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Thinking About Renouncing Your Citizenship if Your Presidential Candidate Does Not Win the Election? Here is What You Need to Know About the Expatriation Tax

Thinking About Renouncing Your Citizenship if Your Presidential Candidate Does Not Win the Election? Here is What You Need to Know About the Expatriation Tax

Uncategorized
IntroductionSeems like whenever there is an election a number of people threaten to leave the United States and move to another country if their candidate doesn’t win. I’m not sure how many of these individuals make good on their threats. This article is designed to provide an overview of the U.S. exit tax consequences associated with expatriating from the U.S. and discuss potential strategies to mitigate the taxes associated with expatriating. Anyone considering abandoning their U.S. citizenship or ending a long-term U.S. residency must understand that they may be assessed an “expatriation tax.” An “expatriation tax” consists of two components: the “exit tax” and the “inheritance tax.” Both may be triggered upon abandonment of citizenship or abandonment of a green card. We will discuss both these taxes in more detail…
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Potential Sentence Reduction for Federal Criminal Tax Defendants

Potential Sentence Reduction for Federal Criminal Tax Defendants

Tax Law
This article provides a brief overview as to how a court determines a sentence after a defendant is convicted of a federal tax crime (such as tax evasion or filing a false tax return) by either pleading guilty to a charge, or by being found guilty after a trial.In 2005, the United States Supreme Court significantly altered the federal sentencing landscape when it decided United States v. Booker, 543 U.S. 220 (2005). From 1987 until 2005, federal sentencing had been governed by the mandatory application of the United States Sentencing Guidelines or (“Guidelines”). The Guidelines required federal judges to find a number of facts at sentencing, to calculate the appropriate months of imprisonment. In Booker, the Supreme Court held that the mandatory application of the Guidelines violated the Sixth Amendment.…
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An Overview of the Presentence Investigation Report Process for a Criminal Tax Case Prosecuted in the U.S. District Court of Northern California

An Overview of the Presentence Investigation Report Process for a Criminal Tax Case Prosecuted in the U.S. District Court of Northern California

Tax Law
A Presentence Investigation Report (“PSR”) is a document that judges use to help assess a defendant’s penalty for a crime. If a criminal defendant is found guilty or pleads guilty to a federal crime, the court will order the defendant to go through the PSR process. Although this article focuses on federal tax crimes such as tax evasion or the filing of false tax returns, the content of this article can apply to other federal offenses.The PSR process is governed by Rule 32 of the U.S. Rules of Criminal Procedure. A PSR details the defendant’s background and criminal conduct and is based, in part, on an interview with a defendant. Because the PSR can help courts find the most appropriate sentence and mitigate the severity of a sentence, it is…
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An Overview of the Presentence Investigation Report Process for a Criminal Tax Case Prosecuted in the U.S. District Court of the Central District of California

An Overview of the Presentence Investigation Report Process for a Criminal Tax Case Prosecuted in the U.S. District Court of the Central District of California

Tax Law
A Presentence Investigation Report (“PSR”) is a document that judges use to help assess a defendant’s penalty for a crime. If a criminal defendant is found guilty or pleads guilty to a federal crime, the court will order the defendant to go through the PSR process. Although this article focuses on federal tax crimes such as tax evasion or the filing of false tax returns, the content of this article can apply to other federal offenses. The PSR process is governed by Rule 32 of the U.S. Rules of Criminal Procedure. A PSR details the defendant’s background and criminal conduct and is based, in part, on an interview with a defendant. Because the PSR can help courts find the most appropriate sentence and mitigate the severity of a sentence, it…
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Type F Reorganization Considerations for S Corporate Targets

Type F Reorganization Considerations for S Corporate Targets

Sales Tax
The acquisition of American corporations continues to increase. S corporations. S corporations is a popular entity structure choice for closely held and operating businesses and, more importantly, are often the targets in acquisition transactions.Eligibility to make a S election is limited to a “small business corporation,” defined in Section 1361(b) of the Internal Revenue Code as a domestic corporation which is not an “ineligible corporation” and which has (1) no more than 100 shareholders; (2) only shareholders who are individuals, estates, and certain types of trusts and tax-exempt organizations; (3) no nonresident alien shareholders; and (4) not more than one class of stock. The 100-shareholder limit disqualifies publicly traded corporations from S status, and the one-class-of-stock rule shuts the door to corporations with complex capital structures. But there is no…
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The Impact of a Section 338 Election to CFC Shareholders

