Tax Law Archives | Page 39 of 56

06Jan 2021 by Anthony Diosdi

The U.S. Tax Effects of Entities Used by Foreign Investors

Tax Law

By Anthony Diosdi Introduction Foreign investors typically have the same objectives of minimizing their income tax liabilities from their real estate and businesses located in the U.S. as do their domestic counterparts. However, foreign investors are subject to an even more complicated set of tax laws than their domestic counterparts. Foreign investors must understand the difference between effectively connected income compared to not effectively connected income. Foreign investors must also understand the difference between income earned in a trade or business compared to passive income. These distinctions in income make a big difference for U.S. tax purposes. For example, if a foreign investor derives certain types of passive income from the U.S., the income is typically taxed at a flat 30 percent rate (without allowance for deductions), unless an applicable…

31Dec 2020 by Anthony Diosdi

Cross-Border Taxation of the Digital Economy

Tax Law

By Anthony Diosdi Introduction and Summary of the Law Governing Digital TransactionsNew technology and new transactions often raise difficult issues of tax policy and administration. The dramatic expansion of electronic commerce facilitated by the use of the Internet and other technology is subjecting existing tax principles to new pressures. One area of concern is the application of source rules to electronic commerce transactions. Suppose, for example, that a corporation delivers electronically software or a digital product to a customer on the Internet. The customer can download the product and use it commercially. Depending upon the nature of the transaction and the property interests involved, the income to the corporation might appropriately be characterized as a royalty for the use of technology, profit from the sale of a product or a…

31Dec 2020 by Anthony Diosdi

Can “Knowhow” Constitute Property in Exchange for Stock of a Foreign Corporation Under a Section 351 Tax-Free Exchange?

Tax Law

By Anthony Diosdi When a U.S. corporation making a direct investment in a foreign corporation contributes intangible property rights to the enterprise, it may consider the possibility of transferring these rights in exchange for stock. The corporation supplying the intangible rights may make such a transfer whether it emerges as the owner of 100 percent or some lesser percentage of the stock of the transferee foreign corporation. In most cases, intangible property rights transferred to a foreign corporation will have a value in excess of their tax cost or basis. On such a transfer, any gain realized will be recognized and taxed unless Internal Revenue Code Section 351 operates to prevent its recognition. Whether recognized gain will be treated as ordinary income or capital gain may turn on the nature…

31Dec 2020 by Anthony Diosdi

What Happens When You Marry a Nonresident Alien for U.S. Tax Purposes?

Tax Law

By Anthony Diosdi Many Americans that reside outside the United States marry a non-American and remain overseas. This often results in confusion when it comes to filing a U.S. individual income tax return. Americans often do not know what filing status they can claim on their U.S. tax returns and how to treat the foreign spouse’s income. This brief article discusses the basic rule in both cases. However, this article does not discuss the filing of any required foreign information returns such as FBARs or IRS Form 8938s.If an American marries a spouse that has not been awarded a green card or if the spouse is a nonresident alien for U.S. tax purposes, the American taxpayer has two options.First, the American can treat his or her spouse as a resident…

23Dec 2020 by Anthony Diosdi

A Quick Look at the PTEP Basis Adjustment Rules For CFC Stocks

Tax Law

By Anthony Diosdi Virtually all controlled foreign corporations (“CFCs”) generate earnings and profits that become previously taxed earnings and profits (“PTEP”). Special rules under Internal Revenue Code Section 959 apply in determining the ordering and taxation of distributions of a PTEP. The rules governing PTEP distributions also apply in determining the basis of CFC corporate stocks. This is because the PTEP regime requires upward and downward basis adjustment in CFC stock for gross income inclusions at the U.S. shareholder level attributable to such CFC. The purpose of the basis adjustments rules of the PTEP regime is to prevent the earnings of a CFC from being taxed at the time of an income inclusion and again when the CFC shareholder sells his or her shares. When a U.S. shareholder has a…

21Dec 2020 by Anthony Diosdi

Adding Shares of a DISC to a Roth IRA in Excess of the Statutory Limits- Clever or Unseemly?

