Tax Law Archives | Page 41 of 55

09Oct 2020 by Anthony Diosdi

U.S. Real Property Interest Non-Recognition Transfers- Can the IRS Assess Interest When No Tax is Due?

Tax Law

By Anthony Diosdi When a U.S. income tax nonresident alien (“NRA”) or a foreign corporation (hereinafter referred to as a “Foreign Taxpayer”) disposes of a U.S. real property interest (“USRPI”), the Foreign Taxpayer is subject to the Foreign Investment in the U.S. Real Property Tax Act of 1980 (“FIRPTA”). Pursuant to FIRPTA, a Foreign Taxpayer is subject to tax on the gain or loss from the disposition of a USRPI as if the Foreign Taxpayer were engaged in a U.S. trade or business during the taxable year, and as if such gain or loss were effectively connected with such trade or business. According to FIRPTA and presuming an exception to the general rule does not otherwise apply, if a Foreign Taxpayer disposes of a USRPI, the transferee of the USRPI…

30Sep 2020 by Anthony Diosdi

Tax Relief for Farmers Impacted by Drought

Tax Law

There is no doubt that severe and increasing drought has harmed farmers and ranchers across the United States, including in California. Now, such operations that had to sell livestock because of drought might qualify for certain tax relief as announced by the Internal Revenue Service (IRS). Generally speaking, when farmers or ranchers sell livestock for a profit, they must report taxable capital gains on their tax returns if the livestock is not replaced within two years. If the sale was due to drought, the replacement period can be up to four years. Now, however, certain sales will result in an extended replacement period giving parties an additional year before liability for capital gains sets in. This period might be extended by the IRS if serious drought continues. Eligibility for the…

04Sep 2020 by Anthony Diosdi

The Most Costly Mistakes of CFC Shareholders that Catch the Attention of the IRS. Part Seven- Making a 962 Election and Failing to File Forms 1116 and 1118

Tax Law

By Anthony Diosdi Introduction For those who are or will be involved in international business and investment transactions, it is important to have some basic understanding of the relevant tax laws. These series of articles are intended to warn individual shareholders of controlled foreign corporations (“CFCs”) (whether individual or corporate) of mistakes that will likely catch the attention of the Internal Revenue Service (“IRS”) and trigger a potential costly audit. This is the seven of a series of articles designed to educate CFC shareholders of mistakes that can catch the attention of the IRS. Individual shareholders of CFCs that recognize a GILTI inclusion may be taxed at federal rates up to 37 percent, plus another 3.8 percent Medicare Tax. Absent planning, no direct foreign tax credit is available to offset…

02Sep 2020 by Anthony Diosdi

The IRS Makes Significant Changes to Schedule H of Form 5471

Tax Law

By Anthony Diosdi Recently, the Internal Revenue Service (“IRS”) issued a draft of a new Schedule H for Form 5471. Schedule H is used to report a controlled foreign corporation’s (“CFCs”) current earnings and profits (“E&P”). Category 4 and Category 5 filers are required to attach a Schedule H to their Form 5471. A Category 4 filer is a U.S. person who had “control” of a CFC for an uninterrupted period of at least 30 days during the foreign corporation’s annual accounting period. Control for purposes of Category 4 is defined as more than 50 percent of voting power or value utilizing the attribution rules of Section 958. A Category 5 filer is a U.S. person who is a ten percent or greater shareholder in a corporation that was a…

02Sep 2020 by Anthony Diosdi

How is the GILTI High-Tax Exemption Treated for Purposes of Section 959?

