Tax Law Archives | Page 2 of 46

13Feb 2023 by Pat Geddie

Totalization Agreements vs. Tax Treaties

By Anthony Diosdi If you are an American working outside the United States or are considering working outside the United States, you should consider whether your host country has a totalization agreement with the United States. This article provides a brief overview of totalization agreements which should be of particular interest to U.S. persons working outside the United States.IntroductionTotalization agreements are sometimes confused with international income tax treaties. While they are similar in concept, totalization agreements are different from income tax treaties. Income tax treaties are used to prevent two countries from taxing the same source of income. On the other hand, totalization agreements are designed to eliminate dual taxation with respect to social security taxes. Totalization agreements, often called “International Social Security Agreements” have two main purposes. First, they…

13Feb 2023 by Pat Geddie

Can a District Court or Court of Claims Order the Disclosure of the Terms of a Settlement Agreement in an International Penalty Case?

Tax Law

By Anthony Diosdi Tax practitioners have long known it. Now, many with foreign financial assets are becoming painfully aware of it. The Internal Revenue Service or IRS automatically and systemically assess penalties against individuals and businesses that fail to timely disclose interests in offshore/foreign assets and holdings on Form 3520, Form 3520-A, Form 5471, Form 5472, or Form 8938. Penalties for failing to timely file these information returns can range from $10,000 to several million dollars.The Internal Revenue Code provides the IRS with the discretion to abate or remove an international penalty if a taxpayer acted with “reasonable cause.” Therefore, in theory at least, if an individual or business assessed an international penalty can show the failure to timely file a Form 3520, Form 3520-A, Form 5471, Form 5472, or…

09Feb 2023 by Pat Geddie

It is About to Get Much More Difficult to Claim a Foreign Tax Credit A Look at the 2022 Final Foreign Tax Credit Regulations

Tax Law

By Anthony DiosdiU.S. taxpayers are generally subject to U.S. tax on their worldwide income, but may be provided a tax credit for foreign income taxes paid or accrued. The main purpose of the foreign tax credit is to mitigate the double taxation of foreign source income that might occur if such income is taxed by both the United States and a foreign country. An individual U.S. taxpayer may receive a “direct” foreign tax credit for foreign taxes that he or she pays to a foreign government. A U.S. corporation that owns at least 10 percent of stock in a foreign corporation (by vote or value) may receive an “indirect” or “deemed” foreign tax credit for foreign taxes paid by that subsidiary. Internal Revenue Code Section 901 limits the foreign tax…

06Feb 2023 by Pat Geddie

Do IRS International Penalties Qualify for First Time Relief?

Tax Law

By Anthony DiosdiSome tax professionals believe that international penalties such as penalties associated with the late filing of Internal Revenue Service or IRS Form 5471, Form 5472, or Form 3520 can be abated or removed through an administrative procedure often referred to as “first-time penalty abatement program.” Requests for relief of a penalty may be made in writing or by calling directly at 1-866-860-4259. This article discusses if it is possible to abate or request a refund of an international penalty through the first-time penalty abatement program.What Are Form 5471, Form 5472, and Form 3520 Penalties?Chapter 61 of the Internal Revenue Code contains countless reporting requirements regarding foreign information filing obligations. Many of the sections under Chapter 61 impose significant penalties for the failure to comply with the reporting requirements.…

06Feb 2023 by Pat Geddie

Beware of Section 956 Constructive Dividends Resulting from Short-Term Cross-Border Intercompany Loans

Tax Law

By Anthony DiosdiInternal Revenue Code Section 956 provides that a U.S. shareholder of a controlled foreign corporation or “CFC” must include in his or her income his or her pro rata share of the CFC’s increase in its earnings and profits or E&P invested in U.S. property for the taxable year. For purposes of Section 956, U.S. property includes most tangible and intangible property owned by the CFC. In enacted Section 956, Congress concluded that if any CFC loaned its accumulated earnings to its U.S. shareholders, earnings to the U.S. shareholders had occurred and, consequently, the loan should be treated as a constructive dividend. This treatment tax is based on the theory that, because the U.S. shareholder has use of the money loaned to it, it could reasonably be treated…

