Our Blog
The Court of Claims Expands Foreign Tax Credits to NIIT Under the U.S.-France Income Tax Treaty

The Court of Claims Expands Foreign Tax Credits to NIIT Under the U.S.-France Income Tax Treaty

Sales Tax
The United States Court of Federal Claims has issued an opinion in Christensen v. United States, No. 20-935T (2024) holding that U.S. citizens living outside the United States can claim a foreign tax credit against their Net Investment Income Tax (“NIIT”) under the U.S.- France income tax treaty. The Court of Claims opinion contradicts a 2021 decision Tax Court decision in Toulouse v. Commissioner, 157 T.C. 49 (2021). In Toulouse, the Tax Court reached an opposite conclusion.In Toulouse, a U.S. citizen residing in France claimed a foreign tax credit to offset Net Investment Income Tax (“NIIT”). The NIIT is imposed by Section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates, and trusts that have income above…
Read More
The Most Common Federal Tax Crimes that Aggressive Tax Professionals Should Know

The Most Common Federal Tax Crimes that Aggressive Tax Professionals Should Know

Tax Law
Some tax professionals such as lawyers, accountants, and enrolled agents are well known for taking aggressive positions on tax returns that seem to reduce federal income tax liability for their clients. Tax professionals who take aggressive positions may find themselves criminally investigated by the Internal Revenue Service (“IRS”). A criminal investigation may ultimately result in the tax professional being charged with specific offenses (contained in the Internal Revenue Code) and with general federal criminal offenses. The tendency in these types of cases is for the prosecutions to pile up charges, indicting the targeted individual for multiple years with a combination of offenses contained in the Internal Revenue Code and other federal criminal offenses as the situation warrants. This article will discuss selected Internal Revenue Code offenses which often come into…
Read More
A Beginner’s Guide to Tax Evasion, Money Laundering and Other Criminal Tax Related Crimes

A Beginner’s Guide to Tax Evasion, Money Laundering and Other Criminal Tax Related Crimes

Tax Law
An individual involved in a criminal tax investigation may find himself or herself ultimately charged with specific offenses (contained in the Internal Revenue Code) and with general federal criminal offenses. The tendency in criminal tax prosecutions is to pile up charges, indicting the targeted individual for multiple years with a combination of offenses contained in the Internal Revenue Code and other federal criminal offenses as the situation warrants. Anyone under investigation for tax evasion or a tax crime should understand something about commonly prosecuted crimes that may result from such an investigation. A defense to one charge may be no defense to another, which is one reason for piling up charges against individuals targeted by the Internal Revenue Service (“IRS”) and the United States Department of Justice. We will begin…
Read More
How the IRS Establishes a Tax Evasion Case

How the IRS Establishes a Tax Evasion Case

Tax Law
The building of a criminal tax evasion against a criminal defendant often takes months or even years. The process of building a tax evasion case often involves a careful examination of a criminal defendant's finances. This article examines the methods that the IRS uses to build a criminal tax evasion case. The most common forms of methods of proving criminal tax evasion is the net worth plus non deductible expenditures method and the bank deposit method. These methods can be used in a single year; different methods can be used in different years in the same case; any of these methods can be combined with specific item proof or be made to stand on its own. To adequately prepare for an Internal Revenue Service (“IRS”) criminal tax evasion investigation, or…
Read More
The Application of the Indirect and Constructive Ownership Rules Under Section 958 From Foreign Corporations to U.S. Persons

The Application of the Indirect and Constructive Ownership Rules Under Section 958 From Foreign Corporations to U.S. Persons

Tax Law
In determining whether a U.S. person meets the Section 951(a) definition of a U.S. shareholder and whether a foreign corporation meets the Section 957(a) definition of a controlled foreign corporation (“CFC”), 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.”Section 958(a)(1) provides the direct ownership rules for determining stock ownership for such purposes. Section 958(a)(2) provides indirect ownership rules 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…
Read More
Examining the Form 5471 Category of Filers

