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

30Jan 2023 by Anthony Diosdi

Received a Gift from an Individual that Expatriated the U.S.? You May Owe the IRS Gift Tax

Tax Law

By Anthony Diosdi Historically, an individual who relinquished his or her U.S. citizenship with “a principal purpose of avoiding U.S. taxes” was subject to a special U.S. income, gift and estate tax for a period of 10 years after the expatriation. When applicable, the expatriate remained subject to U.S. tax on his or her U.S. source income at rates applicable to U.S. citizens and the expatriate could be subject to gift taxes in certain circumstances. In 1996, the Internal Revenue Code substantially expanded the expatriation tax to not only include expatriating U.S. citizens but to certain long-term residents (those having U.S. permanent resident status in 8 of the 15 years preceding termination of residency). Expatriates were also subject to U.S. estate and gift tax during the subsequent ten year period.…

30Jan 2023 by Anthony Diosdi

How Quarterly Tax Payments Work

Tax Law

When you earn money throughout the year, and withholdings are not taken from your check, you are responsible for paying taxes to the IRS on your own. Your obligation is to make quarterly tax payments before the 15th day of the month following the end of the quarter. Instead of getting a check that already reflects your tax obligations, you must physically pay your taxes each quarter. Your quarterly tax includes two types of payments: Self-employment taxes, representing the amount of Social Security and Medicare tax you owe (15.3% in total)Income taxes Quarterly taxes are usually paid by self-employed people, freelancers, and small business owners who have receipts for their work and business. You only have an obligation to pay quarterly taxes if you expect to owe at least $1,000…

26Jan 2023 by Anthony Diosdi

A Closer Look at the Procedural Tools Available to the IRS in International Examinations Involving Transfer Pricing

Tax Law

By Anthony Diosdi An exam of a multinational corporation tax return(s) will begin much the same manner as any other audit in that the taxpayer will receive a letter from the Internal Revenue Service or “IRS” notifying it of the audit. However, unlike a typical audit, the examiner will likely be specially trained to deal with issues involving controlled foreign corporations, cross-border transfers and reorganizations, transfer pricing, calculation of foreign tax credits, utilizing bilateral tax treaties, and the branch profits tax. Given the extraordinary complexity of these international provisions, special procedural issues may arise in multinational corporate audits that will not typically arise in an audit of an individual taxpayer or small business. This article explores the special procedural tools that are unique to an IRS examination of a multinational…

26Jan 2023 by Anthony Diosdi

Can Sections 7432 and 7433 be Used to Recover Damages from the IRS for the Collection of Section 3520, 5471, and 5472 Penalties?

Tax Law

By Anthony Diosdi The law permits the Internal Revenue Service or “IRS” to proceed with enforced collection actions on individuals or business entities that have outstanding legally assessed taxes or penalties. Enforced collection actions often include the filing of tax liens, the seizure income, bank accounts, and property to secure the payment of an outstanding federal tax liability. The IRS’s authority to proceed with enforced collect actions has its limitations. It must have statutory authority to assess and collect the tax or penalty at issue. The IRS has been aggressively automatically assessing penalties against individuals and businesses for failing to timely file Forms 3520, 5471, and 5472. The IRS’s legal authority to assess and collect these penalties have been questioned by the IRS Taxpayer Advocate and a number of nationally…

23Jan 2023 by Anthony Diosdi

How to Sue the IRS for Damages Associated with the Failure to Release a Lien

Tax Law

By Anthony Diosdi The Internal Revenue Service or “IRS” often files liens on individuals or business entities that have outstanding assessments for taxes or penalties. An IRS lien can harm one’s finances, credit, and can even put a business in jeopardy. Sometimes the IRS fails to remove a lien after a liability has been satisfied or after the statute of limitations on collections has expired. On other occasions the IRS may erroneously file a lien associated with a penalty it may not have the legal authority to assess. This article discusses the procedure to obtain damages for the improper conduct by the IRS associated with the failure to release a lien when the circumstances warrant.Sovereign Immunity Limitation and Internal Revenue Code Section 7432The Internal Revenue Code permits limited types of…

