Tax Law Archives | Page 3 of 55

08Feb 2024 by Anthony Diosdi

The Reshoring or Domesticate of a Controlled Foreign Corporation

Tax Law

By Anthony Diosdi The Internal Revenue Code provides that a United States shareholder of a Controlled Foreign Corporation or (“CFC”) is subject to tax on the CFC’s Subpart F or “global intangible low-taxed income” or (“GILTI”). The Subpart F and GILTI are anti-deferral tax regimes. Subpart F and GILTI results in most income earned by foreign corporations being subject to current U.S. taxation. All U.S. shareholders other than U.S. C corporations are disadvantaged under the Subpart F and GILTI regimes, because foreign tax credits and certain deductions (i.e., Section 250 permits a deduction of 50 percent of the GILTI amount calculated under Section 951A) apply only to domestic corporations. Unless an affected U.S. shareholder undertakes planning to minimize their tax exposure on Subpart F income and GILTI, such as the…

07Feb 2024 by Anthony Diosdi

The 962 Election vs. The High-Tax Exception: The Epic Showdown

Tax Law

By Anthony Diosdi Prior to the enactment of the 2017 Tax Cuts and Jobs Act, Controlled Foreign Corporations (“CFCs”) were able to defer the U.S. taxation of foreign source income through tax planning. The 2017 Tax Cuts and Jobs Act significantly reduced (but did not eliminate) a CFC’s U.S. shareholder’s ability to defer the U.S. taxation of foreign source income. This article will discuss two remaining options available to CFC shareholders to defer the recognition of U.S. tax on foreign source income. CFC shareholders can make either a so-called 962 election or a high-tax exception (also known as a Section 954 election) to defer the taxation on foreign income. This article will compare and contrast each of these elections.Section 962 ElectionInternal Revenue Code Section 962 allows an individual U.S. shareholder…

07Feb 2024 by Anthony Diosdi

No, No, No, No….Prohibited Transactions and Disqualified Persons in Self-Directed IRAs

Tax Law

By Anthony Diosdi A self-directed retirement plan is a type of structure that allows the holder to transfer tax free funds from a retirement account to acquire real estate. There are a number of rules however that must be followed in order to make such a transaction work. Let’s first start with a basic retirement account. Retirement accounts (such as IRAs and 401K plans) can be created by contribution subject to annual dollar limits or by rollover from a qualified plan. The owner usually cannot take out distributions prior to age 59 ½ without penalty. Since 1974, the IRS has permitted individuals to totally “self-direct” investments made within their Individual Retirement Plans (“IRAs”). Self-directed IRAs are also authorized by federal law and are held by a trustee or custodian that…

07Feb 2024 by Anthony Diosdi

The Reshoring or Domesticate of a Controlled Foreign Corporation

Tax Law

By Anthony Diosdi The Internal Revenue Code provides that a United States shareholder of a Controlled Foreign Corporation or (“CFC”) is subject to tax on the CFC’s Subpart F or “global intangible low-taxed income” or (“GILTI”). The Subpart F and GILTI are anti-deferral tax regimes. Subpart F and GILTI results in most income earned by foreign corporations being subject to current U.S. taxation. All U.S. shareholders other than U.S. C corporations are disadvantaged under the Subpart F and GILTI regimes, because foreign tax credits and certain deductions (i.e., Section 250 permits a deduction of 50 percent of the GILTI amount calculated under Section 951A) apply only to domestic corporations. Unless an affected U.S. shareholder undertakes planning to minimize their tax exposure on Subpart F income and GILTI, such as the…

01Feb 2024 by Anthony Diosdi

A Dive Into Subpart F Income and Schedule I of the Form 5471

Tax Law

By Anthony Diosdi Schedule I is designed to disclose a U.S. shareholder’s pro rata share of income Subpart F income from a controlled foreign corporation (“CFC”). This article is designed to supplement the IRS’ instructions to Schedule I of IRS Form 5471. This article will go line by line through Schedule I of Form 5471.What is Subpart F IncomeSubpart F income is assessed on a “United States shareholder” of any CFC for any taxable year of such United States shareholder that receives Subpart F income. A CFC is defined as a foreign corporation in which 50 percent of: 1) the total combined voting power of all classes of stock of such corporation entitled to vote, or 2) the total value of the stock of such corporation is owned (within the…

