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

11Dec 2019 by Anthony Diosdi

All I Want for Christmas is a Refund of the 965 Tax I Overpaid

Gift Tax

By Anthony Diosdi The Section 965 Transition TaxInternal Revenue Code Section 965 imposes a one-time transition tax on a U.S. shareholder share of deferred foreign income of certain foreign corporations (“accumulated deferred foreign income” or ADFI”). For this purpose, a U.S. shareholder is a U.S. person who directly, indirectly, or constructively owns at least 10 percent of either the total combined voting power or total value of a foreign corporation’s stock. Section 965 accomplishes the transition tax by increasing the subpart F income of each specified foreign corporation in the SFC’s last taxable year that began before January 1, 2018 by the greater of the SFC’s ADFI measured in functional currency as of November 2, 2017 or December 31, 2017. By allowing a reduction to the ADFI inclusion, Section 965…

11Dec 2019 by Anthony Diosdi

Hovering Deficits- Uncertain Times in Cross Border Mergers with the Enactment of the 2017 Tax Cuts and Jobs Act

Gift Tax

By Anthony Diosdi OverviewIn general, Section 367 governs corporate restructurings under Sections 332, 351, 354, 355, 356, and 361 (Subchapter C nonrecognition transactions) in which the status of a foreign corporation as a “corporation” is necessary for the application of the relevant subchapter C nonrecognition provisions. Other provisions in subchapter C (subchapter C carryover provisions) apply to such transactions in conjunction with the enumerated provisions and detail additional consequences that occur in connection with the transaction. For example, Sections 362 and 381 govern the carryover of basis and earnings and profits from the transferor corporation to the transferee corporation in applicable transactions.The subchapter C carryover provisions generally have been drafted to apply to domestic corporations and U.S. shareholders. As a result, those provisions often do not fully take into account…

09Dec 2019 by Anthony Diosdi

FIRPTA and Partnership Interest Withholding Rules Under the Tax Cuts and Jobs Act

Tax Law

By Anthony Diosdi The passing of the 2017 Tax Cuts and Jobs Act brought many changes to the Internal Revenue Code. One change relates to the handling of the sale of partnership interests by foreign persons. In particular, Sections 864(c)(8) and 1446(f) withholding rules were added to the Internal Revenue Code.Explanation of Withholding Tax and Substantive TaxThe withholding tax under Internal Revenue Code Section 1446(f) requires a 10 percent withholding on the sales price of a partnership interest by foreign persons unless certain exceptions are met. One such exception is if the seller furnishes an affidavit to the buyer stating, among other things, the seller is not a foreign person. The 10 person withholding, similar to the 15 percent Foreign Investment in Real Property Tax Act (“FIRPTA”) withholding on sales…

09Dec 2019 by Anthony Diosdi

Owe the IRS? What Can be Done to Prevent IRS Levies or Garnishments

Gift Tax

By Anthony Diosdi If the Internal Revenue Service (“IRS”) has assessed a tax liability against you and it is not paid, the IRS can proceed with enforced collection actions you. Enforced collection actions includes seizure of your wages, your bank accounts, and your property to satisfy the outstanding tax liability. This can be financially devastating. Fortunately, with proper planning, IRS collection actions may be prevented. And, in some cases, an unsatisfied tax liability can be reduced or even eliminated. Before the IRS will begin to proceed with enforced collection actions, you will be issued a series of notices from the IRS. These notices should be taken seriously and never ignored. In some cases, the notices you receive from the IRS may actually offer you an opportunity to resolve your outstanding…

03Dec 2019 by Anthony Diosdi

Inbound Structuring for U.S. Real Estate in a Post-2017 Tax Cut and Jobs World

Tax Law

By Anthony Diosdi As a general matter, the Internal Revenue Code imposes a 30 percent withholding tax on U.S. sourced payments of interest to foreign persons if such interest income is not effectively connected with a U.S. trade or business of the payee. See IRC Sections 871(a)(1), 881(a)(1). U.S. payors of interest subject to this 30 percent withholding tax are required to withhold the 30 percent tax from the interest otherwise payable to the non-U.S. person and pay it to the Internal Revenue Service (“IRS”). Interest paid to foreign persons with respect to certain “portfolio debt instruments” is not subject to withholding tax. Portfolio interest received by a foreign corporation or nonresident alien individual is exempt from U.S. withholding tax. See IRC Sections 1441(c)(9) and 1442(a). Congress enacted the portfolio…

