Buyer Beware: The Basic Rules Governing FIRPTA Withholding on Real Estate

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Introduction Foreign investors actively invest in United States real estate by speculating on land and developing homes, condominiums, shopping centers, and commercial buildings. Many foreign investors also own recreational property in popular U.S. vacation destinations. This article attempts to summarize the Foreign Investment in Real Property Tax Act of 1980 (hereinafter “FIRPTA”) consequences surrounding a foreign investor’s acquisition of U.S. real property interests. FIRPTA is designed to ensure that a foreign investor is taxed on the disposition of a U.S. real property interest. Under FIRPTA, gains or losses realized by foreign corporations or nonresident alien individuals from any sale, exchange, or other disposition of a U.S. real estate interest are taxed in the same manner as other income effectively connected with the conduct of a U.S. trade or business. See…
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Five Tax Traps That All Non Residents Coming to The United States Must Know

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Introduction As the world becomes increasingly “global,” so too does the practice of tax law. In California, Florida, and other states, clients of tax advisors are often families from outside the United States that seek to take advantage of investment opportunities and a higher living standard in the United States. While the United States may provide a number of opportunities for non-United States citizens, in order to take advantage of these opportunities, many non-United States citizens become residents of the United States. Once these individuals establish residency in the United States, they may face a host of complicated tax issues. To non-U.S. citizens, these U.S. tax  issues may be foreign in every sense of the word. This is because domestic tax law has notable distinctions from taxing systems around the…
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A Landmark Decision Recently Decided by the Supreme Court Regarding Sales Tax may Affect eCommerce Sellers

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Introduction For years, retailers conducting business through eCommerce were advised that states could not require them to collect and remit sales tax on online sales unless they were ‘doing business’ in a taxing state based on the tax laws of that state. This concept was referred to as a “nexus” based on a seller’s physical presence within a state.  Therefore, a seller who is determined to have a physical presence within a state would be obligated to withhold and remit sales tax to the taxing state. Examples of physical presence included but were not limited to having employees working in a taxing state, placing sales agents in a taxing state, moving business property into a taxing state, or renting property in a taxing state.Many online merchants avoided establishing a physical…
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Can You “DING” Your State Tax Liability With a “NING,” “WING,” or “SDING”?

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Introduction The passing of the Tax Cuts and Jobs Act resulted in a significant tax increase for many in high income tax states. It also elevated the need of many residents of high tax states to utilize planning opportunities to reduce their overall tax liabilities. An incomplete gift non-grantor trust (hereinafter “ING”) formed in a state such as Nevada, Delaware, Wyoming, or South Dakota- that is, a “NING,” “DING,” “WING,” or “SDING,” may offer a planning opportunity to reduce state income tax liabilities. As a general rule, states impose income tax based on residency. For example, a Maryland resident is subject to Maryland income tax and a California resident is subject to California income tax. The same can be said of an ING. An ING is subject to taxation in…
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Internal Revenue Code Section 1202 and How Investors Can Utilize it to Exclude up to $10 Million in Gains from the Sale of Small Business Stock

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I. Introduction to Internal Revenue Code Section 1202This article is designed to provide an overview of the federal income tax incentives available to non-corporate holders of “qualified small business stock” (“QSB stock”). As discussed below in more detail, Section 1202 of the Internal Revenue Code permits investors in QSB stock to exclude up to $10 million in taxable gains. Despite the Section 1202 tax incentive, in the past, many investors shied away from QSB stock because of the inherent double tax consequence of subchapter C corporations. However, that may soon change, due to the reduction of the corporate marginal tax rate to 21 percent under the Tax Cuts and Jobs Act of 2017. Internal Revenue Code Section 1202 was originally enacted in 1993. It was enacted as an incentive for…
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What You Need to Know About OVDP After September 28, 2018

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Introduction to the Offshore Voluntary Disclosure Program (OVDP) For many years, a large number of U.S. taxpayers have placed and continue to place large sums of money in foreign financial accounts. Many of these individuals, knowingly or unknowingly, violate federal law by not disclosing these foreign accounts to the Internal Revenue Service (“IRS”). In an effort to step-up enforcement of disclosing foreign financial accounts to the IRS, the United States Department of Justice has successfully pierced previously secret banking in foreign countries. As a result, the IRS has been gaining access to information regarding undisclosed foreign financial accounts. This left many individuals scrambling to make a voluntary disclosure to the IRS to avoid criminal prosecution and serious civil penalties some of which are discussed in detail below. Potential Penalties for…
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Beware of the Pitfalls of Rental Property Tax Laws

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Because of the recent boom in real estate, many individuals have jumped back into the real estate market and have become landlords. Renting real estate can generate significant tax losses. Anyone considering utilizing losses realized in the real estate market to offset other sources of income such as wages, must be aware of the tax laws limiting real estate losses. This article will discuss the two potential ways an individual taxpayer can utilize real estate losses to offset income such as wages. 1. The Small Landlord Exception and the $25,000 Special Allowance Generally, real estate activities are considered passive activity for tax purposes. This means that losses incurred from real estate activities are not typically deductible against other sources of nonpassive income such as wages. However, in certain cases, up…
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