22Jul 2020 by Anthony Diosdi
Understanding the High-Tax Kickout and its Impact on Foreign Tax Credits

Understanding the High-Tax Kickout and its Impact on Foreign Tax Credits

Tax Law
By Anthony Diosdi If you are involved in the preparation of international information returns, you may have noticed on Forms 1116 and 1118 line items for “high-tax kickout.” The instructions promulgated by the Internal Revenue Service (“IRS”) for Forms 1116 and 1118 do a poor job defining the term “high-tax kickout.” This article attempts to clarify the meaning of “high-tax kickout” and its impact on claiming foreign tax credits. By way of background, Internal Revenue Code Section 904 requires that foreign tax credits be calculated separately for each type of foreign-source income included in a particular category or basket. There are currently five baskets for calculating foreign tax credits. They are: 1) passive income; 2) general income; 3) foreign branch income; and 4) GILTI income. The high-tax kickout rule applies…
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21Jul 2020 by Anthony Diosdi

Tax Refunds and Chapter 7 Bankruptcy

Tax Law
The extended 2020 tax deadline happened, and many people are now expecting tax refunds to be deposited in their bank accounts. However, even if a refund can provide slight financial relief for some households, many people still have concerns about unpaid and past-due debts. If you’re considering filing for Chapter 7 bankruptcy, you should discuss how it impacts your tax refund with a tax and bankruptcy lawyer in San Francisco. Can You Retain Your Refund? No one wants to receive a tax refund only to lose it to the bankruptcy court. If you receive your refund based on income you earned prior to filing for bankruptcy, your refund could be seized by the bankruptcy trustee. If you received the refund based on income earned following a case filing, you can…
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17Jul 2020 by Anthony Diosdi
The General Rules Governing Currency Conversations for Computing Foreign Tax Credits and the Section 986 Election

The General Rules Governing Currency Conversations for Computing Foreign Tax Credits and the Section 986 Election

Tax Law
By Anthony Diosdi During this extended tax season we received a significant number of questions regarding computing the proper exchange rate for purposes of claiming foreign tax credits. Many international tax practitioners are perplexed by the rules governing currency conversions and foreign taxes.This article is designed to provide guidance regarding translating foreign taxes into U.S. dollars.Under Internal Revenue Code Section 986, a taxpayer that uses the accrual method to account for foreign taxes for purposes of the foreign tax credit generally translates foreign income taxes accrued into U.S. dollars at the average exchange rate for the tax year to which the taxes relate (rather than at the exchange rate for the date of payment). See IRC Section 986(a)(1)(A). This rule does not apply to 1) any foreign income taxes paid…
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17Jul 2020 by Anthony Diosdi
The IRS Has Yet to Issue Final Regulations for Section 987 Foreign Currency Branch Transactions

The IRS Has Yet to Issue Final Regulations for Section 987 Foreign Currency Branch Transactions

Tax Law
By Anthony Diosdi Internal Revenue Code Section 987 states the rule for dealing with a foreign branch that is a Qualified Business Unit (“QBU”) which utilizes a foreign functional currency. On December 6, 2019, the U.S. Department of the Treasury (“Treasury”) and the Internal Revenue Service (“IRS”) announced Notice 2019-65 stating that they intend to amend the final Section 987 regulations. As of this date, the Treasury and IRS have yet to issue final regulations to Section 987. This means that in the meantime taxpayers must compute Section 987 gains or losses under a reasonable method. A reasonable method would be to utilize the regulations that were previously promulgated by the Treasury and the IRS. This article will walk through a basic QBU foreign currency transaction utilizing the regulations previously…
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15Jul 2020 by Anthony Diosdi
Demystifying the Form 1118 Part 9. Schedule G Reduction of Taxes Paid, Accrued, or Deemed Paid by a CFC

Demystifying the Form 1118 Part 9. Schedule G Reduction of Taxes Paid, Accrued, or Deemed Paid by a CFC

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to claim a foreign tax credit, a U.S. corporation claiming a foreign tax credit must attach Form 1118 otherwise known as “Foreign Tax Credit - Corporations,” to its tax return. This is the ninth of a series of articles designed to provide a basic overview of the Form 1118. This article is designed to supplement the instructions for the Form 1118 promulgated by the IRS.Introduction to Schedule GSchedule G of Form 1118 is designed to report any reductions of the deductibility of foreign credits claimed by a domestic corporation.  Part 1- Reduction AmountsLine A. Reduction of Taxes Under Section 901(e)Line A asks the preparer to reduce taxes under Section 901(e). Internal Revenue Code Section…
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15Jul 2020 by Anthony Diosdi
Form 8993 and Claiming the Section 250 Deduction

