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

05Jun 2021 by Anthony Diosdi

Can a Intentionally Defective Grantor Trust Coupled with a Self-Canceling Installment Note ‘Magically’ Remove High Value Assets From an Estate?

Tax Law

By Anthony Diosdi An intentionally defective grantor trust (“IDGT”) is a trust that is treated as owned by the grantor for income tax purposes, but not for gift or estate tax purposes. The benefit of an IDGT is that the value of the trust, and any growth thereon, are excluded from the grantor’s estate. At the same time, the trust is “defective” for income tax purposes. This means that the grantor would pay all of the income tax on the assets transferred to the trust without it being deemed a gift. This is accomplished by properly drafting the trust provisions so that the trust constitutes a grantor trust under one or more of the grantor trust rules found in Internal Revenue Code Sections 671 through 679 whereby the grantor will…

28May 2021 by Anthony Diosdi

A Deep Dive Into the IRS Form 3520

Tax Law

By Anthony Diosdi The Form 3520 is an informational return used to report certain transactions with foreign trusts, ownership of foreign trusts, or large gifts from certain foreign persons to the Internal Revenue Service (“IRS”). The failure to correctly and timely report certain transactions with a foreign corporation or the failure to disclose certain gifts received from a foreign person can result in a penalty up to 35% of the unreported transaction or distribution. Lately, the IRS has been handing out penalties for not timely and incorrectly filing Form 3520s like its candy. Given the seriousness of these penalties, if you had transactions with foreign trusts or received foreign gifts, the Form 3520 may be the most important return you will ever file. This article is designed to introduce the…

28May 2021 by Anthony Diosdi

A Deep Dive Into the IRS Form 3520-A

Tax Law

By Anthony Diosdi United States persons with foreign assets are subject to an ever expanding universe of reporting requirements. A prime example of this can be found in Internal Revenue Code Section 6048(b). This Internal Revenue Code Section provides that a foreign trust owner must file Internal Revenue Service (“IRS”) Form 3520-A. Each U.S. person is treated as an owner of any portion of a foreign trust under the grantor trust rules (Internal Revenue Code Sections 671 through 679) is responsible for ensuring that the foreign trust files Form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries. The penalty for failure to file IRS Form 3520-A will be imposed directly on the U.S. owner of the foreign trust. The penalty is equal to the…

28May 2021 by Anthony Diosdi

There May Be 50 Ways To Leave Your Lover But You May Only Utilize A CDP Challenge to Contest a Form 3520 Penalty Without Prepayment

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…

20May 2021 by Lynn Ching

When Can the Administrative Record in an IRS WhistleBlower Case Be Supplemented?

Tax Law

By Lynn K. Ching The Internal Revenue Service (IRS) Whistleblower Awards Program pays money to people who blow the whistle on persons who fail to pay taxes they owe, subject to meeting certain statutory requirements. If the Whistleblower claim is denied by the IRS Whistleblower Office (WBO), the claimant may petition the Tax Court to review (for abuse of discretion) the determination by the WBO not to pay an award. In reviewing a determination of the WBO, the Tax Court generally confines its review to the administrative record (i.e. the IRS’ records) in reaching its determination. In a recent case, Bemmelen v. Comm’r of the IRS, 154 T.C. No. 4 (2020), the petitioner asked the Court to allow him to supplement the administrative record in reviewing the denial of his…

10May 2021 by Anthony Diosdi

Don’t Miss the Updated Tax Deadline

Tax Law

The tax deadline for 2021 was extended to May 17th, and many people are taking advantage of the extra time. However, be certain not to miss this extended deadline, as it is just as strict as the usual April 15th deadline in non-pandemic years. If you are not ready to file your returns, you can file for an extension, though you still need to pay your estimated tax liability on time. If you are owed a refund, there is no penalty for filing your return late, though it can take significantly longer to receive your refund. If you owe taxes to the IRS, there can be costly consequences of failing to file or pay on time. The IRS can assess penalties for lateness, which can add up quickly the longer…

27Apr 2021 by Anthony Diosdi

A Deep Dive Into the IRS Form 5471 Schedule E Reporting and Tracking Foreign Tax Credits

Tax Law

By Anthony Diosdi Introduction Schedule E of Form 5471 is used to report taxes paid or accrued by a foreign corporation for which a foreign tax credit is allowed and taxes for which a credit may not be taken. Schedule E-1 of Form 5471 tracks the earnings and profits (“E&P”) of a controlled foreign corporation (“CFC”). 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. Shortly after the Tax Cuts and Jobs Act was enacted in 2017, the Internal Revenue Service (“IRS”) and the Department of Treasury (“Treasury”) announced they will withdraw the proposed regulations for Internal Revenue Code Section 959. As a result of these changes, the IRS dramatically changed Schedule E and E-1…

27Apr 2021 by Anthony Diosdi

A Deep Dive Into IRS Form 5471 Schedule P

Tax Law

By Anthony Diosdi IntroductionSchedule P of Form 5471 is used to report previously taxed earnings and profits (“PTEP”) of a U.S. shareholder of a controlled foreign corporation (“CFC”). The term PTEP refers to earnings and profits (“E&P”) of a foreign corporation. This article will dive into each column and line of the new 2020 Form 5471 Schedule P. We will also attempt to provide guidance as to how to prepare this incredibly complicated return. Who Must Complete the Form 5471 Schedule P?Anyone preparing a Form 5471 knows that the return consists of many schedules. Schedule P is just one schedule of the Form 5471. Whether or not a shareholder of a CFC is required to complete Schedule P depends on what category of filer he or she can be classified…

23Apr 2021 by Anthony Diosdi

A Deep Dive into the IRS Form 5471 Schedule J

Tax Law, Uncategorized

By Anthony Diosdi Schedule J of Form 5471 tracks the earnings and profits (“E&P”) of a controlled foreign corporation (“CFC”). 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. Shortly after the Tax Cuts and Jobs Act was enacted in 2017, the Internal Revenue Service (“IRS”) and the Department of Treasury (“Treasury”) announced they will withdraw the proposed regulations for Internal Revenue Code Section 959. As a result of these changes, the IRS dramatically changed Schedule J of Form 5471 for the 2018 tax year. The following columns or categories were added to Schedule J:1) Post-2017 E&P Not Previously Taxed (post-2017 Section 959(c)(3) balance.2) Hovering Deficit and Deduction for Suspended Taxes.3) PTI from Section 965(a)…

22Apr 2021 by Anthony Diosdi

A Deep Dive Into Form 5471 Schedule H “Calculating the E&P of a Controlled Foreign Corporation”

Tax Law

By Anthony Diosdi Schedule H is used to report a foreign corporation’s current earnings and profits (“E&P”) for US tax purposes to the Internal Revenue Service (“IRS”). Recently, Schedule H was revised. This article is designed to supplement the IRS instructions to the Form 5471.Who Must Complete Schedule HAnyone 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 H depends on what category of filer he or she can be classified as. For purposes of Form 5471, CFC shareholders are broken down by the following categories:Category 1- US persons who are officers, directors or ten percent or greater shareholders in a foreign personal holding company. Category…