Tax Law Archives | Page 42 of 56

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…

20Aug 2020 by Anthony Diosdi

How IRS Criminal Investigations Work

Tax Law

Many people who have unpaid taxes worry about how much they will owe the IRS, though they do not consider that the agency might launch a criminal investigation into possible tax evasion or tax fraud. If you believe that you might be under investigation by the IRS, it is essential that you contact a tax lawyer in San Francisco as soon as possible to protect your rights and your future. The IRS investigates many issues, including: Fraud of tax return preparersAbusive tax schemesCorporate tax fraudFinancial institution fraudIllegal gaming operationsIdentity theftFraudulent returns or refundsEvasion of tax liability The process begins when a tax auditor refers a case to the IRS Criminal Investigations unit due to suspicions of criminal conduct. Special IRS investigators then conduct a preliminary analysis to determine whether to…

29Jul 2020 by Anthony Diosdi

A Walk-Through Form 8992-U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (“GILTI”)

Tax Law

By Anthony Diosdi IntroductionUnder the 2017 Tax Cuts and Jobs Act, new rules were enacted which required the inclusion of global intangible low-taxed income (“GILTI”) generated by a controlled foreign corporation (“CFC”). Internal Revenue Code Section 951A governs GILTI. The purpose of GILTI is to tax U.S. shareholders on their allocable share of earnings from a CFC to the extent that the earnings exceed a ten percent return on tangible assets allocable to a CFC shareholder. GILTI is determined by subtracting net deemed tangible income return from net CFC tested income. A CFC shareholder must calculate its GILTI inclusion on Internal Revenue Service (“IRS”) Form 8992. This article will go line by line through the Form 8992 to determine how a GILTI inclusion is determined. This article is based on…

29Jul 2020 by Anthony Diosdi

Top Audit Triggers of a CFC that Will Catch the Attention of the IRS. Part Four- Claiming a Loss Associated with Subpart F Income Against GILTI Income

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 the mistakes that will likely catch the attention of the Internal Revenue Service (“IRS”) and trigger a potential costly audit. The transition from a worldwide income system to a hybrid territorial system via a participation exemption (i.e., a deduction for dividends received from a foreign corporation) has brought about a one-time repatriation tax on the earnings and profits (“E&P”) of a foreign corporation. The United States now has a hybrid territorial system to tax offshore income at a rate…

28Jul 2020 by Anthony Diosdi

Top Audit Triggers of a CFC that Will Catch the Attention of the IRS. Part Two- Form 8993

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 the mistakes that will likely catch the attention of the Internal Revenue Service (“IRS”) and trigger a potential costly audit. Over the several months we have noticed a number of IRS Form 8993 prepared incorrectly. In this article, we will discuss the Form 8993 and the mistakes on the form that will likely catch the attention of the IRS.The Section 250 DeductionEffective for taxable years of foreign corporations beginning after December 31, 2017 and to taxable years of U.S.…

28Jul 2020 by Anthony Diosdi

Top Audit Triggers of a CFC that Will Catch the Attention of the IRS. Part Three- Improperly Claiming a Foreign Tax Credit

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 the mistakes that will likely catch the attention of the Internal Revenue Service (“IRS”) and trigger a potentially costly audit. This article will discuss mistakes CFC shareholders make when claiming credits for foreign income on their U.S. tax returns and should the IRS audit a credit claimed for foreign taxes, the substation necessary to sustain that credit.Only CFC Corporate Shareholders and Individual CFC Shareholders that Made a Section 962 Election Can Take Foreign Tax Credits Associated with Subpart F…

23Jul 2020 by Anthony Diosdi

Top Audit Triggers of a CFC that Catch the Attention of the IRS. Part One- Calculating a Net Section 965 Tax Liability Incorrectly

Tax Law

By Anthony Diosdi IntroductionFor 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 the mistakes that will likely catch the attention of the Internal Revenue Service (“IRS”) and trigger a potential costly audit. We will begin this series by discussing the calculation of the Section 965 transition tax and why we believe it will be a target for the IRS. On December 22, 2017, Section 965 of the Internal Revenue Code was amended. As a result of the amendment, certain CFC shareholders were required to include in income an amount (a Section 965(a)…

22Jul 2020 by Anthony Diosdi

Calculating the Foreign Tax Credit and the CFC Netting Rule

Tax Law

By Anthony Diosdi Because the United States taxes U.S. persons on their worldwide income, the foreign tax credit was enacted in 1918 to prevent U.S. taxpayers from being taxed on their foreign-source income by both the foreign country where the income was earned and by the United States. The foreign tax credit is intended to allow a U.S. taxpayer to reduce the U.S. federal tax on its foreign-source income (but not U.S. source income) by the foreign taxes paid on that foreign income.To be allowable under 26 U.S.C. Section 901(b), the foreign tax must be an “income, war profits (or) excess profits tax paid or accrued...to any foreign country or to any possession of the United States.” Credit also is allowed under Section 903 for a “tax paid in lieu…