01Feb 2024 by Anthony Diosdi

A Basic Guide to GILTI and Schedule I-1 for Form 5471

Tax Law

By Anthony Diosdi Schedule I-1 for Form 5471 is used to report information determined at the CFC level with respect to amounts used in “global intangible low-taxed income” or GILTI inclusions by U.S. shareholders. The information from Schedule I-1 is used by U.S. shareholder(s) of a CFC to file IRS Form 8892, U.S. Shareholder Calculation of GILTI, and may assist in the completion of Form 1118 and 1116. This article discusses GILTI and how it is reported on Schedule I-1.What is GILTI?For years, tax planning for international outbound taxation remained the same, mitigation of Subpart F income, maximization of foreign tax credits, and transfer pricing. The 2017 Tax Cuts and Jobs Act has broken the monotony associated with international tax planning for outbound transactions and added a new category for…

29Jan 2024 by Anthony Diosdi

A Basic Guide to Subpart F Income

Tax Law

By Anthony Diosdi Inclusion of Subpart F income of a controlled foreign corporation or (“CFC”) occurs if a foreign corporation was a CFC at “any time” during the taxable year. Prior to the 2017 Tax Cuts and Jobs Act, a subpart F inclusion for a U.S. Shareholder was required only if the foreign corporation was a CFC for an uninterrupted period of 30 days or more during the relevant tax year. Subpart F income can be broken down to the following categories: Foreign Personal Holding Company Income, Foreign Base Company Sales Income, Foreign Base Company Services Income, and Foreign Base Shipping Income.Who is Subject to Subpart F Income?Subpart F income is assessed on a “United States shareholder” of any CFC for any taxable year of such United States shareholder that…

29Jan 2024 by Anthony Diosdi

The 962 Election vs. The High-Tax Exception: The Epic Showdown

Tax Law

By Anthony Diosdi Prior to the enactment of the 2017 Tax Cuts and Jobs Act, Controlled Foreign Corporations (“CFCs”) were able to defer the U.S. taxation of foreign source income through tax planning. The 2017 Tax Cuts and Jobs Act significantly reduced (but did not eliminate) a CFC’s U.S. shareholder’s ability to defer the U.S. taxation of foreign source income. This article will discuss two remaining options available to CFC shareholders to defer the recognition of U.S. tax on foreign source income. CFC shareholders can make either a so-called 962 election or a high-tax exception (also known as a Section 954 election) to defer the taxation on foreign income. This article will compare and contrast each of these elections.Section 962 ElectionInternal Revenue Code Section 962 allows an individual U.S. shareholder…

29Jan 2024 by Anthony Diosdi

The IRS Form 5471 Category Filer Rules

Tax Law

By Anthony Diosdi Form 5471 is used by certain U.S. persons who are officers, directors, or shareholders in respect of certain foreign entities that are classified as corporations for U.S. tax purposes. The Form 5471 and schedules are used to satisfy the reporting requirements of Internal Revenue Code Section 6038 and 6046 along with the applicable regulations.Substantively, it backstops various international sections of the Internal Revenue Code including Sections 901/904 (Code Section 901 and 904 provide rules governing foreign tax credits), Section 951(a) (Section 951a provide rules governing Subpart F income and Section 956. Generally, a U.S. shareholder of a foreign corporation must include in income his or her pro rata share of the foreign corporation’s increase in its earnings and profits in U.S. property), Section 951A (Section 951A provides…

29Jan 2024 by Anthony Diosdi

Tracking Form 5471 Section 959 PTEPs of the Modern Day CFC

Tax Law

By Anthony Diosdi Before enactment of the 2017 Tax Cuts and Jobs Act (“TCJA”), the Internal Revenue Service (“IRS”) Form 5471 was a reasonable exercise. Prior to the enactment of the TCJA, the IRS Form 5471 was approximately two pages long. This all changed with the enactment of the TCJA. The days of preparing two page long Form 5471s are long gone. The IRS Form 5471 along with its accompanying Schedule J, Schedule P, and Schedule E-1 have become incredibly difficult to prepare. This is the result of the complexity and incompleteness of the TCJA’s international tax provisions, along with congressional failure to remedy the gaps that TCJA created in the Internal Revenue Code. Thus, the Department of Treasury (“Treasury”) and the IRS are left to bridge the gaps in…