Examining the Form 5471 Category of Filers

Tax Law
Form 5471 is used by certain U.S. persons who are officers, directors, or shareholders in respect of certain foreign entities that are classified as corporations for U.S. tax purposes. The Form 5471 and schedules are used to satisfy the reporting requirements of Internal Revenue Code Section 6038 and 6046 along with the applicable regulations.Substantively, it backstops various international sections of the Internal Revenue Code including Sections 901/904 (Code Section 901 and 904 provide rules governing foreign tax credits), Section 951(a) (Section 951a provide rules governing Subpart F income and Section 956. Generally, a U.S. shareholder of a foreign corporation must include in income his or her pro rata share of the foreign corporation’s increase in its earnings and profits in U.S. property), Section 951A (Section 951A provides rules governing the…
Read More
An Overview of IRS Form 5471 Schedule R Used to Report Distributions from Foreign Corporations

An Overview of IRS Form 5471 Schedule R Used to Report Distributions from Foreign Corporations

Tax Law
Schedule R is used to report basic information pertaining to distributions from foreign corporations. According to the instructions for Schedule R, the information reported on the schedule is required by Sections 245A, 959, and 986(c) of the Internal Revenue Code. Form 5471 filers that are classified as Category 3 and Category 4 filers must complete and attach Schedule R to their Form 5471.The Schedule R consists of four columns. Below, we will discuss the meaning of each column.(a) Description of DistributionEach filer required to complete Schedule R will be required to state whether it received a distribution in cash, non-cash, taxable, or nontaxable distributions from the foreign corporation. The distribution will need to be identified under code sections. For example, “taxable cash dividend eligible for a dividends received deduction under…
Read More
Making Sense of Tax Treaty LOB Provisions

Making Sense of Tax Treaty LOB Provisions

Tax Law
Because tax treaties provide lower withholding tax rates on dividend, interest, and royalty income, some multinational corporations can reduce U.S. withholding taxes by establishing a subsidiary in a jurisdiction that has a favorable tax treaty with the United States. This type of planning is often referred to as “treaty shopping.” Because of a concern of treaty shopping, the United States insists that any newly negotiated tax treaty contain an anti-treaty shopping provision known as a limitation on benefits (or “LOB”) provision. This article discusses typical LOB provisions contained in U.S. tax treaties.An Overview of an LOB ProvisionThe principal target of a LOB provision is a corporation that is organized in a treaty country by a resident of a non-treaty country merely to obtain the benefits of that country’s income tax…
Read More
A Closer Look at the United States- Italy Income Tax Treaty

A Closer Look at the United States- Italy Income Tax Treaty

Sales Tax
The major purpose of an income tax treaty is to mitigate international double taxation through tax reduction or exemptions on certain types of income derived by residents of one treaty country from sources within the other treaty country. Because tax treaties often substantially modify U.S. and foreign tax consequences, the relevant treaty must be considered in order to fully analyze the income tax consequences of any outbound or inbound transaction. The U.S. currently has income tax treaties with approximately 58 countries. This article discusses the implications of the United States- Italy Income Tax Treaty.There are several basic treaty provisions, such as permanent establishment provisions and reduced withholding tax rates, that are common to most of the income tax treaties to which the United States is a party. In many cases,…
Read More
A Closer Look at the United States- France Income Tax Treaty

A Closer Look at the United States- France Income Tax Treaty

Tax Law
The major purpose of an income tax treaty is to mitigate international double taxation through tax reduction or exemptions on certain types of income derived by residents of one treaty country from sources within the other treaty country. Because tax treaties often substantially modify U.S. and foreign tax consequences, the relevant treaty must be considered in order to fully analyze the income tax consequences of any outbound or inbound transaction. The U.S. currently has income tax treaties with approximately 58 countries. This article discusses the implications of the United States- France Income Tax Treaty.There are several basic treaty provisions, such as permanent establishment provisions and reduced withholding tax rates, that are common to most of the income tax treaties to which the United States is a party. In many cases,…
Read More

415.318.3990