The Taxation of Offshore Accumulated Earnings under Section 959- Before and After the 2017 Tax Cuts and Jobs Act

The Taxation of Offshore Accumulated Earnings under Section 959- Before and After the 2017 Tax Cuts and Jobs Act

Tax Law
By Anthony Diosdi Generally, U.S. shareholders of a controlled foreign corporation or CFC are required to include in the U.S. income: 1) their pro rata share of subpart F income under Internal Revenue Code Section 951(a) (such as passive income, and certain foreign sales and service income); 2) their pro rata share of CFC’s earnings from investments in U.S. property as defined in Internal Revenue Code Section 956; 3) after the enactment of the 2017 Tax Cuts and Jobs Act, other items of global intangible low-taxed income (“GILTI”) as defined in Internal Revenue Code Section 951A. The U.S. shareholder is taxed even if the CFC does not make an actual distribution to the shareholder. To avoid double taxation, Internal Revenue Code Section 959 provides that previously taxed earnings and profits…
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The Importance of Determining Accurate Earnings and Profits of Foreign Corporations for U.S. Tax Compliance Purposes

The Importance of Determining Accurate Earnings and Profits of Foreign Corporations for U.S. Tax Compliance Purposes

Tax Law
By Anthony Diosdi When we think about international tax or cross border transactions, we think about the controlled foreign corporation or CFC rules. We also consider subpart F income or global intangible low-taxed income (“GILTI”) planning. Unfortunately, many international tax professionals do not give much consideration to the “earnings and profits” (“E&P”) of a controlled foreign corporation or CFC. The importance of E&P in international tax should not be ignored. Not only is E&P the foundation of cross-border income inclusions, recent changes to the rules governing U.S. international tax compliance make having an accurate E&P more important now than ever. The precise definition of the term E&P is nowhere to be found in the Internal Revenue Code or its regulations. The function of E&P, however, is clear: it is a…
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Demystifying the IRS Form 5471 Part 4. Schedule J

Demystifying the IRS Form 5471 Part 4. Schedule J

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income (“GILTI”) provisions, each year certain U.S. persons with interests in foreign corporations must file an IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the fourth of a series of articles designed to provide a basic overview of the Form 5471. This article will focus on Schedule J. Schedule J tracks the earnings and profits of a controlled foreign corporation (“CFC”). This article is designed to supplement the IRS instructions to Schedule J. Schedule J has dramatically changed for the 2018 tax season. Schedule J now includes Part 1 entitled “Accumulated…
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Do Not Risk Losing Your Right to Travel Due to Unpaid Taxes

Do Not Risk Losing Your Right to Travel Due to Unpaid Taxes

Tax Law
Having substantial unpaid tax debt can weigh on your mind, and the stress can even impact your day-to-day life. However, if you want to travel on an international vacation to get away from your everyday stresses for a week, you may have even bigger concerns courtesy of the Internal Revenue Service (IRS). In recent years, IRC Section 7345F passed, which allowed for the revocation or denial of a United States passport for individuals with significant unpaid tax bills. In 2018, the IRS issued direction to the State Department to enact this method of tax enforcement. The new law will not affect everyone with past-due taxes. Instead, the following must be true for your passport to be in jeopardy: You owe more than $50,000 in legally-enforceable unpaid taxes (Title 26 liabilities…
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Demystifying the IRS Form 5471 Part 3. Schedule E

Demystifying the IRS Form 5471 Part 3. Schedule E

Tax Law
In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income (“GILTI”) provisions, each year certain U.S. persons with interests in foreign corporations must file an IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the third of a series of articles designed to provide a basic overview of the new Schedule E of the Form 5471. A controlled foreign corporation (“CFC”) paying a foreign tax and/or claiming a foreign credit must complete Schedule E of the Form 5471. This article is heavily based on the instructions to Schedule E of the Form 5471.Who Must Complete the Form 5471 Schedule EIndividuals with interests in CFCs…
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Demystifying the IRS Form 5471 Part 2. Schedule C

Demystifying the IRS Form 5471 Part 2. Schedule C

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income (“GILTI”) provisions, each year certain U.S. persons with interests in foreign corporations must file an IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the second of a series of articles designed to provide a basic overview of the new Schedule C of the Form 5471. Who Must Complete the Form 5471 Schedule C Schedule C of a Form 5471 is an income statement of a controlled foreign corporation (“CFC”). The Schedule C is designed to disclose a CFC’s functional currency and transactions in foreign currency. Because foreign currencies are treated…
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Demystifying the IRS Form 5471 Part 1. Selecting the Proper Category of Filer and Preparing Schedule B

Demystifying the IRS Form 5471 Part 1. Selecting the Proper Category of Filer and Preparing Schedule B

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income ( “GILTI”) provisions, each year certain U.S. persons with interests in foreign corporations must file an IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the first of a series of articles  designed to provide a basic overview of the Form 5471 and the tax law anyone completing a Form should understand. The Form 5471 begins with a question on Page 1 Box B by asking you to select one or more categories of being a filer. The classification selected will determine the appropriate schedules of the Form 5471 that needs…
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Bringing a Case Before the United States Tax Court A to Z Part III. How to Proceed with a Tax Court Trial

Bringing a Case Before the United States Tax Court A to Z Part III. How to Proceed with a Tax Court Trial

Tax Law
By Anthony Diosdi Although the vast majority of cases brought before the Tax Court are settled, some cases proceed to trial. If you are considering bringing a case to trial before the Tax Court, it is important to be familiar with the order in which a trial proceeds. Although no rigid format applies in every case, a basic framework has evolved within which a trial will be conducted. This framework is subject to change depending on the preference of the presiding judge. In my experience, a significant number of individuals do not take their trials before the Tax Court seriously. Many individuals believe the IRS has the burden of proof in Tax Court cases so they do not properly prepare for trial. Others, believe that Tax Court controversies rarely proceed…
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Bringing a Case Before the United States Tax Court A to Z. Part 1. What is the Significance of Receiving a Notice of Deficiency From the IRS?

Bringing a Case Before the United States Tax Court A to Z. Part 1. What is the Significance of Receiving a Notice of Deficiency From the IRS?

Tax Law
By Anthony Diosdi The Internal Revenue Service (“IRS”) audits thousands of tax returns every year. At the conclusion of these tax audits, on many occasions, the IRS proposes to assess additional tax liabilities against the individual who was subject to the audit. Many times the tax adjustments proposed during an audit is wrong. This article will discuss step-by-step how to contest an IRS audit before the United States Tax Court.Although there are exceptions to this rule, anyone considering disputing an audit result in Tax Court must wait until they are issued a notice of deficiency by the IRS. A notice of deficiency states the tax liability they believe a taxpayer owes as the result of an audit. As a general rule, the IRS cannot legally collect a tax liability proposed…
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How is the Branch Profits Tax Calculated?

How is the Branch Profits Tax Calculated?

Tax Law
By Anthony Diosdi By introducing the U.S. branch profits tax, Congress substantially reduced the desirability of a foreign corporation as the vehicle for operating a U.S. trade or business. Previously, foreign corporations often were the vehicle of choice for U.S. investments, since (as now), use of a properly established and maintained foreign corporation generally avoided U.S. estate tax issues, and dividends often could be repatriated free of U.S. withholding tax. Withholding tax on dividends from a foreign corporation applied only if earnings and profits from U.S. trade or business were greater than 50 percent of worldwide earnings and profits, and then only a proportionate amount of the dividend suffered the withholding tax. U.S. income tax treaties with intermediary countries offered the possibility of repatriation of earnings totally free of second-tier…
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