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

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…
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The Importance of Determining Accurate Earnings and Profits of Foreign Corporations for U.S. Tax Compliance Purposes

The Importance of Determining Accurate Earnings and Profits of Foreign Corporations for U.S. Tax Compliance Purposes

Tax Law
By Anthony Diosdi When we think about international tax or cross border transactions, we think about the controlled foreign corporation or CFC rules. We also consider subpart F income or global intangible low-taxed income (“GILTI”) planning. Unfortunately, many international tax professionals do not give much consideration to the “earnings and profits” (“E&P”) of a controlled foreign corporation or CFC. The importance of E&P in international tax should not be ignored. Not only is E&P the foundation of cross-border income inclusions, recent changes to the rules governing U.S. international tax compliance make having an accurate E&P more important now than ever. The precise definition of the term E&P is nowhere to be found in the Internal Revenue Code or its regulations. The function of E&P, however, is clear: it is a…
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Demystifying the IRS Form 5471 Part 4. Schedule J

Demystifying the IRS Form 5471 Part 4. Schedule J

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income (“GILTI”) provisions, 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 fourth of a series of articles designed to provide a basic overview of the Form 5471. This article will focus on Schedule J. Schedule J tracks the earnings and profits of a controlled foreign corporation (“CFC”). This article is designed to supplement the IRS instructions to Schedule J. Schedule J has dramatically changed for the 2018 tax season. Schedule J now includes Part 1 entitled “Accumulated…
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Do Not Risk Losing Your Right to Travel Due to Unpaid Taxes

Do Not Risk Losing Your Right to Travel Due to Unpaid Taxes

Tax Law
Having substantial unpaid tax debt can weigh on your mind, and the stress can even impact your day-to-day life. However, if you want to travel on an international vacation to get away from your everyday stresses for a week, you may have even bigger concerns courtesy of the Internal Revenue Service (IRS). In recent years, IRC Section 7345F passed, which allowed for the revocation or denial of a United States passport for individuals with significant unpaid tax bills. In 2018, the IRS issued direction to the State Department to enact this method of tax enforcement. The new law will not affect everyone with past-due taxes. Instead, the following must be true for your passport to be in jeopardy: You owe more than $50,000 in legally-enforceable unpaid taxes (Title 26 liabilities…
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Demystifying the IRS Form 5471 Part 3. Schedule E

Demystifying the IRS Form 5471 Part 3. Schedule E

Tax Law
In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income (“GILTI”) provisions, 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 third of a series of articles designed to provide a basic overview of the new Schedule E of the Form 5471. A controlled foreign corporation (“CFC”) paying a foreign tax and/or claiming a foreign credit must complete Schedule E of the Form 5471. This article is heavily based on the instructions to Schedule E of the Form 5471.Who Must Complete the Form 5471 Schedule EIndividuals with interests in CFCs…
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Demystifying the IRS Form 5471 Part 2. Schedule C

Demystifying the IRS Form 5471 Part 2. Schedule C

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income (“GILTI”) provisions, 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 second of a series of articles designed to provide a basic overview of the new Schedule C of the Form 5471. Who Must Complete the Form 5471 Schedule C Schedule C of a Form 5471 is an income statement of a controlled foreign corporation (“CFC”). The Schedule C is designed to disclose a CFC’s functional currency and transactions in foreign currency. Because foreign currencies are treated…
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Will Your Form 5471 Be Dinged By the IRS’ $10,000 Penalty For Being ‘Substantially Incomplete’?

Will Your Form 5471 Be Dinged By the IRS’ $10,000 Penalty For Being ‘Substantially Incomplete’?

Tax Law
By Lynn K. Ching Certain U.S. taxpayers are required to file an annual report with the Internal Revenue Service (IRS) on Form 5471, with respect to specified interests and transactions related to their ownership in foreign corporations.  Form 5471 has long been regarded as one of the most difficult and complex U.S. offshore reporting forms to complete. After the passage of the ‘Tax Cuts and Jobs Act’ of  2017, and the addition of new schedules and worksheets, the time, effort, and expertise required to complete Form 5471 multiplied for many taxpayers. Moreover, the penalty for submitting an incomplete or inaccurate Form 5471 is not insignificant.  Under IRC § 6038, 6038A and related regulations, U.S.taxpayers who are required to file the Form 5471 may be subject to a penalty of $10,000…
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Demystifying the IRS Form 5471 Part 1. Selecting the Proper Category of Filer and Preparing Schedule B

Demystifying the IRS Form 5471 Part 1. Selecting the Proper Category of Filer and Preparing Schedule B

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income ( “GILTI”) provisions, 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 first of a series of articles  designed to provide a basic overview of the Form 5471 and the tax law anyone completing a Form should understand. The Form 5471 begins with a question on Page 1 Box B by asking you to select one or more categories of being a filer. The classification selected will determine the appropriate schedules of the Form 5471 that needs…
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Bringing a Case Before the United States Tax Court A to Z Part II. Petitioning the Court, the Appeals Process, and Discovery

Bringing a Case Before the United States Tax Court A to Z Part II. Petitioning the Court, the Appeals Process, and Discovery

Tax Law
By Anthony Diosdi If you have received a notice of deficiency and wish to contest the liability indicated on the notice without paying in full, you must timely petition the Tax Court. Anyone who contests a notice of deficiency by petitioning the Tax Court must understand that they are suing the IRS and must act accordingly. According means understanding the issues in your case and timely gathering the necessary information and/or documents to convince either the IRS or the Tax Court that you are not guilty of owing what an auditor believes you owe. Litigation against the IRS in Tax Court is commenced by the filing of a petition for redetermination. After the petition is received by the Tax Court, the court’s Clerk will enter the case on the court’s…
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Bringing a Case Before the United States Tax Court A to Z Part III. How to Proceed with a Tax Court Trial

Bringing a Case Before the United States Tax Court A to Z Part III. How to Proceed with a Tax Court Trial

Tax Law
By Anthony Diosdi Although the vast majority of cases brought before the Tax Court are settled, some cases proceed to trial. If you are considering bringing a case to trial before the Tax Court, it is important to be familiar with the order in which a trial proceeds. Although no rigid format applies in every case, a basic framework has evolved within which a trial will be conducted. This framework is subject to change depending on the preference of the presiding judge. In my experience, a significant number of individuals do not take their trials before the Tax Court seriously. Many individuals believe the IRS has the burden of proof in Tax Court cases so they do not properly prepare for trial. Others, believe that Tax Court controversies rarely proceed…
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