Tax Law Archives | Page 27 of 56

20Jan 2022 by Anthony Diosdi

The Corporate Transparency Act- A New FinCEN Filing Requirement With Significant Delinquency Penalties

Tax Law

By Anthony Diosdi The Corporate Transparency Act (“CTA”) was enacted on January 1, 2021, as part of the National Defense Authorization Act (“NDAA”). It effectively creates a national beneficial ownership registry. The CTA requires certain business entities to report beneficial owners and “applicants” to FinCEN. CTA is intended to strengthen anti-money laundering laws and countering terrorism financing. Section 6403(a)(b) of the CTA requires that, starting in 2022, newly formed U.S. corporations, limited liability companies, and certain other entities classified as a “reporting company” must report their beneficial ownership to Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“FinCEN”) at the time of formation or registration. Pre-existing reporting companies (those formed before the effective date of the CTA regulations), likely will start reporting in 2024, two years after…

18Jan 2022 by Anthony Diosdi

A Closer Look at Tax-Free Corporate Divisions or Type D Reorganizations

Tax Law

Corporate divisions involve the breaking of one corporation into multiple corporations. Such a transaction can be either taxable or tax-free. Corporate divisions tend to come in three basic flavors: spin-off, split-off, and split-up. Each variation involves a slightly different type of distribution of stock or securities. In general, if the transaction successfully runs the gauntlet of Internal Revenue Code Section 355, the tax treatment to the shareholders and the corporation will be the same regardless of whether the transaction is a spin-off, split-off, or split-up. In a spin-off, the distributing corporation distributes stock of a controlled corporation (a subsidiary) to its shareholders. This subsidiary may be either a recently created subsidiary “spun off” through the parent corporation’s transfer of assets in return for stock or an existing subsidiary. The shareholders…

18Jan 2022 by Anthony Diosdi

A Closer Look at Taxable Corporate Mergers and Acquisitions

Tax Law

Corporations sometimes purchase stock in other corporations to hold for investment or purchase assets from other corporations to hold for investment or to use for business operations. The tax lawyer generally would not refer to these day-to-day corporate purchases of stock or assets as corporate acquisitions. A “corporate acquisition” generally refers to an acquisition of control by one corporation over another. (For purposes of this article, “control” refers to the 80 percent control requirement under Internal Revenue Code Section 1504). One corporation may acquire control over another through two different transaction types. First, a simple asset acquisition from the target corporation itself offers the purchaser direct control over the selling corporation’s assets. Second, a stock acquisition from the target corporation’s shareholders provides the purchaser with indirect control over the selling…

18Jan 2022 by Anthony Diosdi

Stock Acquisitions Treated as Asset Acquisitions under Section 338

Tax Law

The starting point in any discussion of Internal Revenue Code Section 338 is the case of Kimbell-Diamond Milling Co. v. Commissioner, 14 T.C. 74 (1950), 187 F.2d 718 (5th Cir. 1951), cert. denied, 342 U.S. 827 (1951). The corporate taxpayer in Kimbell-Diamond sustained a fire casualty that destroyed its mill. In its search to replace the mill property, Kimbell-Diamond found Whaley, a target corporation with a comparable mill. Kimbell-Diamond purchased 100 percent of Whaley’s stock and shortly thereafter liquidated the target, thus acquiring direct ownership of the mill. The issue before the court was the proper basis of the mill for purposes of depreciation. Kimbell-Diamond argued that it had legitimately liquidated the target, Whaley, and that the mill should have the same basis in its hands that it had in…

18Jan 2022 by Anthony Diosdi

Can Chinese Investors in U.S. Real Estate Skirt the $50,000 Transfer Limit by Using Cryptocurrency Trading Agreements?

