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

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

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

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…
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A Deep Dive into the 2021 IRS Form 5471 Schedule J

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…
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A Deep Dive into the IRS Form 5471 Schedule J

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

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

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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…
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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?

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

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

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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…
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As Per the “People First Initiative,” the IRS will Suspend Most Audits and the Collection of Most Back Tax Liabilities

As Per the “People First Initiative,” the IRS will Suspend Most Audits and the Collection of Most Back Tax Liabilities

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By Anthony Diosdi On March 18th, the Internal Revenue Service (“IRS”) promulgated Notice 2020-17 entitled “Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic.” The notice provided for an extension of time to pay federal income taxes originally due April 15, 2020 until July 15, 2020. This relief applied only to individual tax amounts up to $1,000,000, regardless of filing status or up to $10,000,000 for each consolidated group or each C corporation that does not file a consolidated tax return. On March 20th, Treasury Secretary Mnuchin announced on Twitter that the deadline to file tax returns has been extended to July 15th.  On March 25th, the IRS unveiled a new “People First Initiative.” This initiative was enacted by the IRS in an effort to “at least temporarily ease…
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IRS Awards Tax Whistleblowers Millions of Dollars

IRS Awards Tax Whistleblowers Millions of Dollars

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By Lynn K. Ching The Internal Revenue Service (IRS) Whistleblower Awards Program pays money to people who blow the whistle on persons who fail to pay taxes they owe. Internal Revenue Code 7623 permits the IRS to pay an award of up to 30 percent of the tax, penalty, interest and other amounts it collects as a result of the whistleblower information - to anyone who provides information that leads to the detection and punishment of persons violating the federal tax laws. In 2019, the IRS issued 181 whistleblower awards, totaling more than $102 million; in 2018, the IRS issued 217 awards, totaling more than $312 million; and in 2017, the IRS issued 242 awards, totaling more than $33 million. The IRS Whistleblower Program provides for two types of awards:…
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Making a Voluntary Disclosure to the IRS- Everything You Wanted to Know But Were Afraid to Ask

Making a Voluntary Disclosure to the IRS- Everything You Wanted to Know But Were Afraid to Ask

Tax Law, Uncategorized
By Anthony Diosdi On November 20, 2018, the Internal Revenue Service (“IRS”) issued a Memorandum discussing the rules for all voluntary disclosures (foreign and domestic) after the expiration of the final Offshore Voluntary Disclosure Program (“OVDP”). The Memorandum is broken down into multiple parts: background and overview, IRS Criminal Investigation (“CI”) procedures; civil processing, case development, and civil resolution framework, each of which are discussed in detail below. This article will also discuss the significant hazards of making a voluntary disclosure to the IRS.BackgroundIn 2009, the IRS opened the initial OVDP to provide a uniform mechanism to U.S. citizens and tax residents who had not otherwise disclosed foreign bank accounts, foreign situs assets and income that was used to pay for such assets. After the expiration of the 2009 OVDP,…
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