23Jan 2023 by Anthony Diosdi

Litigating the Tax-Exempt Status of Private Foundation- An Overview of the Declaratory Judgment Process

Tax Law

By Anthony Diosdi This article has two subsections. The first part of this article discusses the penalties associated with incorrectly operating a private foundation. The second part of this article provides an overview of the declaratory judgment process involved in the litigation of the tax-exemption status of a private foundation. Promoters of private foundations make private foundations sound like the perfect tax planning option. Here is how one promoter describes private foundations-“Private Foundation or Family Foundation (PF) can let you control your legacy, reduce your income taxes and impact your values to future generations. Family foundations provide living donors with flexibility as to the trimming of gifts. For instance, a donor may in one year have particularly high income and wish to take full advantage of the income tax deduction…

19Jan 2023 by Anthony Diosdi

Facing an IRS Section 965 Transition Tax Audit? Maybe a 962 Election Can Save the Day

Tax Law

By Anthony Diosdi Recently, the Internal Revenue Service or “IRS” launched a compliance campaign that targets individual compliance with the Section 965 transition tax through examinations and correspondences. The IRS announced it will be expanding Section 965 examinations. This article discusses the 965 transition tax and the use of a 962 election which could significantly reduce a transition tax assessment.The Section 965 Transition TaxInternal Revenue Code Section 965 imposes a one-time transition tax on a U.S. shareholder’s share of deferred foreign income of certain foreign corporation’s accumulated deferred foreign income of certain foreign corporation’s accumulated deferred foreign income or “ADFI.” Section 965 generally requires that, for the last taxable year of a foreign corporation beginning January 1, 2018, all “U.S. Shareholders of any controlled foreign corporation or “CFC” or other…

19Jan 2023 by Anthony Diosdi

Litigating a Case in Tax Court: A Litigation Tutorial

Tax Law

By Anthony Diosdi The Internal Revenue Service or “IRS” audits hundreds of thousands of tax returns every year. At the conclusion of these tax audits, on many occasions, the IRS proposes to assess additional tax liabilities and penalties against the individual who was subject to the audit. These proposed adjustments could be wrong and the only way to contest the IRS’s proposed assessments without paying the liability is to petition the Tax Court. 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…

18Jan 2023 by Anthony Diosdi

What Every Nonresident that Jointly Owns U.S. Property Should Know About the Federal Estate Tax

Tax Law

By Anthony DiosdiFor an individual not domiciled in the United States, the gross estate subject to the estate tax consists of tangible and intangible assets located in the United States. Except as discussed below, a nonresident’s (for purposes of this article, the term “nonresident” refers to an individual not domiciled in the United States) gross estate is composed similar to that of a U.S. resident’s estate for purposes of the estate tax. That is, a nonresident’s gross estate for estate tax purposes consists of revocable transfers, transfers taking effect on death, transfers of a retained life interest and in some cases, transfers of U.S. situs property within three years of death are includible in the gross estate of estate tax purposes. With respect to jointly held property between spouses, a…

09Jan 2023 by Anthony Diosdi

Cross Border Conduit Financing and the Intricate Rules Governing These Transactions

Tax Law

By Anthony Diosdi It has been more than 30 years since Congress enacted Section 7701(1) of the Internal Revenue Code and the Department of Treasury (“Treasury”). These provisions authorize the Internal Revenue Service (“IRS”) to recharacterize any multiple-party financing transaction as a transaction directly between two or more parties if it is determined that reclassification is necessary to prevent the avoidance of U.S. tax. The regulations under Section 7701(1) on May 3, 1991, financing arrangements will be deemed a “conduit financing arrangement” that is subject to recharacterization. See Treas. Reg. Sections 1.871-1(b)(7), 1.881-3, 1.881-4, 1.1441-3(j), 1.441-7(d), 1.6038A-3(b)(5), and 1.7701(1)-1. Under these regulations, a conduit financing arrangement exists where an intermediate entity in a financing arrangement is a conduit. A “financing arrangement” consists of:“A series of transactions by which one person…