The Impact of a Section 338 Election to CFC Shareholders

Tax Law
Congress enacted Section 338 of the Internal Revenue Code to allow taxpayers to treat certain stock purchases as asset acquisitions for federal income tax purposes. A Section 338 election can be made under Section 338(h)(1)) and 338(g). A Section 338 election typically benefits the buyer of a corporation. For tax purposes, a buyer is not entitled to a step-up in the tax basis of the acquired corporation. Instead, the buyer receives a carryover basis of the seller. However, if a Section 338 election is made in connection with a taxable stock sale, the transaction is treated as a hypothetical asset deal for tax purposes, and the buyer’s basis is revalued to reflect the acquisition price. The depreciation and amortization and amortization of all assets and intangibles, including goodwill, identified in…
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Why Domesticate or Decant a Foreign Non-Grantor Trust

Why Domesticate or Decant a Foreign Non-Grantor Trust

Tax Law
Under U.S. law, a foreign trust is an entity which does not meet either the “Court Test” or the “Control Test” described below. Court Test The Court Test is satisfied if any federal, state, or local court within the United States is able to exercise primary authority over substantially all of the administration of the trust (the authority under local law to render orders or judgments). There are four so-called “bright-line rules” for meeting the U.S. court test. 1. A trust will automatically meet the court test if the trust is registered with a U.S. court. 2. In the case of a testamentary trust created pursuant to a will probated within the U.S. (other than ancillary probate), the trust will meet the court test if all fiduciaries of the trust…
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The Difficulties of Portfolio Interest Exemption Planning After the Repeal of Section 958(b)(4)

The Difficulties of Portfolio Interest Exemption Planning After the Repeal of Section 958(b)(4)

Tax Law
In determining whether a U.S. person meets the Section 951(b) of a U.S. shareholder and whether a foreign corporation, Section 958 applies direct, indirect, and constructive ownership rules to determine stock ownership in the foreign corporation. Stock ownership under all three types of rules counts for purposes of determining whether a shareholder is a “U.S. shareholder” and whether a foreign corporation is a “controlled foreign corporation” or (“CFC”).Section 958(a)(1) provides the direct ownership rules for determining stock ownership to determine beneficial ownership of shares when a foreign entity is interposed between the U.S. person and the foreign corporation. Specifically, stock of a foreign corporation owned, in turn, by another foreign corporation or by a foreign partnership, trust or estate is deemed to be owned proportionately by the latter’s shareholders, partners…
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How to Calculate Foreign Tax Credit on Qualified Dividends

How to Calculate Foreign Tax Credit on Qualified Dividends

Sales Tax
U.S. taxpayers are generally subject to U.S. tax on their worldwide income, but may be provided a tax credit for foreign income paid or accrued. The main purpose of the foreign tax credit is to mitigate the double taxation of foreign source income that might occur if such income is taxed by both the United States and a foreign country. Internal Revenue Code Section 901 limits the foreign tax credit to foreign taxes imposed on “income, war profits.” Internal Revenue Code Section 903 extends the credit to foreign taxes imposed “in-lieu-of” an income tax.In order to be creditable under either Internal Revenue Code Section 901 or 903, a foreign levy must be a “tax.” A levy is a tax “if it requires a compulsory payment pursuant to the authority of…
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Corporate Spinoffs, Split-Offs, and Split-Ups in the International Context

Corporate Spinoffs, Split-Offs, and Split-Ups in the International Context

Sales Tax
Corporate divisions involve the breaking of one corporation into multiple corporations. Such a transaction can be either taxable or tax-free. Corporate divisions tend to come in three basic flavors: spin-off, split-off, and split-up. Each variation involves a slightly different type of distribution of stock or securities. In general, if the transaction successfully runs the gauntlet of Internal Revenue Code Section 355, the tax treatment to the shareholders and the corporation will be the same regardless of whether the transaction is a spin-off, split-off, or split-up. In a spin-off, the distributing corporation distributes stock of a controlled corporation (a subsidiary) to its shareholders. This subsidiary may be either a recently created subsidiary “spun off” through the parent corporation’s  transfer of assets in return for stock or an existing subsidiary. The shareholders…
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