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

25Jan 2022 by Anthony Diosdi

The Current State of the IRS OVDP and an Overview of the Pre-Clearance IRS CI Form 14457

Tax Law

By Anthony Diosdi As most tax practitioners know, on September 28, 2018, the Internal Revenue Service ended the most recent interaction of the Offshore Voluntary Disclosure Program (“OVDP”). While the OVDP as we know it sunset on September 28, 2018, this does not mean that individuals with undisclosed foreign financial accounts and/or unreported foreign income no longer have an avenue to make a voluntary disclosure to the IRS. On November 20, 2018, announced a new way of disclosing previously undisclosed foreign assets and/or foreign income. Since November 20, 2018, individuals who wish to disclose previously undisclosed foreign financial accounts and/or unreported foreign will need to rely on traditional voluntary disclosure practices when making voluntary disclosures to the IRS. This article discusses the current state of the IRS offshore voluntary disclosure…

25Jan 2022 by Anthony Diosdi

The Different Ways an LLC Can be Taxed a Look at the Check-The-Box Regulations

Tax Law

By Anthony Diosdi Probably one of the most frequent questions any tax professional receives from his or her clients is how should my limited liability company (“LLC”) be taxed. As usual in any area of tax planning, there is no one-size-fits-all approach. Each individual’s circumstances must be carefully considered in determining how an LLC should be taxed.An LLC is an entity formed under state law. Once an LLC is formed under state law, a determination must be made for federal (and in some cases for state tax purposes) how the LLC will be taxed. The Income Tax Regulations typically treat an LLC that has a single owner as a “tax nothing.” This means that a single-owner LLC is disregarded for tax purposes and treated as an extension of its owner.…

25Jan 2022 by Anthony Diosdi

The 2022 Guide to Income and Estate Taxation of Cryptocurrency and NFTs or Non-Fungible Tokens

Tax Law

By Anthony Diosdi Cryptocurrency has grown in popularity and ubiquity in the past few years. Cryptocurrency is a type of digital or virtual currency that uses cryptography for security. Virtual currency is a digital representation of value that functions as:1) A medium of exchange;2) A unit of account; and3) A store of value other than a representation of the United States dollar or a foreign currency. Cryptocurrency allows parties to transact directly without an intermediary using blockchain technology, a shared distributed ledger that verifies, records, and settles transactions on a secure, encrypted network. Although some major retainers accept cryptocurrencies like Bitcoin, cryptocurrency is not money. Money means coin and paper money that Congress declares is legal tender. Cryptocurrency is also unlikely to be a “security,” with the possible exception of…

25Jan 2022 by Anthony Diosdi

Planning Options to Defer the Recognition of Subpart F or GILTI Income- Section 962 Election vs. High-Tax Exception: The Epic Showdown

Tax Law

By Anthony Diosdi Prior to the enactment of the 2017 Tax Cuts and Jobs Act, Controlled Foreign Corporations (“CFCs”) were able to defer the U.S. taxation of foreign source income through tax planning. The 2017 significantly reduced (but did not eliminate) a CFC’s U.S. shareholder’s ability to defer the U.S. taxation of foreign source income. This article will discuss two remaining options available to CFC shareholders to defer the recognition of U.S. tax on foreign source income. CFC shareholders can make either a so-called 962 election or a high-tax exception (also known as a Section 954 election) to defer the taxation on foreign income. This article will compare and contrast each of these elections.Section 962 ElectionInternal Revenue Code Section 962 allows an individual U.S. shareholder of a CFC to elect…

20Jan 2022 by Anthony Diosdi

Don’t Expatriate from the U.S. to Avoid the PFIC or GILTI and Subpart F Regimes- Keep Your U.S. Citizenship and Become a Resident of Puerto Rico Instead

