Uncategorized Archives | SF Tax Counsel

17May 2023 by Pat Geddie

Foreign Persons Doing Business in the United States- Tax and Treaty Considerations

By Anthony DiosdiIf a foreign person conducts a trade or business in the United States, the net income effectively connected with the U.S. business activity will be taxed at the usual U.S. marginal tax rates. This regime taxes the foreign person’s net income derived from the U.S. trade or business (effectively connected gross income minus allowable deductions attributable to the U.S. trade or business). The rules for allocating and apportioning deductions are used to determine which of the foreign person’s potential deductions are attributable to the U.S. trade or business.In the case of a foreign corporation that conducts a U.S. trade or business through a U.S. branch, an additional 30-percent tax (called the “branch profits tax”) may apply when a foreign corporation’s U.S. trade or business earnings are not reinvested…

06Apr 2023 by Pat Geddie

TAXATION OF THE MODERN DAY CROSS-BORDER MERGER AND ACQUISITION

Tax Law, Uncategorized

In today’s global economy, corporations have operations all over the world. Typically, a U.S. parent corporation owns a group of subsidiary corporations formed within and outside the United States. In such a scenario, the foreign subsidiaries are largely held by one foreign parent corporation. In larger multinational corporations, frequently there are multiple foreign parent corporations. This article discusses a number of key tax considerations specific to cross-border reorganizations. This article does not provide an exhaustive overview of all tax considerations but rather provides commentary on the most overlooked and misunderstood factors involved in the taxation of an international corporate reorganization. Section 368(a)(1) corporate reorganizations Any discussion regarding the taxation of crossborder mergers and acquisitions must begin with Section 368(a)(1). In the domestic context, Section 368(a)(1) provides for nonrecognition of gain…

15Mar 2023 by Pat Geddie

From Investment Vehicles to Treaties- What Foreign Investors Need to Know About Cross-Border Estate Planning

Tax Law, Uncategorized

By Anthony Diosdi Foreign investors generally have the same goal of minimizing their tax liabilities from their U.S. real estate and other U.S. investments, as do their U.S. counterparts, although their objective is complicated by the very fact that they are not domiciled in the U.S. The U.S. has a special estate and gift tax regime that is applicable to foreign investors that are not domiciled in the U.S. This article summarizes the basic estate and gift tax issues that affect foreign investors investing in the U.S. This article also discusses international tax planning opportunities that may be available to individuals that are not-U.S. citizens.An Overview of the Estate and Gift TaxU.S. Federal law imposes a transfer tax upon the privilege of transferring property by gift, bequest or inheritance. During…

16Dec 2021 by Pat Geddie

An Overview of Type B Tax-Free Reorganizations and Type B Tax-Free Triangular Reorganizations

Uncategorized

By Anthony Diosdi In the corporate tax context, the term “reorganization” is a statutory term of art. Rather than providing a general definition, the Internal Revenue Code attempts to provide precise definitions for the term “reorganization” in Section 368(a)(1) with an exclusive list of seven specific types of transactions that will be considered “reorganizations.” Subparagraphs (A) through (G) of Section 368(a)(1) each provide a description of a particular reorganization transaction. Unless a transaction fits into one of the seven categories stated in subparagraphs (A) through (G), it is not a corporate reorganization. In a Type B reorganization, the purchasing corporation (P) acquires a controlling interest in the target corporation (T) stock from the T shareholders solely in exchange for all or part of P’s voting stock. There are two important…

19Nov 2021 by Pat Geddie

Cross-Border Reorganizations, Mergers and Acquisitions and the Application of Internal Revenue Code Section 367

Tax Law, Uncategorized

By Anthony Diosdi Whenever a U.S. person decides to establish a business outside offshore that will be conducted through a foreign corporation, it will likely be necessary to capitalize the foreign corporation with a transfer of cash and other property in exchange for corporate stock. When appreciated assets, such as equipment or intangible property rights (i.e., patents, trademarks, copyrights, and other intangible property), is transferred to a foreign corporation, the U.S. transferor may be subject to taxable gain. This taxable gain will be realized by the transferor unless one of the tax-free exchange provisions of the Internal Revenue Code applies. The same applies to U.S. corporations. If a U.S. corporation is liquidated and its assets are distributed to a foreign corporation, U.S. tax will be imposed on the gains recognized…

