S. offshore reporting forms to complete. After the passage of the ‘Tax Cuts and Jobs Act’ of  2017, and the addition of new schedules and worksheets, the time, effort, and expertise required to complete Form 5471 multiplied for many taxpayers. Moreover, the penalty for submitting an incomplete or inaccurate Form 5471 is not insignificant.  Under IRC § 6038, 6038A and related regulations, U.S.taxpayers who are required to file the Form 5471 may be subject to a penalty of $10,000…
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Demystifying the IRS Form 5471 Part 1. Selecting the Proper Category of Filer and Preparing Schedule B

Demystifying the IRS Form 5471 Part 1. Selecting the Proper Category of Filer and Preparing Schedule B

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income ( “GILTI”) provisions, each year certain U.S. persons with interests in foreign corporations must file an IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the first of a series of articles  designed to provide a basic overview of the Form 5471 and the tax law anyone completing a Form should understand. The Form 5471 begins with a question on Page 1 Box B by asking you to select one or more categories of being a filer. The classification selected will determine the appropriate schedules of the Form 5471 that needs…
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Bringing a Case Before the United States Tax Court A to Z Part II. Petitioning the Court, the Appeals Process, and Discovery

Bringing a Case Before the United States Tax Court A to Z Part II. Petitioning the Court, the Appeals Process, and Discovery

Tax Law
By Anthony Diosdi If you have received a notice of deficiency and wish to contest the liability indicated on the notice without paying in full, you must timely petition the Tax Court. Anyone who contests a notice of deficiency by petitioning the Tax Court must understand that they are suing the IRS and must act accordingly. According means understanding the issues in your case and timely gathering the necessary information and/or documents to convince either the IRS or the Tax Court that you are not guilty of owing what an auditor believes you owe. Litigation against the IRS in Tax Court is commenced by the filing of a petition for redetermination. After the petition is received by the Tax Court, the court’s Clerk will enter the case on the court’s…
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Bringing a Case Before the United States Tax Court A to Z Part III. How to Proceed with a Tax Court Trial

Bringing a Case Before the United States Tax Court A to Z Part III. How to Proceed with a Tax Court Trial

Tax Law
By Anthony Diosdi Although the vast majority of cases brought before the Tax Court are settled, some cases proceed to trial. If you are considering bringing a case to trial before the Tax Court, it is important to be familiar with the order in which a trial proceeds. Although no rigid format applies in every case, a basic framework has evolved within which a trial will be conducted. This framework is subject to change depending on the preference of the presiding judge. In my experience, a significant number of individuals do not take their trials before the Tax Court seriously. Many individuals believe the IRS has the burden of proof in Tax Court cases so they do not properly prepare for trial. Others, believe that Tax Court controversies rarely proceed…
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Bringing a Case Before the United States Tax Court A to Z. Part 1. What is the Significance of Receiving a Notice of Deficiency From the IRS?

Bringing a Case Before the United States Tax Court A to Z. Part 1. What is the Significance of Receiving a Notice of Deficiency From the IRS?

Tax Law
By Anthony Diosdi The Internal Revenue Service (“IRS”) audits thousands of tax returns every year. At the conclusion of these tax audits, on many occasions, the IRS proposes to assess additional tax liabilities against the individual who was subject to the audit. Many times the tax adjustments proposed during an audit is wrong. This article will discuss step-by-step how to contest an IRS audit before the United States Tax Court.Although there are exceptions to this rule, anyone considering disputing an audit result in Tax Court must wait until they are issued a notice of deficiency by the IRS. A notice of deficiency states the tax liability they believe a taxpayer owes as the result of an audit. As a general rule, the IRS cannot legally collect a tax liability proposed…
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How is the Branch Profits Tax Calculated?

How is the Branch Profits Tax Calculated?

Tax Law
By Anthony Diosdi By introducing the U.S. branch profits tax, Congress substantially reduced the desirability of a foreign corporation as the vehicle for operating a U.S. trade or business. Previously, foreign corporations often were the vehicle of choice for U.S. investments, since (as now), use of a properly established and maintained foreign corporation generally avoided U.S. estate tax issues, and dividends often could be repatriated free of U.S. withholding tax. Withholding tax on dividends from a foreign corporation applied only if earnings and profits from U.S. trade or business were greater than 50 percent of worldwide earnings and profits, and then only a proportionate amount of the dividend suffered the withholding tax. U.S. income tax treaties with intermediary countries offered the possibility of repatriation of earnings totally free of second-tier…
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Disagree with an IRS Audit- Here Are Your Options

Disagree with an IRS Audit- Here Are Your Options

Tax Law
By Anthony Diosdi The Internal Revenue Service (“IRS”) audits thousands of tax returns every year and often proposes to assess significant additional tax liabilities against hardworking taxpayers. If you have been assessed an additional tax liability through an audit, you should understand that the IRS auditor is not always correct and you have options. First, you can administratively appeal (within the IRS) the determination of the auditor. If an appeal of the audit is not successful or you simply do not wish to deal with the IRS anymore, if your facts and circumstances warrant, you can take the IRS to court and ask the court to reverse the auditor’s determination. Litigating a tax controversy in court will present a number of important decisions prior to going to court. One of…
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Possible Waiver for 2018 Failure to Meet Estimated Tax Obligations

Possible Waiver for 2018 Failure to Meet Estimated Tax Obligations

Tax Law
When the Tax Cuts and Jobs Act (TCJA) went into effect in 2018, it caused many tax-related changes for businesses, including changes regarding tax withholdings. The result was many companies that failed to withhold enough to cover their end-of-the-year tax obligations. Generally, if a company fails to cover 90 percent or more of their estimated tax, it can face serious penalties from the Internal Revenue Service (IRS). While the IRS emphasizes the importance of accurately estimating taxes, it understands that obligations can vary from year to year, and the agency provides a 10 percent leeway without penalties. A larger discrepancy can result in tax compliance issues and fines. The TCJA, however, caused problems for many taxpayers when it came to matching their withholdings to their newly calculated tax obligations. Because…
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