Tax Law

By Anthony Diosdi Chinese investors have a huge appetite for U.S. real property. However, many Chinese investors cannot buy U.S. real estate because local currency restrictions prevent them from transferring funds to the U.S. China controls inbound and outbound foreign exchange flows. If a Chinese citizen or business entity needs to make an overseas payment it is required to purchase the foreign funds with RMB (the Renminbi ‘RMB’ is the official currency of the People’s Republic of China) from a bank qualified to do foreign exchange business. Most banks in China are qualified to do foreign exchange business.When converting RMB to a foreign currency, the bank is required to review whether the outbound capital is for investment or for regular payment. Outbound capital investment refers to overseas equity investment and…

13Jan 2022 by Lynn Ching

Civil Asset Forfeiture What To Do If Your Assets Have Been Seized by the U.S. Government

Tax Law

By Lynn K. Ching If your assets have been seized by the U.S. Government you must file a timely claim to contest the asset seizure in the United States District Court. A timely filed claim stops the administrative forfeiture proceeding, and the seizing agency forwards the timely claim to the U.S. Attorney’s Office for further proceedings Failure to file a claim by the deadline date may result in the property being forfeited to the United States. Where To File a Claim: A claim must be filed with the agency that gave notice of the seizure and intent to forfeit. To contest the forfeiture, the claim must be sent to the notifying agency's address which is identified within the notice. A claim may be filed online (subject to the online exclusion below) or…

10Jan 2022 by Anthony Diosdi

Cross-Border Debt Planning with the Portfolio Debt Rules With an Emphasis on Complying with the Bond Registration Rules

Tax Law

By Anthony Diosdi Most forms of U.S.-source income received by foreign persons that are not effectively connected with a U.S. trade or business will be subject to a flat tax of 30 percent on the gross amount received. Sections 871(a) (for nonresident aliens) and 881(a) (for foreign corporations) impose the 30-percent flat tax on interest income. This interest income is part of the regime often referred to as “FDAP income.” The collection of the 30-percent tax is affected primarily through the imposition of an obligation on the person or entity making the payment to the foreign person to withhold the tax and pay it over to the Internal Revenue Service (“IRS”). The tax collected is, therefore, often referred to as a “withholding tax.” Tax treaties generally provide for the reduction…

10Jan 2022 by Lynn Ching

Why Disclose Your Foreign Assets to the IRS in 2022?

Tax Law

By Lynn K. Ching Perhaps you had a foreign bank account or securities account from prior years of your youth, or maybe you inherited income-producing rental property located in a foreign country, or was the beneficiary of a gift from a foreign person - to name a few. If so, you may have an obligation to disclose your interest in foreign assets to the Internal Revenue Service (IRS) and The Financial Crimes Enforcement Network (FinCen). These disclosure forms include but are not limited to FBAR, Forms 3520 and 3520A, Form 8938 and Form 5471. Failure to do so may subject you to onerous civil penalties and/or criminal liability. Non-Willful Failure to File Disclosure Forms For those taxpayers who just did not know of their filing obligation or perhaps knew about it but…

07Jan 2022 by Anthony Diosdi

Specific Methods that the IRS may use to Establish Criminal Tax Liability and Potential Defenses to these Methods

Tax Law

By Anthony Diosdi The specific item method of proving an underpayment of tax is a direct method of proving one or more tax laws were violated. Actually, the specific item method is nothing more than the ordinary method used by revenue agents in making routine civil audits. An Internal Revenue Service (“IRS”) civil revenue agent will review the taxpayer’s return, analyze the income sources, personal and business deductions and exemptions reported in the various schedules. He will then analyze the original, underlying records which purport to substantiate those figures. Finally, he will determine whether all the transactions reflected in the underlying records have been properly accounted, described and handled in the return and whether the deductions taken are valid under the law and/or fully substantiated by the taxpayer’s records. The…

06Jan 2022 by Anthony Diosdi

Indirect Methods that the IRS Uses to Establish Criminal Tax Evasion and Potential Defenses

Tax Law

By Anthony Diosdi The most common forms of indirect methods of proving criminal tax evasion is the net worth plus non deductible expenditures method and the bank deposit method. These methods can be used in a single year; different methods can be used in different years in the same case; any of these methods can be combined with specific item proof or be made to stand on its own. To adequately prepare for an Internal Revenue Service (“IRS”) criminal tax evasion investigation, or to prepare properly for a criminal trial which will employ one of these methods, a criminal tax attorney must have a working knowledge of the varieties of circumstantial proof that can be gathered by an IRS special agent, the manner in which such evidence can be structured…