tax law Archives | Page 10 of 30

17Jun 2021 by Anthony Diosdi

Can a Foreign Investor Utilize a “Triangular” Tax Treaty Position to Reduce or Eliminate FDAP and FIRPTA Withholdings?

Tax Law

By Anthony Diosdi Two different U.S. federal tax methods apply to foreign investors. First, foreign investors engaged in a trade or business in the United States are taxed on income that is effectively connected with a trade or business. Such income is taxed at applicable graduated U.S. federal individual income tax rates. Foreign investors are subject to a different set of rules for income that is not effectively connected with a trade or business in the U.S. Under this method, a flat 30 percent tax is imposed on U.S. source fixed or determinable annual or periodic income such as (interest, dividend, rents, annuities, and other types of “fixed or determinable annual or periodic income,” which is also known as “FDAP.”). Under FDAP, tax is imposed on gross income and no…

14Jun 2021 by Lynn Ching

TAXPAYER PREVAILS IN FBAR CASE NON-WILLFUL FBAR PENALTY COMPUTED PER YEAR – NOT PER ACCOUNT

Tax Law

By: Lynn K. Ching A taxpayer-friendly opinion recently issued from the Ninth Circuit Court of Appeals regarding a non-willful failure to file an FBAR. FBAR Violations Recap: Under Section 5314(a), “the Secretary of the Treasury shall require [U.S. citizens and others] … to keep records, file reports, or keep records and file reports, when the [U.S. citizen or other person] makes a transaction or maintains a relation for any person with a foreign financial agency.” Id. Under corresponding regulations to section 5314(a), United States citizens must report on an annual basis any “financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country” exceeding $10,000. The required form is the FBAR (TDF 90-22.1). A person who fails to timely file an…

10Jun 2021 by Lynn Ching

Tax Free Mergers and Acquisitions under IRC 368 What Worked and What Didn’t

Tax Law

By Lynn K. Ching The federal tax code provides for tax free mergers and acquisitions in certain situations. In tax-free mergers, the acquiring company uses its stock as a significant portion of the consideration paid to the acquired company. The purpose of the statutory non-recognition of gain or loss from reorganization transactions, as indicated by the legislative history, was in part to prevent losses being established by bondholders, as well as stockholders, who received new securities without substantially changing their original investment. (All) Four conditions must be met to qualify a transaction for tax-free treatment under Internal Revenue Code (IRC) Section 368. 1. Continuity of Ownership Interest doctrine - The continuity of ownership interest rule was introduced by the United States Supreme Court in Pinellas Ice & Gold Storagw v.…

07Jun 2021 by Anthony Diosdi

An Unusual LOB Provision Contained in the U.S.-Cyprus Tax Treaty May Allow a Resident of a Non-Treaty Country to Obtain the Benefits of the U.S.- Cyprus Tax Treaty

Tax Law

By Anthony Diosdi Generally, a non-U.S. taxpayer that is not engaged in a U.S. trade or business is taxable in the United States only on U.S. source “fixed determinable, annual or periodical” income (“FDAP”). Unless an applicable income tax treaty applies to reduce the rate of tax, FDAP income typically will be subject to a 30 percent gross basis withholding tax.While most income tax treaties entered into by the United States with foreign countries reduce or eliminate the 30 percent withholding tax on FDAP, not all foreign jurisdictions have comprehensive income tax treaties with the United States. This article analyzes whether a resident of a country that has not entered into a bilateral tax treaty with the United States can utilize the U.S.-Cyprus tax treaty to reduce the 30 percent…

05Jun 2021 by Anthony Diosdi

Can a Intentionally Defective Grantor Trust Coupled with a Self-Canceling Installment Note ‘Magically’ Remove High Value Assets From an Estate?

