Tax Law Archives | Page 25 of 56

14Feb 2022 by Anthony Diosdi

Demystifying the 2021 IRS Form 5471 Schedule Q

Tax Law

By Anthony Diosdi Schedule Q is used to report a controlled foreign corporation’s (“CFC”) income, deductions, and assets by CFC income groups. A CFC shareholder required to complete Schedule Q is required to disclose subpart F income in functional currency by relevant country. In particular, the CFC shareholder must disclose dividends, rents, royalties, net gains from certain property, net gain from commodities, and net currency gains. It will also be necessary to disclose foreign base company sales income, foreign base company services income, insurance income, international boycott income, bribes, kickbacks, and recaptured subpart F income on Schedule Q. Each of these aforementioned items of subpart F income will be required to be categorized into a number of different categories. Schedule Q also requires the CFC shareholder to categorize tested income…

09Feb 2022 by Anthony Diosdi

Unraveling the United States- Philippines Income Tax Treaty and a Closer Look at the Treaty’s Provision Regarding the Taxation of U.S. Based Retirement Accounts Such as 401K Plans and IRAs

Tax Law

By Anthony Diosdi The major purpose of an income tax treaty is to mitigate international double taxation through tax reduction or exemptions on certain types of income derived by residents of one treaty country from sources within the other treaty country. Because tax treaties often substantially modify United States and foreign tax consequences, the relevant treaty must be considered in order to fully analyze the income tax consequences of any outbound or inbound transaction. The United States currently has income tax treaties with approximately 58 countries. This article discusses the United States- Philippines Income Tax Treaty. There are several basic treaty provisions, such as permanent establishment provisions and reduced withholding tax rates, that are common to most of the income tax treaties to which the U.S. is a party. In…

08Feb 2022 by Anthony Diosdi

The Taxation of Cross-Border Currency and Hedging Transactions

Tax Law

By Anthony Diosdi The foreign branches and subsidiaries of U.S. companies often conduct business and maintain their books and records in the currency of the host country. This creates a currency translation problem for the domestic parent corporation, which must restate into U.S. dollars the results from its foreign operations. Tax attributes that require translation include the taxable income or loss of a foreign branch, earnings remittances from a foreign branch, actual and deemed distributions from a foreign corporation, and foreign income taxes. Foreign currency translation would be the only issue if currency exchange did not fluctuate. However, the U.S. dollar floats freely against other currencies, and this results in currency exchange gains and losses on assets and liabilities denominated in other currencies. Translational exchange gains and losses arise when…

08Feb 2022 by Anthony Diosdi

How An IC-DISC Can be Used to Defer Tax On Commissions Related to $10 Million of Export Sales Per Year

Tax Law

By Anthony Diosdi In 1971, Congress enacted the domestic international sales corporation (“DISC”) in an attempt to stimulate U.S. exports. A DISC allowed a U.S. exporter to avoid U.S. tax on a portion of its export profits by allocating those profits to a special type of domestic subsidiary known as a DISC. In 1984, Congress enacted the foreign sales corporation (“FSC”) provisions as a replacement for the DISC regime. A domestic corporation that established a FSC allocated a portion of its qualified export profits to the FSC and a pre-specified portion of the FSC’s profits were exempt from U.S. tax. The net effect of this arrangement was that a portion of a domestic corporation’s export profits was permanently excluded from U.S. tax at both the FSC and U.S. shareholder levels.…

08Feb 2022 by Anthony Diosdi

Demystifying the 2021 IRS Form 5471 Schedule J

Tax Law

By Anthony Diosdi Schedule J of Form 5471 tracks the earnings and profits (“E&P”) of a controlled foreign corporation (“CFC”) in its functional currency. In most cases, special ordering rules under Section 959 of the Internal Revenue Code apply in determining how E&P is reported on Schedule J. For the 2021 tax year, Schedule J was revised. This article will take a deep dive into each column and line of 2021 Schedule J of the Form 5471. Who Must Complete the Form 5471 Schedule JAnyone preparing a Form 5471 knows that the return consists of many schedules. Schedule J is just one schedule of the Form 5471. Whether or not a CFC shareholder is required to complete Schedule J depends on what category of filer he or she can be…

08Feb 2022 by Anthony Diosdi

Demystifying the New 2021 IRS Form 5471 Schedule E and Schedule E-1 Used for Reporting and Tracking Foreign Tax Credits

