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

19Nov 2021 by Anthony Diosdi

Will a Voluntary Disclosure of Unreported Income to the IRS Really Protect You From Criminal Prosecution?

Tax Law

By Anthony Diosdi Many tax attorneys tout the benefits of making a voluntary disclosure to the Internal Revenue Service (“IRS”) if you failed to disclose income on previously filed tax returns. Sadly, many professionals neglect to mention the risks of making a voluntary disclosure of unreported income to the IRS. This article will discuss the voluntary disclosure process in detail. A voluntary disclosure is the only administrative remedy that can potentially be utilized to prevent a criminal prosecution for crimes such as tax evasion or the filing of false tax returns. Unfortunately, as will be discussed below in detail, a voluntary disclosure is far from a “sure thing.” Anyone considering making a voluntary disclose to the IRS should know that it had a formal “voluntary disclosure” policy under which a…

19Nov 2021 by Anthony Diosdi

The U.S. Addresses Its Role as a Tax Haven by Promulgating Regulations Targeting Single-Member LLCs Held by Foreign Persons

Tax Law

By Anthony Diosdi The U.S. banking and financial system, and other U.S. investments such as real estate have been prime targets for those seeking to evade the tax systems of foreigners seeking to evade the tax systems of their home countries. For years, the U.S. government has looked to foreign countries to assist it in combating tax evasion. In response, many countries have criticized U.S. laws that allow domestic entities to obscure the identity of beneficial owners and allow non-U.S. persons to conceal assets in this country. As a result of pressure from abroad, the U.S. government has implemented new disclosure requirements and conducted investigations targeting the use of U.S. entities used to evade foreign taxes.In order to combat the use of U.S. entities to evade foreign taxes, on January…

19Nov 2021 by Anthony Diosdi

Cross-Border Reorganizations, Mergers and Acquisitions and the Application of Internal Revenue Code Section 367

Tax Law, Uncategorized

By Anthony Diosdi Whenever a U.S. person decides to establish a business outside offshore that will be conducted through a foreign corporation, it will likely be necessary to capitalize the foreign corporation with a transfer of cash and other property in exchange for corporate stock. When appreciated assets, such as equipment or intangible property rights (i.e., patents, trademarks, copyrights, and other intangible property), is transferred to a foreign corporation, the U.S. transferor may be subject to taxable gain. This taxable gain will be realized by the transferor unless one of the tax-free exchange provisions of the Internal Revenue Code applies. The same applies to U.S. corporations. If a U.S. corporation is liquidated and its assets are distributed to a foreign corporation, U.S. tax will be imposed on the gains recognized…

19Nov 2021 by Anthony Diosdi

International Treaty Law that Permits Non-Residents to Withdraw Funds from their IRAs or 401(k) Funds and Avoid Any and All U.S. Tax Consequences

Tax Law

By Anthony Diosdi In an increasingly global economy, workers are experiencing unprecedented mobility. As such, foreigners living in America, even for a limited time, often participate in a pension or retirement plan in the United States; participation might even be mandatory. In most cases, pretax money is contributed into retirement accounts where it accumulates tax-free until retirement. U.S. retirement such as 403(b) plans, 401(k) plans, and Individual Retirement Accounts (“IRAs”) are commonly encountered by foreigners who are employed in the United States. Whether contributions, earnings, and distributions are includible in a foreign worker’s U.S. taxable income depends on how the worker is classified for U.S. tax purposes and whether a tax treaty exempts an event that is otherwise taxable. U.S. Retirement Plans in GeneralThe most common U.S. retirement plans, for…

18Nov 2021 by Anthony Diosdi

Are Holiday Gifts from Employers Taxable?

