San Francisco Tax Blogs | Diosdi, Ching, & Liu, LLP

09Mar 2023 by Anthony Diosdi

How to Make a Competent Authority Request to Resolve a Tax Treaty Dispute

Tax Law

By Anthony Diosdi The competent authority process is a dispute resolution mechanism available to taxpayers involved in a cross-border tax dispute involving a tax treaty. The taxpayer may invoke this procedure to require the tax administration’s competent authority function to “endeavor” to resolve the dispute by “mutual agreement” with a treaty partner. A taxpayer (or taxpayer’s representative) normally initiates a competent authority proceeding with a written request for assistance under the tax treaty. Tax treaties typically do not specify requirements for the competent authority request. The related procedures for requesting competent authority relief is described in IRS Rev. Proc. 2015-40, 2015-35 I.R.B. 236.On August 31, 2015, the Internal Revenue Service or IRS released updated competent authority procedures in Revenue Procedure 2015-40, 2015-35 IRB 236. The updated revenue procedure provided guidance…

09Mar 2023 by Anthony Diosdi

The Foreign Trust “Throwback Tax” and a Guide to Reporting the “Throwback Tax” on a Form 3520

Tax Law

By Anthony Diosdi This article discusses the “throwback tax” which imposes harsh federal consequences for U.S. beneficiaries of certain foreign trusts. We will begin this article by discussing the grantor trust provisions of the Internal Revenue Code and the significance of a foreign trust being classified as a nongrantor trust compared to a grantor trust. Next, this article will describe the serious consequences of the throwback tax. We will conclude this article with a discussion on how to potentially mitigate the impacts of the throwback tax. Overview of Federal Taxation of TrustsThe Internal Revenue Code has several regimes for taxing trusts, depending upon whether they are “grantor,” simple or complex trusts. There are also several special rules applicable to foreign trusts. If a trust is a grantor trust, its income…

28Feb 2023 by Anthony Diosdi

Filing Tax Forms for Employees and Contractors

Tax Law

Tax day comes sooner than expected for many taxpayers that have been procrastinating. One thing that should not slow them down is receiving their tax form from the employer that paid them. Under federal tax regulations, employers and companies that use the services of independent contractors must upload tax information to the IRS no later than January 31 of each year. Employees will receive a W-2 form, while independent contractors are each sent a 1099. The employer can use Business Services Online to submit the information to the IRS. They could then send an electronic or paper copy to the employee or an independent contractor. It is essential that businesses prepare early to meet these deadlines. The IRS can assess a penalty on the employer when they do not submit…

16Feb 2023 by Anthony Diosdi

Are IRS Assessed Foreign Information Reporting Penalties Associated with Forms 3520, 5471, and 5472 Ripe for a Prepayment APA Suit?

Tax Law

By Anthony Diosdi Penalties for failing to timely file foreign information returns such as Form 3520, Form 5471, and Form 5472 with the Internal Revenue Service or IRS can be serious. Penalties for failing to timely file a foreign information return can range from a minimum of $10,000 to several million dollars. The authority to assess most international penalties can be found in Sections 6038 and 6039 of the Internal Revenue Code. Originally, these penalties were assessed manually against taxpayers during an audit. However, beginning January 1, 2009, the IRS began systematically assessing monetary penalties for failing to disclose interests in offshore/foreign assets and holdings on a foreign information return. The IRS treats international penalties as summarily assessable, as they are not subject to deficiency procedures, wherein individuals receive a…

16Feb 2023 by Anthony Diosdi

Is the Statute of Limitation for IRS Assessed Foreign Information Reporting Penalties for Collections Five or Ten Years?