Tax Law

By Anthony Diosdi Recently, the Internal Revenue Service (“IRS”) and the Department of Treasury finalized regulations which allows certain shareholders to make a high tax exception to GILTI inclusions. This exception applies to the extent that the net tested income of a controlled foreign corporation (“CFC”) exceeds 90 percent of the U.S. federal corporate income tax rate. Thus, if the effective foreign tax rate exceeds 18.9 percent, a CFC shareholder can elect to make a high tax exemption. This option allows CFC shareholders to defer the recognition of undistributed GILTI income (and subpart F income) as earnings and profits (“E&P”). The high tax exception can be a very effective tax planning tool. Claiming a high tax exception can also pose a significant compliance challenge. Where the E&P of a CFC…

01Sep 2020 by Anthony Diosdi

The Most Costly Mistakes of CFC Shareholders that Catch the Attention of the IRS. Part Six- Failing to Disclose GILTI Income on Schedule H of Form 5471

Tax Law

By Anthony Diosdi Introduction For those who are or will be involved in international business and investment transactions, it is important to have some basic understanding of the relevant tax laws. These series of articles are intended to warn individual shareholders of controlled foreign corporations (“CFCs”) (whether individual or corporate) of mistakes that will likely catch the attention of the Internal Revenue Service (“IRS”) and trigger a potential costly audit. This is the six of a series of articles designed to educate CFC shareholders of mistakes that can catch the attention of the IRS. Category 4 and Category 5 filers must attach a Schedule H of a Form 5471. Schedule H is used to report a foreign corporation’s current earnings and profits (“E&P”) for U.S. tax purposes. The instructions promulgated…

01Sep 2020 by Anthony Diosdi

Income Tax Consideration of Property Inherited from a Foreign Individual

Tax Law

By Anthony Diosdi Many U.S. income tax questions arise in connection with the receipt of inherited property. These questions generally include whether the recipient must include the value of such property in gross income for U.S. tax purposes and what will be the U.S. income tax consequences of the recipient’s subsequent disposition of the inherited property. This article will briefly summarize the more relevant U.S. income tax consequences in connection with inherited property with emphasis on property inherited from a foreign individual. Although the U.S. has a transfer tax regime that could impose an estate tax upon the transfer of the property of a decedent, the estate tax is generally imposed on the estate of a decedent and not on the recipient. However, the estate tax generally reduces the value…

28Aug 2020 by Anthony Diosdi

The Most Costly Mistakes of CFC Shareholders that Catch the Attention of the IRS. Part Five- Failure to Charge Arm’s-Length Rate of Interest on Intercompany Loans or Advances

Tax Law

By Anthony Diosdi Introduction For those who are or will be involved in international business and investment transactions, it is important to have some basic understanding of the relevant tax laws. These series of articles are intended to warn individual shareholders of controlled foreign corporations (“CFCs”) (whether individual or corporate) of mistakes that will likely catch the attention of the Internal Revenue Service (“IRS”) and trigger a potential costly audit. This is the first of a series of articles designed to educate CFC shareholders of mistakes that can catch the attention of the IRS. We will begin this series with the rules governing intercompany loans and advances.As a result of the pandemic, IRS examinations of tax returns have significantly declined. With that said, even before the pandemic, the number of…

27Aug 2020 by Anthony Diosdi

The IRS Clarifies the Regulations for the High-Tax Exception to GILTI

Tax Law

By Anthony Diosdi Global intangible low-taxed income (“GILTI”) is the excess of a U.S. shareholder’s net controlled foreign corporation (“CFC”) tested income for such taxable year over its net deemed tangible income return. Net CFC tested income is any excess of the U.S. shareholder’s pro rata share of the tested income of each CFC for which it is a U.S. shareholder over its pro rata share of each CFC’s tested loss. A U.S. shareholder’s net deemed tangible income return is 10 percent of the shareholder’s pro rata share of the CFC’s tax basis in tangible personal property used by its CFCs in the production of tested income (reduced by certain interest expense). Congress presumably intended that GILTI apply only to income that is subject to a low tax rate of…

27Aug 2020 by Anthony Diosdi

Demystifying IRS Form 5472

Tax Law

By Anthony Diosdi In order to effectively audit the transfer prices used by a U.S. subsidiary of a foreign corporation, the Internal Revenue Service (“IRS”) often must examine the books and records of the foreign parent corporation. Historically, foreign parties have resisted making their records available to the IRS, or have not maintained records sufficient to determine arm’s length transfer prices. In response, Congress enacted the requirement that each year certain reporting corporations must file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, and maintain certain records. See IRC Sections 6038A and 6038C. A domestic corporation is a reporting corporation if, at any time during the taxable year, 25 percent or more of its stock, by vote…