An Overview of the Taxation of Cloud Transactions and Digital Downloads

An Overview of the Taxation of Cloud Transactions and Digital Downloads

Tax Law
By Anthony Diosdi U.S. Taxation of the Digital Economy- a Broad OverviewNew technology and new transactions often raise difficult issues of tax policy and administration in part because existing rules were developed to deal with other situations. The dramatic expansion in electronic commerce facilitated by the use of the Internet and other technology is subjecting existing tax principles to new pressures. One area of concern is the application of source rules to electronic commerce transactions. Suppose, for example, that a corporation delivers electronically software or a digital product to a customer on the Internet. The customer can download the product and use it commercially. Depending upon the nature of the transaction and the property interests involved, the income to the corporation might appropriately be characterized as a royalty for the…
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The IRS Whistleblower Program and the Potential for Additional Recovery Under the False Claims Act

The IRS Whistleblower Program and the Potential for Additional Recovery Under the False Claims Act

Tax Law
By Anthony Diosdi Let’s suppose that John has been a tax attorney at a law firm owned by Bob for the last 25 years. Bob has enjoyed a reputation for being a very successful tax attorney in Miami, Florida for many years. Everything was going nicely until John noticed that Bob was cheating on his own tax returns to fund his lavish lifestyle. To make matters worse, in order to increase business, Bob demanded that John file frivolous refund claims on behalf of the firm’s clients with the Internal Revenue Service (“IRS”).  It turns out that Bob had been filing fraudulent refund claims on behalf of clients for years. John declined to take any part in the filing of frivolous refund claims with the IRS. This resulted in his discharge…
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Should Your LLC be Taxed as a Disregarded Entity or a Corporation?

Should Your LLC be Taxed as a Disregarded Entity or a Corporation?

Tax Law
By Anthony Diosdi Probably one of the most frequent questions any tax professional receives from his or her clients is how should my limited liability company (“LLC”) be taxed. As usual in any area of tax planning, there is no one-size-fits-all approach. Each individual’s circumstances must be carefully considered in determining how an LLC should be taxed.An LLC is an entity formed under state law. Once an LLC is formed under state law, a determination must be made for federal (and in some cases for state tax purposes) how the LLC will be taxed. The Income Tax Regulations typically treat an LLC that has a single owner as a “tax nothing.” This means that a single-owner LLC is disregarded for tax purposes and treated as an extension of its owner.…
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Demystifying the Form 5471 Part 6. Schedule O

Demystifying the Form 5471 Part 6. Schedule O

Tax Law
By Anthony Diosdi Schedule O is used to report the organization or reorganization of a foreign corporation and the acquisition or disposition of its stock. This is the sixth of a series of articles designed to provide a basic overview of the Internal Revenue Service (“IRS”) Form 5471. This article is designed to supplement the IRS’ instructions to Schedule O of IRS Form 5471. Who Must Complete Schedule OFive different categories of filers of Form 5471 have been defined by the Income Tax Regulations. They are as follows:Category 1 FilerCategory 1 (previously reserved) is now used by U.S. shareholders of a Specified Foreign Corporation (“SFC”) that is subject to the provisions of Internal Revenue Code Section 965. Category 2 FilerCategory 2 filers are U.S. persons who are officers or directors…
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The District Court Allows a Suit to Proceed Challenging the Regulations to Section 965 of the Internal Revenue Code

The District Court Allows a Suit to Proceed Challenging the Regulations to Section 965 of the Internal Revenue Code

Tax Law
By Anthony Diosdi As part of the Tax Cuts and Jobs Act of 2017 (“TCJA”), Congress enacted certain “transition tax” provisions applicable to “controlled foreign corporations” (“CFC”) owned by United States persons. See Pub. L. 115-97, 131 Stat. 2054 (2017). On January 15, 2019, the Internal Revenue Service (“IRS”) and United States Department of Treasury (hereinafter “Defendants”) published final regulations to effectuate these tax provisions.Monte Silver, is the sole shareholder of Monte Silver, Ltd, a CFC incorporated in Israel. Monte Silver (hereinafter “Plaintiffs”) brought an action against the United States in the United States District Court for the District of Columbia. The case is entitled Monte Silver, et al v. Internal Revenue Service, et al. Civil No. 19-cv-247 (APM). The Plaintiffs challenged Defendant’s alleged failure, in connection with promulgating the…
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New York Estate of Mind

New York Estate of Mind

Tax Law
By James Huang Ranked among the highest taxing jurisdictions in the country, New York is one of the few states that also has a state-level estate tax. Ranging from 3.06% to a top rate of 16%, New York's estate tax is imposed on decedents domiciled in New York. This tax is also imposed on those who are not New York domiciliaries, but who own real or tangible personal property located in the state. Described below are some of the key features of New York's estate tax and how these features interact with the federal regime. Exclusion Gap Like the federal estate tax, New York's estate tax allows estates a "basic exclusion amount" (BEA) — i.e., an amount up to which a decedent's estate is not subject to estate tax. Historically,…
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The IRS Continues to Aggressively Audit RaPower3 Investors

The IRS Continues to Aggressively Audit RaPower3 Investors

Tax Law
By Anthony Diosdi Over the past few years, a company known as RaPower3 has marketed ownership in solar lenses to investors throughout the United States. Investors were promised ownership in solar lenses located throughout the Southwestern United States. Investors were also told that they could tax generous deductions on their tax returns associated with these solar lenses. Everything seemed fine until the United States Department of Justice showed up.  and obtained an injunction against the promoters of RaPower3 from marketing ownership in the solar lenses.The U.S. Department of Justice obtained an injunction against RaPower3, International Automated Systems, LTB1, Gregory Shepard, Neldon Johnson, and Roger Freeborn. The Department of Justice asked a federal district court to shut down a multi-level marketing business involving solar lenses that were “purchased” and then alternatively…
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Top Four Ways to be Audited by the IRS in 2020

Top Four Ways to be Audited by the IRS in 2020

Tax Law
By Anthony Diosdi It’s no secret, the Internal Revenue Service (“IRS”) is auditing fewer tax returns these days, mostly due to federal budget cuts that have affected the IRS’ staff size. Even though IRS has been auditing much fewer tax returns, there are certain things that individual taxpayers can do that will likely certainly result in a costly IRS audit. Below, please find our list of the top four ways to get audited by the IRS in 2020.1. Invested in a Syndicated Conservative Easement Over 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…
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FIRPTA and Partnership Interest Withholding Rules Under the Tax Cuts and Jobs Act

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

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…
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