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

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…

09Jan 2023 by Anthony Diosdi

An Overview of the Rules Governing Hybrid Arrangements

Tax Law

By Anthony Diosdi The Tax Cuts and Jobs Act introduced two new Internal Revenue Code provisions targeting “hybrid arrangements.” The new Internal Revenue Code provisions include Section 245A(e), which denies a dividend received deduction under Section 245A with respect to hybrid dividends, and Section 267A, which denies certain interest or royalty deductions from hybrid transactions or hybrid entities. A hybrid arrangement generally seeks to exploit the differences in the tax treatment of a transaction or entity under the laws of two or more countries to secure double deductions, double exclusion from tax, or other tax benefits. The Tax Cuts and Jobs Act amendments to the Internal Revenue Code was a direct response to Action 2 of the Organization for Economic Co-operation and Development (“OECD”) Base Erosion and Profit Shifting (“BEPS”)…

09Jan 2023 by Anthony Diosdi

Can a Gift of Cash from Abroad Trigger a Gift Tax Obligation to the U.S. Recipient?

Gift Tax

By Anthony DiosdiThe Tax Cut and Jobs Act of 2017 currently excludes $12.92 million of assets from estate and gift taxes of a U.S. citizen or resident from the federal estate and gift tax. The way the estate tax is computed on the gross estate of a decedent which includes “the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated.” See IRC Section 2031. After the taxable estate has been determined by subtracting deductions from the gross estate, the tax is determined by applying the rates and computation method of Internal Revenue Code Section 2001 to the base: the taxable estate. The estate tax is payable by the executor of the estate. Estate and gift (gift taxes will be discussed in…

09Jan 2023 by Anthony Diosdi

A Brief Overview of the Form W-9 and W-8 for Purposes of Withholding

Tax Law

By Anthony DiosdiThe United States taxes the gross amount of a foreign person’s U.S.-nonbusiness income at a flat rate of 30 percent. Any person having control, receipt, custody, disposal, or payment of an item of U.S. source income to a foreign person may have an obligation to withhold U.S. tax. A person who fails to withhold is liable for the uncollected tax. Consequently, anyone making payments to foreign persons or entities must ensure that the appropriate amount of tax is withheld and paid to the U.S. government. An individual withholding taxes must deposit the funds with a Federal Reserve bank or an authorized financial institution using a federal tax deposit coupon or by electronic transfer. The individual must also file Form 1042, Annual Withholding Tax Return for U.S. Source Income…

05Jan 2023 by Anthony Diosdi

Tax Goals for 2023

tax planning

Whether you are an individual or a business, taxes are a large part of your life. How you approach your taxes can determine how much you owe and whether you may have issues with the IRS and state tax authorities. First, you should try to maximize your amount of deductions and pre-tax spending. For example, you can contribute to a health savings account from pre-tax dollars. In addition, all your retirement contributions are from pre-tax dollars. Maximizing these contributions can help minimize your tax burden and enhance your savings goals. In addition, your employer may match your retirement contributions. Second, you should strive to get organized for filing your 2022 tax return as early as possible. If you wait until the last minute, you will be forced to rush. Haste…

03Jan 2023 by Anthony Diosdi

An Overview of the FIRPTA Withholding Rules and Planning Ideas to Avoid FIRPTA Withholding

Tax Law

By Anthony Diosdi U.S. real estate has become a popular investment with foreigners. However, few foreign investors fail to consider the U.S. tax implications of holding U.S. real property. There are significant income, gift and estate tax consequences that may result when U.S. real property is sold or transferred. This article discusses the withholding requirements of the Foreign Investment in Real Property Tax Act of 1980 (or “FIRPTA”) and how the FIRPTA withholdings may be reduced or eliminated. Under FIRPTA, gains or losses realized by foreign corporations or nonresident alien individuals from any sale, exchange, or other dispositions of a U.S. real property interest are taxed in the same manner as income effectively connected with the conduct of a U.S. trade or business. This means that gains from dispositions of…

03Jan 2023 by Anthony Diosdi

Cross-Border Financing and the Importance of the Registration Rules

Tax Law

By Anthony Diosdi Foreign investors often invest in the United States through financing. Foreign investors often utilize the portfolio interest exception to avoid the 30-percent flat tax on interest income. Planning for the portfolio interest exception is relatively simple, even if the investor is not from a treaty country. From the U.S. perspective, a foreign investor typically utilizes an offshore holding company in virtually all cases (except in cases where the foreign investor’s home country has meaningful restrictions on such holdings) and the foreign investor utilizes a “portfolio debt instrument to reduce or eliminate the 30-percent tax on interest income. By way of background, in 1984, Congress repealed the 30 percent withholding tax imposed by Internal Revenue Code Section 871 and 881 with respect to certain interest paid on…

15Dec 2022 by Anthony Diosdi

The Corporate Anti-Inversion or Expatriation Rules Explained in a Nut-Shell

Tax Law

By Anthony Diosdi For some time, corporate inversion transactions have been the focus of Congress and has generated a vigorous political debate. This is in part because of concern by some members of Congress that the tax savings arising from inversion transactions were causing U.S. multinational corporate groups to shift business operations, manufacturing plants, and jobs abroad, with a resulting adverse effect on U.S. job opportunities and the overall U.S. economy. In today’s rapidly growing and changing economy, the practice of “inverting” is no longer restricted to large multinational corporations. Smaller companies also are also involved in so-called “corporate inversion” or “corporate expatriation” transactions. This article will discuss the “nuts and bolts” of the corporate anti-inversion rules. Transactions Involving at Least 80 Percent Identity of Stock OwnershipThe anti-inversion rules are…