Tax Law

Many employers might be in the giving spirit this holiday season, especially as many companies might be trying to retain workers who might quit in the Great Resignation. However, employers should also consider possible tax implications of giving employees certain types of holiday gifts or bonuses. The IRS considers all compensation to be taxable, including fringe benefits that are more than a de minimis expense to the company. If employers are handing out cash or an equivalent - such as a Visa gift card or another general use voucher - it should be taxed as part of the employee’s compensation. It gets murkier when it comes to other gifts or perks handed out during the holiday season, however. Some fringe benefits that might be considered taxable compensation include: Season sporting…

09Nov 2021 by Anthony Diosdi

Tracking Form 5471 Section 959 PTEPs on Schedule J for the Modern Day CFC

Tax Law

By Anthony Diosdi Before enactment of the 2017 Tax Cuts and Jobs Act (“TCJA”), the Internal Revenue Service (“IRS”) Form 5471 was a reasonable exercise. Prior to the enactment of the TCJA, the IRS Form 5471 was approximately two pages long. This all changed with the enactment of the TCJA. The days of preparing two page long Form 5471s are long gone. The IRS Form 5471 along with its accompanying Schedule J has become one of the most difficult tax returns to complete. This is the result of the complexity and incompleteness of the TCJA’s international tax provisions, along with congressional failure to remedy the gaps that TCJA created in the Internal Revenue Code. Thus, the Department of Treasury (“Treasury”) and the IRS are left to bridge the gaps in…

09Nov 2021 by Anthony Diosdi

The Fifth Amendment Right to Remain Silent in an IRS Criminal Tax Evasion or Criminal Tax Fraud Case

Tax Law

By Anthony Diosdi A taxpayer who is the subject of a criminal tax fraud case has the same rights as any other criminal defendant to decline to make any statement to the special agent or to a grand jury on the grounds that such a statement would “tend to incriminate him.” The right is a complete one, subject only to a grant of immunity, and the fact that the right was evoked cannot be used as evidence against the taxpayer. The right is also subject to the requirement that it be asserted. Any statement of the taxpayer other than a claim of the Fifth Amendment privilege against self-incrimination is admissible in evidence if it is relevant. This is particularly important in criminal tax fraud cases because courts have held that…

09Nov 2021 by Anthony Diosdi

The Fourth Amendment Protection Against Unreasonable Search and Seizure in an IRS Criminal Tax Evasion or CriminalTax Fraud Case

Tax Law

By Anthony Diosdi An individual who is the subject of a criminal tax fraud case has the same rights as any other criminal defendant against unreasonable search and seizure in a criminal tax fraud case. The Fourth Amendment constitutional right against unreasonable searches and seizure typically comes into play in tax evasion cases principally in warrantless searches of a taxpayer’s books and records. The usual Fourth Amendment question arises as follows: An individual consents to the examination of his books and records believing the examination concerns only civil tax liability; he believes it is only a civil audit because the special agent has not advised him of the function of a special agent or of his constitutional rights. The taxpayer therefore contends 1) that a search of his “papers” has…

06Nov 2021 by Anthony Diosdi

A Deep Dive into the 2021 IRS Form 5471 Schedule J

Tax Law, Uncategorized

A Deep Dive into the 2021 IRS Form 5471 Schedule J By Anthony Diosdi Schedule J of Form 5471 tracks the earnings and profits (“E&P”) of a controlled foreign corporation (“CFC”) in its functional currency. In most cases, special ordering rules under Section 959 of the Internal Revenue Code apply in determining how E&P is reported on Schedule J. For the 2021 tax year, Schedule J was revised. This article will take a deep dive into each column and line of 2021 Schedule J of the Form 5471. Who Must Complete the Form 5471 Schedule J Anyone preparing a Form 5471 knows that the return consists of many schedules. Schedule J is just one schedule of the Form 5471. Whether or not a CFC shareholder is required to complete Schedule…

04Nov 2021 by Anthony Diosdi

Defense Considerations in an IRS Criminal Tax Investigation- Cooperation Versus Non Cooperation

Tax Law

By Anthony Diosdi The Internal Revenue Service (“IRS”) selective program to utilize criminal sanctions is part of an overall system of collecting taxes. It is part of an overall system that will send the best and the brightest to prison as a public reminder to file correct tax returns. When the IRS refers a case to the United States Attorney for criminal prosecution, in most cases, the United States Attorney will do so without compassion. Criminal tax cases are different then other criminal cases. A criminal tax case is the nearest thing to an inquisition in modern times. Unlike most other criminal cases, the question is not whether an individual did something wrong. The question in a criminal tax case is whether an individual targeted by the IRS did anything…