Tax Law

By Anthony Diosdi Schedule E and Schedule E-1 of Form 5471 is used to report taxes paid or accrued by a foreign corporation for which a foreign tax credit is allowed and taxes for which a credit may not be taken. This article will dive into each column and line of the new 2021 Form 5471 Schedule E and Schedule E-1. We will also attempt to provide guidance as to how to prepare this incredibly complicated return. Who Must Complete the Form 5471 Schedule EAnyone preparing a Form 5471 knows that the return consists of many schedules. Schedule E is just one schedule of the Form 5471. Whether or not a taxpayer is required to complete Schedule E depends on what category of filer he or she can be classified…

02Feb 2022 by Anthony Diosdi

An Overview of the California Water’s Edge Election for State International Tax Purposes

Tax Law

By Anthony Diosdi Many California corporations also have foreign subsidiaries. This often leads to complex tax situations, including the issue of determining income for the unitary group of corporations (typically consisting of a U.S. parent corporation and one or more foreign subsidiary corporations). There are two approaches to dealing with unitary group members that are incorporated in a foreign country or conduct most of their business abroad. One approach is a worldwide combination, under which the combined report includes all members of the unitary business group, regardless of the country in which the group member is incorporated or the country in which the group member conducts business. The alternative approach is a water’s-edge combination, under which the combined report excludes group members that are incorporated in a foreign country or…

02Feb 2022 by Anthony Diosdi

Planning Opportunities Available for Foreign Persons to Eliminate or Significantly Reduce Taxable Real Estate Gains through Shared Appreciation Loans and Income Tax Treaties

Tax Law

By Anthony Diosdi Foreign investors generally have the same goals of minimizing their income tax liabilities from their U.S. real estate as do their U.S. counterparts, although their objective is complicated by the very fact that they are not U.S. persons. That is, non-U.S. investors must be concerned not only with income taxes in the United States, but also income taxes in their home country. U.S. tax law contains the following two-pronged territorial system for taxing the U.S.-source income of nonresident individuals and foreign corporations: 1) U.S. trade or business profits- If a nonresident alien individual or foreign corporation is engaged in a trade or business within the United States, the net amount of income effectively connected with the conduct of that U.S. trade or business is taxed at the…

02Feb 2022 by Anthony Diosdi

Been Assessed Penalties by the IRS for Failing to Report a Foreign Pension Plan or Retirement Plan on Forms 3520 or 3520-A? Consider Requesting Relief Under Rev. Proc 2020-17

Tax Law

By Anthony Diosdi In an increasing global economy, workers are experiencing unprecedented mobility. As a result Americans and foreign nationals that become green card holders often participate in a pension or retirement plan in the foreign country. In most cases, the model resembles the one in the United States: Pretax money is contributed into retirement accounts where it accumulates tax-free until retirement. Unknown to many participants of these plans, the Internal Revenue Code often requires U.S. tax filers to disclose these plans on Internal Revenue Service (“IRS”) Form 3520 and/or Form 3520-A. The penalties for failing to disclose a foreign pension or foreign retirement plan on a Form 3520 and/or 3520-A can be substantial. Fairly recently, the IRS promulgated Rev. Proc. 2020-7. This revenue procedure provides an exemption from filing…

31Jan 2022 by Anthony Diosdi

The Participation Exemption Rules Available for Domestic Corporations to Avoid GILTI Inclusions and a Discussion Regarding the Anti-Hybrid Limitations to the Participation Exemption Rules

Tax Law

By Anthony Diosdi Many domestic corporations own foreign corporations that result in significant Subpart F and/or global intangible low-taxed income (“GILTI”) inclusions. With proper planning, a domestic corporation can avoid Subpart F and GILTI tax liability on foreign source income received from a foreign branch or controlled foreign corporation (“CFC”). Prior to the 2017 Tax Cuts and Jobs Act, dividends from foreign corporations out of foreign earnings that had not been previously taxed by the United States were usually taxable to the shareholders. The 2017 Tax Cuts and Jobs Act resulted in the enactment of Internal Revenue Code Section 245A. This Internal Revenue provision allows for an exemption from certain foreign income of a domestic corporation that is a shareholder by means of a 100 percent dividend received deduction (“DRD”)…