Tax Law

By Anthony Diosdi An intentionally defective grantor trust (“IDGT”) is a trust that is treated as owned by the grantor for income tax purposes, but not for gift or estate tax purposes. The benefit of an IDGT is that the value of the trust, and any growth thereon, are excluded from the grantor’s estate. At the same time, the trust is “defective” for income tax purposes. This means that the grantor would pay all of the income tax on the assets transferred to the trust without it being deemed a gift. This is accomplished by properly drafting the trust provisions so that the trust constitutes a grantor trust under one or more of the grantor trust rules found in Internal Revenue Code Sections 671 through 679 whereby the grantor will…

28May 2021 by Anthony Diosdi

A Deep Dive Into the IRS Form 3520

Tax Law

By Anthony Diosdi The Form 3520 is an informational return used to report certain transactions with foreign trusts, ownership of foreign trusts, or large gifts from certain foreign persons to the Internal Revenue Service (“IRS”). The failure to correctly and timely report certain transactions with a foreign corporation or the failure to disclose certain gifts received from a foreign person can result in a penalty up to 35% of the unreported transaction or distribution. Lately, the IRS has been handing out penalties for not timely and incorrectly filing Form 3520s like its candy. Given the seriousness of these penalties, if you had transactions with foreign trusts or received foreign gifts, the Form 3520 may be the most important return you will ever file. This article is designed to introduce the…

28May 2021 by Anthony Diosdi

A Deep Dive Into the IRS Form 3520-A

Tax Law

By Anthony Diosdi United States persons with foreign assets are subject to an ever expanding universe of reporting requirements. A prime example of this can be found in Internal Revenue Code Section 6048(b). This Internal Revenue Code Section provides that a foreign trust owner must file Internal Revenue Service (“IRS”) Form 3520-A. Each U.S. person is treated as an owner of any portion of a foreign trust under the grantor trust rules (Internal Revenue Code Sections 671 through 679) is responsible for ensuring that the foreign trust files Form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries. The penalty for failure to file IRS Form 3520-A will be imposed directly on the U.S. owner of the foreign trust. The penalty is equal to the…

28May 2021 by Anthony Diosdi

There May Be 50 Ways To Leave Your Lover But You May Only Utilize A CDP Challenge to Contest a Form 3520 Penalty Without Prepayment

Tax Law

By Anthony Diosdi Under Internal Revenue Code Section 6677(a), if any United States Person beneficiary receives (directly or indirectly) a distribution from a foreign trust, that person is required to make a return with respect to such a trust using Internal Revenue Service (“IRS”) Form 3520, and show thereon the name of the trust, the amount of the aggregate distribution received, and any other data the IRS may require. A foreign gift, bequest, or inheritance that exceeds $100,000 must also be disclosed on a Form 3520. The IRS may assess an annual penalty equal to 35 percent of the gross value of the trust or 35 percent of the gross value of the property transferred from the trust if a Form 3520 is not timely filed. The IRS may also…

20May 2021 by Lynn Ching

When Can the Administrative Record in an IRS WhistleBlower Case Be Supplemented?

Tax Law

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, subject to meeting certain statutory requirements. If the Whistleblower claim is denied by the IRS Whistleblower Office (WBO), the claimant may petition the Tax Court to review (for abuse of discretion) the determination by the WBO not to pay an award. In reviewing a determination of the WBO, the Tax Court generally confines its review to the administrative record (i.e. the IRS’ records) in reaching its determination. In a recent case, Bemmelen v. Comm’r of the IRS, 154 T.C. No. 4 (2020), the petitioner asked the Court to allow him to supplement the administrative record in reviewing the denial of his…

10May 2021 by Anthony Diosdi

Don’t Miss the Updated Tax Deadline

Tax Law

The tax deadline for 2021 was extended to May 17th, and many people are taking advantage of the extra time. However, be certain not to miss this extended deadline, as it is just as strict as the usual April 15th deadline in non-pandemic years. If you are not ready to file your returns, you can file for an extension, though you still need to pay your estimated tax liability on time. If you are owed a refund, there is no penalty for filing your return late, though it can take significantly longer to receive your refund. If you owe taxes to the IRS, there can be costly consequences of failing to file or pay on time. The IRS can assess penalties for lateness, which can add up quickly the longer…