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

08Sep 2021 by Anthony Diosdi

Four Lines of Defense to a Form 5471 Penalty

Tax Law

By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with information necessary to ensure compliance with Global Intangible Low-Taxed Income (“GILTI”) and the Subpart F provisions of the Internal Revenue Code, each year a U.S. person who owns more than 50% or more of the stock, by vote or value, of a foreign corporation must file a Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. See Treas. Reg. Section 1.6038-2(a) and (b). Other persons who must file a Form 5471 include 1) U.S. persons who acquire a 10% ownership interest, acquire an additional 10% ownership interest, or dispose of stock holdings to reduce their ownership in the foreign corporation to less than 10% and 2) U.S. citizens and residents who are officers…

31Aug 2021 by Anthony Diosdi

Cryptocurrency for Businesses: Reporting Considerations for Businesses Wishing to Accept Cryptocurrency as a Form of Payment

Tax Law

By Anthony Diosdi Cryptocurrency or virtual currency is a medium of exchange to make payments and facilitate consumer and business transactions. Cryptocurrency has gained a lot of attention from the press and social media. While cryptocurrency is gaining in popularity, its user base in commercial transactions is relatively small. Most consumers pay for goods and services through credit cards, debit cards, and electronic transfers. However, a growing number of businesses are adopting virtual currency as a method of payment. Although a number of businesses have jumped on the cryptocurrency bandwagon, there are a number of reporting requirements and other procedures that a business must understand before accepting cryptocurrency as a form of payment. This article examines the potential registration and filing requirements a business should consider before accepting cryptocurrency. .A…

25Aug 2021 by Anthony Diosdi

Bringing the 3520 Penalty Fight to the IRS- Contesting a 3520 Penalty in Tax Court

Tax Law

By Anthony Diosdi Under Internal Revenue Code Section 6677(a), if any United States Person beneficiary receives (directly or indirectly) a distribution from a foreign trust, that person is required to make a return with respect to such a trust using Internal Revenue Service (“IRS”) Form 3520, and show thereon the name of the trust, the amount of the aggregate distribution received, and any other data the IRS may require. A foreign gift, bequest, or inheritance that exceeds $100,000 must also be disclosed on a Form 3520. The IRS may assess an annual penalty equal to 35 percent of the gross value of the trust or 35 percent of the gross value of the property transferred from the trust if a Form 3520 is not timely filed. The IRS may also…

25Aug 2021 by Anthony Diosdi

Calculating the Foreign Tax Credit- Don’t Put All Your Eggs in One Basket

Tax Law

By Anthony Diosdi U.S. taxpayers are generally subject to U.S. tax on their worldwide income, but may be provided a tax credit for foreign income taxes paid or accrued. The main purpose of the foreign tax credit is to mitigate the double taxation of foreign source income that might occur if such income is taxed by both the United States and a foreign country. Prior to the Tax Cuts and Jobs Act of 2017, many multinational corporations kept their foreign source earnings and profits (“E&P”) offshore to defer the U.S. tax consequences on this income. Foreign tax credits were typically only considered when foreign source E&P was repatriated to the U.S. The 2017 Tax Cuts and Jobs Act limited multinational corporations ability to defer U.S. tax on foreign source E&P…

20Aug 2021 by Anthony Diosdi

Criminal and Civil Forfeitures Involving Cryptocurrency: An Introduction to Federal Forfeiture Processes

Tax Law

By Anthony Diosdi Jorod Koopman, director of cybercrime at the Internal Revenue Service (“IRS”), recently shared some information regarding cryptocurrencies seized by the government with CNBC. Jorod Koopman’s division handles crypto tracing, investigating tax evasion, filing false tax returns, and money laundering. The cybercrime unit of the IRS works with the Federal Bureau of Investigation (“FBI”), Homeland Securities Investigations (“HSI”), the Secret Service, and the Drug Enforcement Agency (“DEA”) to seize cryptocurrencies. According to the director, the government seized $700,000 worth of cryptocurrency. In 2020, it was up to $137 million. As of August of 2021, the government has seized over $1.2 billion in cryptocurrency. Interviews with current and former federal agents and prosecutors suggest the government has no plans to curb its appetite for cryptocurrency. With seizures of cryptocurrencies…

20Aug 2021 by Anthony Diosdi

Demystifying the Taxation and Reporting of Cryptocurrencies

Tax Law

By Anthony Diosdi Cryptocurrency and blockchain technology have grown in popularity and ubiquity in the past few years. Bitcoin and other forms of cryptocurrency have experienced unprecedented growth in recent years, leaving many investors unexpectedly large tax bills. The Internal Revenue Service defines cryptocurrency as a “type of virtual currency that uses cryptography to secure transactions that are digitally recorded on a distributed ledger such as blockchain.” Virtual currency is a digital asset that is used as a medium of exchange and typically stored electronically in digital wallets. Since the technology, uses and types of blockchain technology and virtual currency are developing so rapidly and growing in number, regulatory agencies are having a hard time keeping up with the developments and legal implications of these developments. This article focuses on…

12Aug 2021 by Anthony Diosdi

When Foreigners Own U.S. Real Property: Planning for the Estate and Gift Tax Associated with U.S. Property Ownership

Tax Law

By Anthony Diosdi In the individual foreign investor setting, inbound tax planning often requires a balancing of U.S. income tax considerations and U.S. federal gift and estate tax considerations. While U.S. federal income tax rates on the taxable income of an individual foreign investor are the same as those applicable to a U.S. citizen or resident, the federal estate and gift tax as applied to individual foreign investors can and often results in a dramatically higher burden on a taxable U.S. estate or donative transfer of a foreign investor than for a U.S. citizen or domiciliary. As a result, for many individual foreign investors, the most important U.S. tax consideration is the U.S. federal estate and gift taxation. The United States imposes estate and gift taxes on certain transfers of…

12Aug 2021 by Anthony Diosdi

The Taxation of Dispositions of Partnership Interests by Foreign Persons

Tax Law

By Anthony Diosdi Foreign investors generally have the same goals of minimizing their income tax liabilities from their business investments, as do their U.S. counterparts, although their objective is complicated by the very fact that they are not U.S. persons. That is, foreign investors must be concerned not only with income taxes in the United States, but also income taxes in their home country. Further, the United States has a special income tax regime that is applicable to foreign persons. Specifically, if the foreign investor derives certain types of passive income, it is typically taxed at a flat 30% rate (without allowance for deductions), unless an applicable U.S. tax treaty reduces this statutory rate. In contrast, if the U.S. activities of the foreign investor rises to the level of constituting…

04Aug 2021 by Anthony Diosdi

A Closer Look at the Process of Reducing a 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…

04Aug 2021 by Anthony Diosdi

A Dive into the New Form 5471 Categories of Filers and the Schedule R

Tax Law

By Anthony Diosdi Form 5471 is used by certain U.S. persons who are officers, directors, or shareholders of foreign entities that are classified as corporations for U.S. tax purposes. The schedules of Form 5471 are used to satisfy the reporting requirements of the Internal Revenue Code. Schedule R of Form 5471 is used to report basic information pertaining to distributions from foreign corporations by Sections 245A, 959, and 986(c).This article will review each column of the new 2020 Schedule R of the Form 5471. The year the Internal Revenue Service (“IRS”) added new categories of filers for the Form 5471. This article will also discuss the new category of filers. Who Must Complete the Form 5471 Schedule FFiling RequirementsForm 5471 and appropriate accompanying schedules must be completed and filed by…