Tax Law

By Anthony Diosdi U.S. shareholders of controlled foreign corporations (“CFCs”) or passive foreign investment company stock or (“PFICs”) stocks use various planning options to reduce or defer U.S. taxation on foreign source income. Few of these investors understand that they can relocate to a tax haven to avoid the taxes associated with being a CFC or PFIC shareholder. So, just where is this tax haven? The tax haven is Puerto Rico.Puerto Rico is an unincorporated U.S. territory. Since Puerto Rico is an unincorporated U.S. territory, Internal Revenue Code Section 933(1) excludes U.S. federal income tax income derived from sources within Puerto Rico. After enduring economic hardship, Puerto Rico enacted Act 60 which provides some U.S. citizens a 100 percent exclusion from Puerto Rican income tax for all interest, dividends, and…

20Jan 2022 by Anthony Diosdi

The Corporate Transparency Act- A New FinCEN Filing Requirement With Significant Delinquency Penalties

Tax Law

By Anthony Diosdi The Corporate Transparency Act (“CTA”) was enacted on January 1, 2021, as part of the National Defense Authorization Act (“NDAA”). It effectively creates a national beneficial ownership registry. The CTA requires certain business entities to report beneficial owners and “applicants” to FinCEN. CTA is intended to strengthen anti-money laundering laws and countering terrorism financing. Section 6403(a)(b) of the CTA requires that, starting in 2022, newly formed U.S. corporations, limited liability companies, and certain other entities classified as a “reporting company” must report their beneficial ownership to Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“FinCEN”) at the time of formation or registration. Pre-existing reporting companies (those formed before the effective date of the CTA regulations), likely will start reporting in 2024, two years after…

18Jan 2022 by Anthony Diosdi

A Closer Look at Tax-Free Corporate Divisions or Type D Reorganizations

Tax Law

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…

18Jan 2022 by Anthony Diosdi

A Closer Look at Taxable Corporate Mergers and Acquisitions

Tax Law

Corporations sometimes purchase stock in other corporations to hold for investment or purchase assets from other corporations to hold for investment or to use for business operations. The tax lawyer generally would not refer to these day-to-day corporate purchases of stock or assets as corporate acquisitions. A “corporate acquisition” generally refers to an acquisition of control by one corporation over another. (For purposes of this article, “control” refers to the 80 percent control requirement under Internal Revenue Code Section 1504). One corporation may acquire control over another through two different transaction types. First, a simple asset acquisition from the target corporation itself offers the purchaser direct control over the selling corporation’s assets. Second, a stock acquisition from the target corporation’s shareholders provides the purchaser with indirect control over the selling…

18Jan 2022 by Anthony Diosdi

Stock Acquisitions Treated as Asset Acquisitions under Section 338

Tax Law

The starting point in any discussion of Internal Revenue Code Section 338 is the case of Kimbell-Diamond Milling Co. v. Commissioner, 14 T.C. 74 (1950), 187 F.2d 718 (5th Cir. 1951), cert. denied, 342 U.S. 827 (1951). The corporate taxpayer in Kimbell-Diamond sustained a fire casualty that destroyed its mill. In its search to replace the mill property, Kimbell-Diamond found Whaley, a target corporation with a comparable mill. Kimbell-Diamond purchased 100 percent of Whaley’s stock and shortly thereafter liquidated the target, thus acquiring direct ownership of the mill. The issue before the court was the proper basis of the mill for purposes of depreciation. Kimbell-Diamond argued that it had legitimately liquidated the target, Whaley, and that the mill should have the same basis in its hands that it had in…

18Jan 2022 by Anthony Diosdi

Can Chinese Investors in U.S. Real Estate Skirt the $50,000 Transfer Limit by Using Cryptocurrency Trading Agreements?

Tax Law

By Anthony Diosdi Chinese investors have a huge appetite for U.S. real property. However, many Chinese investors cannot buy U.S. real estate because local currency restrictions prevent them from transferring funds to the U.S. China controls inbound and outbound foreign exchange flows. If a Chinese citizen or business entity needs to make an overseas payment it is required to purchase the foreign funds with RMB (the Renminbi ‘RMB’ is the official currency of the People’s Republic of China) from a bank qualified to do foreign exchange business. Most banks in China are qualified to do foreign exchange business.When converting RMB to a foreign currency, the bank is required to review whether the outbound capital is for investment or for regular payment. Outbound capital investment refers to overseas equity investment and…