06Nov 2021 by Pat Geddie

A Deep Dive into the 2021 IRS Form 5471 Schedule J

Tax Law, Uncategorized

A Deep Dive into the 2021 IRS Form 5471 Schedule J By Anthony Diosdi Schedule J of Form 5471 tracks the earnings and profits (“E&P”) of a controlled foreign corporation (“CFC”) in its functional currency. In most cases, special ordering rules under Section 959 of the Internal Revenue Code apply in determining how E&P is reported on Schedule J. For the 2021 tax year, Schedule J was revised. This article will take a deep dive into each column and line of 2021 Schedule J of the Form 5471. Who Must Complete the Form 5471 Schedule J Anyone preparing a Form 5471 knows that the return consists of many schedules. Schedule J is just one schedule of the Form 5471. Whether or not a CFC shareholder is required to complete Schedule…

23Apr 2021 by Pat Geddie

A Deep Dive into the IRS Form 5471 Schedule J

Tax Law, Uncategorized

By Anthony Diosdi Schedule J of Form 5471 tracks the earnings and profits (“E&P”) of a controlled foreign corporation (“CFC”). In most cases, special ordering rules under Section 959 of the Internal Revenue Code apply in determining how E&P is reported on Schedule J. Shortly after the Tax Cuts and Jobs Act was enacted in 2017, the Internal Revenue Service (“IRS”) and the Department of Treasury (“Treasury”) announced they will withdraw the proposed regulations for Internal Revenue Code Section 959. As a result of these changes, the IRS dramatically changed Schedule J of Form 5471 for the 2018 tax year. The following columns or categories were added to Schedule J:1) Post-2017 E&P Not Previously Taxed (post-2017 Section 959(c)(3) balance.2) Hovering Deficit and Deduction for Suspended Taxes.3) PTI from Section 965(a)…

26Mar 2021 by Pat Geddie

The Roller-Coaster Ride is Over: IRS Loses Battle to Render PPP Business Deductions Non-Deductible

Uncategorized

By: Lynn K. Ching Many small businesses received a loan in 2020 under the (CARES Act) SBA Paycheck Protection Program (“PPP”). Under the CARES Act, the PPP loan proceeds are eligible for forgiveness, if used to pay (1) payroll costs, (2) certain employee benefits relating to healthcare, (3) interest on mortgage obligations, (4) rent, (5) utilities, and (6) interest on any other existing debt obligations, during the ‘covered period’. The CARES Act also excludes forgiven PPP loan proceeds from taxable income. However, the CARES Act did not specifically address whether business expenses paid with a (forgivable) PPP loan may be deducted on a taxpayer’s federal tax return. Federal Not missing a beat, in May 2020, the IRS issued Notice 2020-32, which stated that no deduction is allowed if its payment…

04Mar 2021 by Pat Geddie

Does Section 4975 Permit an IRA Account Holder to Establish an IRA Grantor Trust Investment Vehicle and Act as the Trustee of the IRA Grantor Trust?

Tax Law, Uncategorized

By Anthony Diosdi IntroductionMany Individual Retirement Account (“IRA”) beneficiaries would like more control over the investments of their IRAs. Some IRA beneficiaries want to form investment vehicles to acquire such assets as cryptocurrencies that are rapidly increasing in value. A number of trust companies claim that the United States Tax Court case of Swanson v. Commissioner, 106 T.C. 76 (1996) authorizes the use of an IRA owned grantor trust at the direction of the IRA account holder as a trustee to act as an investment vehicle. This article will discuss whether an IRA grantor trust in which the IRA account holder is a trustee violates the meaning of Section 4975(c)(1)(D) and (E). An Overview of Internal Revenue Code Section 4975The growth of 401(k) plans and other defined contribution plans (as…

02Feb 2021 by Pat Geddie

A Deep Dive Into the GILTI Taxing Regime and CFC GILTI Tax Planning

Uncategorized

By Anthony Diosdi The 2017 Tax Cuts and Jobs Act (“TCJA”) enacted a new category of foreign source taxable income known as global intangible low-taxed income (“GILTI”). Similar to subpart F income, GILTI is an anti-deferral regime applicable to U.S. shareholders of controlled foreign corporations (“CFCs”). GILTI is the excess of a U.S. shareholder’s net CFC tested income for a 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 share of the tested income of each CFC for which it is a U.S. shareholder over its pro rata share of each such CFC’s tested loss. A U.S. shareholder’s net deemed tangible income is 10 percent of the shareholder’s pro rata share of the CFC’s tax…