Tax Law

By Anthony Diosdi IntroductionCongress designed domestic international sales corporations (“DISC”) to incentivize companies to export their goods by deferring and lowering their taxes on export income. Here is how the tax incentive work; The exporter avoids corporate income tax by paying the DISC “commissions” of up to 4 percent or 50 percent of net income from qualified exports. The DISC pays no tax on its commission income (up to $10,000,000), and may hold onto the money indefinitely, though the DISC shareholders must pay annual interest on the shares of the deferred tax liability. See IRC Section 995(f). Once the DISC has assets at its disposal, it can invest them, including through low-interest loans to the export company. See 26 C.F.R. Section 1.993-4. Money and other assets in the DISC may…

10Dec 2020 by Anthony Diosdi

Claiming a Tax Treaty Benefit in a Foreign Country or Want to avoid Paying VAT? Make Sure You Obtain a Form 6166

Tax Law

By Anthony Diosdi The United States has income tax treaties with approximately 58 countries. These treaties allow for various forms of tax relief. In order for a U.S. corporation or U.S. individual to obtain a tax treaty benefit in a foreign country that has a tax treaty with the United States, many U.S. treaty partners require that the Internal Revenue Service (“IRS”) certify that the entity or individual claiming treaty benefits is a resident of the United States for federal tax purposes. The IRS provides this residency certification on Form 6166, a Letter of U.S. Residency Certification. A Form 6166 may also be used as a proof of U.S. residency for purposes of obtaining an exemption from a value added tax (“VAT”) imposed by a foreign country.Below, please find two…

10Dec 2020 by Anthony Diosdi

How a Non-Resident Can Use a Tax Treaty to Eliminate the U.S. Tax Consequence of Withdrawing Money from an IRA or 401(k) Plan

Tax Law

By Anthony Diosdi We often receive inquiries from non-U.S. citizens that are concerned with the U.S. tax implications of withdrawing money from an Individual Retirement Accounts (“IRA”) or 401(k) plan. Often these individuals are in the U.S. for a temporary work assignment and they are concerned with the U.S. withholding tax of 20% or 30%. They are also concerned about the 10% early withdrawal penalty. This article discusses how non-U.S. citizens may use a tax treaty to eliminate the U.S. tax associated with the withdrawal of funds from an IRA or 401(k) plan.Taxation of Distributions from IRAs and 401(k) Plans Under U.S. Federal Tax LawUnder the Internal Revenue, any distribution from a qualified plan such as an IRA or 401(k) plan that does not qualify as an eligible rollover-distribution is…

08Dec 2020 by Anthony Diosdi

Can You Utilize an LLC to Hold Stock Options in a Self-Directed IRA?

Tax Law

By Anthony Diosdi The growth of 401(k) plans and other defined contribution plans (as opposed to traditional defined pension plans) has generated additional opportunities for employees and retirees to use IRAs. To postpone taxation of the account balance in such a plan, the individual must rollover some or all of the account balance to an IRA or other qualified plan. This has resulted in the growth of “self-directed” IRAs. Since 1974, the IRS has permitted individuals to totally “self-directed” investments made within their IRAs. Self-directed IRAs are held by a trustee or custodian. They permit investment in a broader range of investments than is permitted by traditional IRAs. Although a self-directed IRA allows individuals to invest in numerous illiquid assets, investments in some assets are prohibited. These include but may…

04Dec 2020 by Anthony Diosdi

So Your Candidate Did Not Win the Election and You Want to Expatriate- Here is What You Need to Know About Expatriation, the Exit Tax, and the New Federal Inheritance Tax

Tax Law

By Anthony Diosdi IntroductionSeems like whenever there is an election a number of people threaten to leave the United States and move to another country if their candidate doesn’t win. I’m not sure how many of these individuals make good on their threats. This article is designed to provide an overview of the U.S. tax consequences associated with renouncing one’s U.S. citizenship and discuss potential strategies to mitigate the taxes associated with expatriating. Anyone considering abandoning their U.S. citizenship or ending a long-term U.S. residency must understand that they may be assessed an “expatriation tax.” An “expatriation tax” consists of two components: the “exit tax” and the “inheritance tax.” Both may be triggered upon abandonment of citizenship or abandonment of a green card. We will discuss both these taxes in…