02Feb 2023 by Pat Geddie

An Introduction to the Taxation of the Modern Day Cross-Border Merger and Acquisition

Tax Law

By Anthony DiosdiIn today’s global economy, corporations have operations all over the world. Typically, a U.S. parent corporation owns a group of subsidiary corporations formed within and outside the United States. In such a scenario, the foreign subsidiaries are largely held by one foreign parent corporation. In larger multinational corporations, frequently there are multiple foreign parent corporations. A corporate reorganization in the case of such multinational groups raises a plethora of issues both for the corporations and shareholders involved, including the following that must be considered: 1. Whether the chosen method of reorganization will trigger any adverse U.S. tax consequences. Section 367 of the Internal Revenue Code adds an additional layer of complexity that must be considered in the context of cross-border corporate reorganizations. 2. Whether there are planning methods…

02Feb 2023 by Pat Geddie

Can Article 4 of the US-UK Estate, Gift, and Generation Skipping-Tax Treaty be Utilized to Avoid the U.K. Inheritance Tax?

Tax Law

By Anthony DiosdiThe United Kingdom or UK imposes an inheritance tax on the estate of deceased persons that were domiciled in that country. The tax rate is normally 40 percent. The inheritance tax is typically levied on estate values over 325,000 British Sterling Pounds or $402,000 U.S. Dollars. The UK inheritance tax on a decedent’s worldwide estate. A transfer of money or property from a U.K. spouse to a spouse domiciled in another country can also trigger the tax. Even if a person is domiciled outside the UK, two special rules apply to those who have emigrated from the UK or to those who have been resident in the UK for tax purposes for many years (IHTA84/S267). If either rule applies then, in most cases, HM Revenue & Customs may…

30Jan 2023 by Pat Geddie

Received a Gift from an Individual that Expatriated the U.S.? You May Owe the IRS Gift Tax

Tax Law

By Anthony Diosdi Historically, an individual who relinquished his or her U.S. citizenship with “a principal purpose of avoiding U.S. taxes” was subject to a special U.S. income, gift and estate tax for a period of 10 years after the expatriation. When applicable, the expatriate remained subject to U.S. tax on his or her U.S. source income at rates applicable to U.S. citizens and the expatriate could be subject to gift taxes in certain circumstances. In 1996, the Internal Revenue Code substantially expanded the expatriation tax to not only include expatriating U.S. citizens but to certain long-term residents (those having U.S. permanent resident status in 8 of the 15 years preceding termination of residency). Expatriates were also subject to U.S. estate and gift tax during the subsequent ten year period.…

30Jan 2023 by Pat Geddie

How Quarterly Tax Payments Work

Tax Law

When you earn money throughout the year, and withholdings are not taken from your check, you are responsible for paying taxes to the IRS on your own. Your obligation is to make quarterly tax payments before the 15th day of the month following the end of the quarter. Instead of getting a check that already reflects your tax obligations, you must physically pay your taxes each quarter. Your quarterly tax includes two types of payments: Self-employment taxes, representing the amount of Social Security and Medicare tax you owe (15.3% in total)Income taxes Quarterly taxes are usually paid by self-employed people, freelancers, and small business owners who have receipts for their work and business. You only have an obligation to pay quarterly taxes if you expect to owe at least $1,000…

26Jan 2023 by Pat Geddie

A Closer Look at the Procedural Tools Available to the IRS in International Examinations Involving Transfer Pricing

Tax Law

By Anthony Diosdi An exam of a multinational corporation tax return(s) will begin much the same manner as any other audit in that the taxpayer will receive a letter from the Internal Revenue Service or “IRS” notifying it of the audit. However, unlike a typical audit, the examiner will likely be specially trained to deal with issues involving controlled foreign corporations, cross-border transfers and reorganizations, transfer pricing, calculation of foreign tax credits, utilizing bilateral tax treaties, and the branch profits tax. Given the extraordinary complexity of these international provisions, special procedural issues may arise in multinational corporate audits that will not typically arise in an audit of an individual taxpayer or small business. This article explores the special procedural tools that are unique to an IRS examination of a multinational…