21Nov 2019 by Anthony Diosdi

Tax-Free Spinoffs in the International Tax Context and the Danger of Subpart F Income Inclusion

Tax Law

By Anthony Diosdi There are many good business reasons that a corporate group may decide to enter a corporate division transaction to separate one or more trades or businesses from another distinct trade or business. Such transactions are commonly referred to as corporate “spin-offs,” “split-ups,” or “spit-offs.” To illustrate the elements of these transactions, assume that Alex and Bertha each own 50 percent of the stock of Diverse Corporation (“D”), which for many years has operated a winery and chicken ranch as separate divisions. The shareholders wish to divide the business into two separate corporations on a tax-free basis. The division method they choose should be influenced by nontax goals. Below, please see Illustration 1., Illustration 2., and Illustration 3., which demonstrate examples of corporate “spin-offs,” “split-ups,” and “spit offs.”…

21Nov 2019 by Anthony Diosdi

Tax Tips for the End of the Year

Tax Law

As 2019 comes to a close, so does the tax year. With a month left in the year, there are still some moves you can make to decrease your tax liability come spring. Deferring Income You will owe taxes on the income you receive in 2019, though in many cases, it might be possible to put off income until after the New Year. Even if you earned income in 2019, you will not pay taxes on it this year if you do not receive the funds until 2020. Deferring year-end bonuses, commissions, or other earnings until January can decrease your liability for 2019. Accelerate Deductions As you defer income, you also might seek possible last-minute deductions to lower your bill even further. Some possible deductions might include: Charitable contributionsPaying estimated…

15Nov 2019 by Anthony Diosdi

Demystifying the IRS Form 5471 Part 5. Schedule I-1

Tax Law

By Anthony Diosdi Each year certain U.S. persons with interests in foreign corporations must file an IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the fifth of a series of articles designed to provide a basic overview of the Form 5471. This article will focus on Schedule I-1, and is designed to supplement the IRS instructions to Schedule I-1.Who Must Complete the Form 5471 Schedule JSchedule I-1 is used to report information determined at the CFC level with respect to amounts used in the determination of GILTI inclusions by U.S. shareholders. The information from Schedule I-1 is used by U.S. shareholder(s) of a CFC to file Form 8992, U.S. Shareholder Calculation of GILTI, and may assist in the completion…

15Nov 2019 by Anthony Diosdi

Despite the Enactment of the 2017 Tax Cuts and Jobs Act, the High-Taxed Exception to Subpart F Income Continues to Allow CFC’s to Defer Foreign Income From U.S. Taxation

Tax Law

By Anthony Diosdi The Revenue Act of 1962 enacted Subpart F of the Internal Revenue Code. The 1962 Revenue Act adopted the mechanism of taxing U.S. shareholder on their pro rata shares of the controlled foreign corporation’s (“CFC”) undistributed income as if those shares of income had been distributed as dividends. In general, the purpose of subpart F is to discourage U.S. taxpayers from using foreign corporations to defer U.S. taxes by accumulating certain types of income in foreign “base” companies located in low-tax jurisdictions. Subpart F is primarily directed at two types of income: passive investment income and income derived from dealings with related corporations (i.e., using a base company to shift income away from related parties).The basic operation of the subpart F provisions is straightforward: certain U.S. taxpayers…

07Nov 2019 by Anthony Diosdi

The Taxation of Offshore Accumulated Earnings under Section 959- Before and After the 2017 Tax Cuts and Jobs Act

Tax Law

By Anthony Diosdi Generally, U.S. shareholders of a controlled foreign corporation or CFC are required to include in the U.S. income: 1) their pro rata share of subpart F income under Internal Revenue Code Section 951(a) (such as passive income, and certain foreign sales and service income); 2) their pro rata share of CFC’s earnings from investments in U.S. property as defined in Internal Revenue Code Section 956; 3) after the enactment of the 2017 Tax Cuts and Jobs Act, other items of global intangible low-taxed income (“GILTI”) as defined in Internal Revenue Code Section 951A. The U.S. shareholder is taxed even if the CFC does not make an actual distribution to the shareholder. To avoid double taxation, Internal Revenue Code Section 959 provides that previously taxed earnings and profits…