Tax Law

By Anthony Diosdi Penalties for failing to timely file foreign information returns such as Form 3520, Form 5471, and Form 5472 with the Internal Revenue Service or IRS can be serious. Penalties for failing to timely file a foreign information return can range from a minimum of $10,000 to several million dollars. The authority to assess most international penalties can be found in Sections 6038 and 6039 of the Internal Revenue Code. Originally, these penalties were assessed manually against taxpayers during an audit. However, beginning January 1, 2009, the IRS began systematically assessing monetary penalties for failing to disclose interests in offshore/foreign assets and holdings on a foreign information return. The IRS treats international penalties as summarily assessable, as they are not subject to deficiency procedures, wherein individuals receive a…

13Feb 2023 by Anthony Diosdi

Totalization Agreements vs. Tax Treaties

Tax Law

By Anthony Diosdi If you are an American working outside the United States or are considering working outside the United States, you should consider whether your host country has a totalization agreement with the United States. This article provides a brief overview of totalization agreements which should be of particular interest to U.S. persons working outside the United States.IntroductionTotalization agreements are sometimes confused with international income tax treaties. While they are similar in concept, totalization agreements are different from income tax treaties. Income tax treaties are used to prevent two countries from taxing the same source of income. On the other hand, totalization agreements are designed to eliminate dual taxation with respect to social security taxes. Totalization agreements, often called “International Social Security Agreements” have two main purposes. First, they…

13Feb 2023 by Anthony Diosdi

Can a District Court or Court of Claims Order the Disclosure of the Terms of a Settlement Agreement in an International Penalty Case?

Tax Law

By Anthony Diosdi Tax practitioners have long known it. Now, many with foreign financial assets are becoming painfully aware of it. The Internal Revenue Service or IRS automatically and systemically assess penalties against individuals and businesses that fail to timely disclose interests in offshore/foreign assets and holdings on Form 3520, Form 3520-A, Form 5471, Form 5472, or Form 8938. Penalties for failing to timely file these information returns can range from $10,000 to several million dollars.The Internal Revenue Code provides the IRS with the discretion to abate or remove an international penalty if a taxpayer acted with “reasonable cause.” Therefore, in theory at least, if an individual or business assessed an international penalty can show the failure to timely file a Form 3520, Form 3520-A, Form 5471, Form 5472, or…

09Feb 2023 by Anthony Diosdi

Tax Planning Tips for Couples Involved in a Cross-Border Divorce

tax planning

By Anthony DiosdiIf you are divorcing or recently divorced, taxes may be the last thing on your mind. However, a divorce, in particular a cross-border divorce, may have a big impact on your finances. This article discusses some key tax tips to keep in mind if you are divorcing or recently divorced and you held assets located in the U.S. and abroad with your spouse.Understand the Changes to the Tax Treatment of Alimony and Separation PaymentsPrior to the enactment of the 2017 Tax Cuts and Jobs Act, if a spouse made payments under a divorce or separate maintenance decree or written separation agreement, the spouse was able to deduct them as alimony. This applied only if the payments qualified as alimony for federal tax purposes. If a spouse received alimony…

09Feb 2023 by Anthony Diosdi

It is About to Get Much More Difficult to Claim a Foreign Tax Credit A Look at the 2022 Final Foreign Tax Credit Regulations

Tax Law

By Anthony DiosdiU.S. taxpayers are generally subject to U.S. tax on their worldwide income, but may be provided a tax credit for foreign income taxes 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. An individual U.S. taxpayer may receive a “direct” foreign tax credit for foreign taxes that he or she pays to a foreign government. A U.S. corporation that owns at least 10 percent of stock in a foreign corporation (by vote or value) may receive an “indirect” or “deemed” foreign tax credit for foreign taxes paid by that subsidiary. Internal Revenue Code Section 901 limits the foreign tax…

06Feb 2023 by Anthony Diosdi

Do IRS International Penalties Qualify for First Time Relief?

Tax Law

By Anthony DiosdiSome tax professionals believe that international penalties such as penalties associated with the late filing of Internal Revenue Service or IRS Form 5471, Form 5472, or Form 3520 can be abated or removed through an administrative procedure often referred to as “first-time penalty abatement program.” Requests for relief of a penalty may be made in writing or by calling directly at 1-866-860-4259. This article discusses if it is possible to abate or request a refund of an international penalty through the first-time penalty abatement program.What Are Form 5471, Form 5472, and Form 3520 Penalties?Chapter 61 of the Internal Revenue Code contains countless reporting requirements regarding foreign information filing obligations. Many of the sections under Chapter 61 impose significant penalties for the failure to comply with the reporting requirements.…