Form 8993 and Claiming the Section 250 Deduction

Tax Law
By Anthony Diosdi IntroductionPublic Law 115-97 (Tax Cuts and Jobs Act of 2017) enacted Internal Revenue Code Section 250 for the allowance of a deduction for the eligible percentage of Foreign-Derived Intangible (“FDII”) and Global Low-Taxed Income (“GILTI”). Form 8993 is utilized to determine the amount eligible for a deduction against FDII and GILTI under Section 250. All domestic corporations (and U.S. individual shareholders of controlled foreign corporations (“CFCs”)) making a Section 962 election must use Form 8993 to determine the allowable deduction under Section 250. This article will go line by line through the Form 8993 to determine how a Section 250 deduction is determined. This article is based on the Internal Revenue Service (“IRS”) instructions to Form 8993.Internal Revenue Code Section 250 DeductionEffective for taxable years of foreign…
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09Jul 2020 by Anthony Diosdi
Demystifying the Form 1118 Part 8. Schedule F-3 Determining the Tax Consequences of Tax Deemed Paid by Third, Fourth, and Fifth-Tier Foreign Corporations Under Section 902(b) Prior to Tax Reform

Demystifying the Form 1118 Part 8. Schedule F-3 Determining the Tax Consequences of Tax Deemed Paid by Third, Fourth, and Fifth-Tier Foreign Corporations Under Section 902(b) Prior to Tax Reform

Tax Law
  By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to claim a foreign tax credit, a U.S. corporation claiming a foreign tax credit must attach Form 1118 otherwise known as “Foreign Tax Credit - Corporations,” to its tax return. This is the eighth of a series of articles designed to provide a basic overview of the Form 1118. This article is designed to supplement the instructions for the Form 1118 promulgated by the IRS.Introduction to Schedule F-3Claiming Foreign Tax Credits Through Multiple TiersSchedule F-3 is designed to report foreign taxes deemed paid with respect to dividends from certain fourth, fifth, and sixth-tier controlled foreign corporations (“CFC”s”) out of earnings accumulated in tax years beginning after August 5, 1997. An indirect foreign tax…
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09Jul 2020 by Anthony Diosdi
Demystifying the Form 1118 Part 7. Schedule F-2 Determining the Tax Consequences of Tax Deemed Paid by a First-Foreign Corporation with Respect to Dividends from a Second-Tier Foreign Corporation Prior to Tax Reform

Demystifying the Form 1118 Part 7. Schedule F-2 Determining the Tax Consequences of Tax Deemed Paid by a First-Foreign Corporation with Respect to Dividends from a Second-Tier Foreign Corporation Prior to Tax Reform

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to claim a foreign tax credit, a U.S. corporation claiming a foreign tax credit must attach Form 1118 otherwise known as “Foreign Tax Credit - Corporations,” to its tax return. This is the seventh of a series of articles designed to provide a basic overview of the Form 1118. This article is designed to supplement the instructions for the Form 1118 promulgated by the IRS.Introduction to Schedule F-2Schedule F-2 is designed to compute the tax deemed paid by a first-tier foreign corporation with respect to dividends received from a second-tier foreign corporation prior to the Tax Cuts and Jobs Act of 2018. Schedule F-2 is applicable to dividends or inclusions for taxable years of…
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01Jul 2020 by Anthony Diosdi
Demystifying the Form 1118 Part 6. Schedule F-1 Determining the Tax Consequences of Dividends from First-Tier Foreign Corporation and Inclusions of the Earnings of a First or Lower Tier Foreign Corporation Prior to Tax Reform

Demystifying the Form 1118 Part 6. Schedule F-1 Determining the Tax Consequences of Dividends from First-Tier Foreign Corporation and Inclusions of the Earnings of a First or Lower Tier Foreign Corporation Prior to Tax Reform

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to claim a foreign tax credit, a U.S. corporation claiming a foreign tax credit must attach Form 1118 otherwise known as “Foreign Tax Credit - Corporations,” to its tax return. This is the sixth of a series of articles designed to provide a basic overview of the Form 1118. This article is designed to supplement the instructions for the Form 1118 promulgated by the IRS.Introduction to Schedule F-1Schedule F-1 is designed to figure the tax deemed paid by a domestic corporation for first-tier corporation and inclusions of earnings from a first or lower tier foreign corporation prior to the Tax Cuts and Jobs Act of 2018. Schedule F-1 is applicable to dividends or inclusions…
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23Jun 2020 by Anthony Diosdi
Demystifying the Form 1118 Part 4. Schedule D Foreign Tax Credits Associated with GILTI Inclusions

Demystifying the Form 1118 Part 4. Schedule D Foreign Tax Credits Associated with GILTI Inclusions

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to claim a foreign tax credit, a U.S. corporation claiming a foreign tax credit must attach Form 1118 otherwise known as “Foreign Tax Credit - Corporations,” to its tax return. This is the fourth of a series of articles designed to provide a basic overview of the Form 1118. This article is designed to supplement the instructions for the Form 1118 promulgated by the IRS.Introduction to Schedule DSchedule D is designed to report foreign taxes deemed paid by a domestic corporation under Section 960(d) with respect to inclusions under the global intangible low-taxed income (“GILTI”) regime or Internal Revenue Code Section 951A. This schedule should only be completed with respect to Form 1118 filed…
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