Introduction to GILTI For years, tax planning for international outbound taxation remained the same, mitigation of Subpart F income, maximization of foreign tax credits, and transfer pricing. The 2017 Tax Cuts and Jobs Act has broken the monotony associated with international tax planning for outbound transactions and added a new category for tax planning. In addition to the anti-deferral regime built into Subpart F, the Tax Cuts and Jobs Act has introduced a new anti-deferral category known as the Global Intangible Low-Taxed Income (“GILTI”). GILTI is now a provision that can found in Internal Revenue Code Section 951A. The Tax Cuts and Jobs Act requires a U.S. shareholder of a controlled foreign corporation (“CFC”) to include in income its global intangible low-taxed income or GILTI. The GILTI tax is meant…

A self-directed retirement plan is a type of structure that allows the holder to transfer tax free funds from a retirement account to acquire real estate. There are a number of rules however that must be followed in order to make such a transaction work.  Let’s first start with a basic retirement account. Retirement accounts (such as IRAs and 401K plans) can be created by contribution subject to annual dollar limits or by rollover from a qualified plan. The owner usually cannot take out distributions prior to age 59 ½ without penalty. Understanding the Prohibited Transaction Rules of the Internal Revenue Code Anyone considering establishing a self-directed retirement plan to invest in real estate must be aware of the prohibited transaction rules discussed in the Tax Code. Internal Revenue Code…

Introduction to Conservation EasementsOver the years, charitable contributions of conservation easements have allowed taxpayers to obtain a federal tax deduction for the purpose of conserving land for public use, public enjoyment, or to preserve historic building structures. For tax purposes, a conservation easement creates a discounted value for the property encumbered by the easement which generates a valuable charitable deduction. To claim a deduction for a conservation easement, the donation of the easement has to be made to a qualified charitable organization. In addition, Treasury Regulation Section 1.170A-14(c)(1) states that the qualified organization must “have a commitment to protect the conversation purpose of the donation, and have the resources to enforce the restrictions.” Furthermore, the contribution must be exclusively for conservation purposes. Conservation purposes under Internal Revenue Code Section 170(h)(4)(A)…

On November 29, 2018, the Internal Revenue Service (“IRS”) announced a new set of rules governing the 2018 Offshore Voluntary Disclosure Program (“OVDP”). The OVDP allows taxpayers with undisclosed foreign accounts to potentially avoid criminal prosecution and/or severe civil penalties. Previously, taxpayers that entered into the OVDP were required to amend tax returns for up to eight years, disclosing any previously undisclosed foreign source income. Participants were also required to satisfy any tax liabilities reflected on the amended returns and were assessed an additional 20 percent accuracy-related penalty. Finally, participants of the OVDP were subject to a 27.5 percent penalty (a Title 26 penalty) on the highest aggregate undeclared foreign financial assets during the last eight years of noncompliance. The 27.5 percent did not just include the value of undisclosed…

Introduction Foreign investors actively invest in United States real estate by speculating on land and developing homes, condominiums, shopping centers, and commercial buildings. Many foreign investors also own recreational property in popular U.S. vacation destinations. This article attempts to summarize the Foreign Investment in Real Property Tax Act of 1980 (hereinafter “FIRPTA”) consequences surrounding a foreign investor’s acquisition of U.S. real property interests. FIRPTA is designed to ensure that a foreign investor is taxed on the disposition of a U.S. real property interest. Under FIRPTA, gains or losses realized by foreign corporations or nonresident alien individuals from any sale, exchange, or other disposition of a U.S. real estate interest are taxed in the same manner as other income effectively connected with the conduct of a U.S. trade or business. See…

Introduction As the world becomes increasingly “global,” so too does the practice of tax law. In California, Florida, and other states, clients of tax advisors are often families from outside the United States that seek to take advantage of investment opportunities and a higher living standard in the United States. While the United States may provide a number of opportunities for non-United States citizens, in order to take advantage of these opportunities, many non-United States citizens become residents of the United States. Once these individuals establish residency in the United States, they may face a host of complicated tax issues. To non-U.S. citizens, these U.S. tax  issues may be foreign in every sense of the word. This is because domestic tax law has notable distinctions from taxing systems around the…

Introduction For years, retailers conducting business through eCommerce were advised that states could not require them to collect and remit sales tax on online sales unless they were ‘doing business’ in a taxing state based on the tax laws of that state. This concept was referred to as a “nexus” based on a seller’s physical presence within a state.  Therefore, a seller who is determined to have a physical presence within a state would be obligated to withhold and remit sales tax to the taxing state. Examples of physical presence included but were not limited to having employees working in a taxing state, placing sales agents in a taxing state, moving business property into a taxing state, or renting property in a taxing state.Many online merchants avoided establishing a physical…

Introduction The passing of the Tax Cuts and Jobs Act resulted in a significant tax increase for many in high income tax states. It also elevated the need of many residents of high tax states to utilize planning opportunities to reduce their overall tax liabilities. An incomplete gift non-grantor trust (hereinafter “ING”) formed in a state such as Nevada, Delaware, Wyoming, or South Dakota- that is, a “NING,” “DING,” “WING,” or “SDING,” may offer a planning opportunity to reduce state income tax liabilities. As a general rule, states impose income tax based on residency. For example, a Maryland resident is subject to Maryland income tax and a California resident is subject to California income tax. The same can be said of an ING. An ING is subject to taxation in…

I. Introduction to Internal Revenue Code Section 1202This article is designed to provide an overview of the federal income tax incentives available to non-corporate holders of “qualified small business stock” (“QSB stock”). As discussed below in more detail, Section 1202 of the Internal Revenue Code permits investors in QSB stock to exclude up to $10 million in taxable gains. Despite the Section 1202 tax incentive, in the past, many investors shied away from QSB stock because of the inherent double tax consequence of subchapter C corporations. However, that may soon change, due to the reduction of the corporate marginal tax rate to 21 percent under the Tax Cuts and Jobs Act of 2017. Internal Revenue Code Section 1202 was originally enacted in 1993. It was enacted as an incentive for…

Introduction to the Offshore Voluntary Disclosure Program (OVDP) For many years, a large number of U.S. taxpayers have placed and continue to place large sums of money in foreign financial accounts. Many of these individuals, knowingly or unknowingly, violate federal law by not disclosing these foreign accounts to the Internal Revenue Service (“IRS”). In an effort to step-up enforcement of disclosing foreign financial accounts to the IRS, the United States Department of Justice has successfully pierced previously secret banking in foreign countries. As a result, the IRS has been gaining access to information regarding undisclosed foreign financial accounts. This left many individuals scrambling to make a voluntary disclosure to the IRS to avoid criminal prosecution and serious civil penalties some of which are discussed in detail below. Potential Penalties for…