tax law Archives | Page 14 of 30

21Jan 2021 by Anthony Diosdi

Demystifying IRS Form 1116- Calculating Foreign Tax Credits

Tax Law

By Anthony Diosdi An individual claiming a foreign tax credit must attach Internal Revenue Service (“IRS”) Form 1116, Foreign Tax Credit to his or her tax return. See Treas. Reg. Section 1.905-2(a)(1). This article will go line-by-line through the Form 1116. This article is based on the instructions provided by the Internal Revenue Service (“IRS”) for the Form 1116. The Form 1116 is designed to calculate foreign tax credits for individual taxpayers. Before any taxpayer attempts to complete the Form 1116, he or she should understand some basic rules regarding claiming foreign tax credits. First, U.S. taxpayers are generally subject to U.S. tax on their worldwide income, but may be provided a tax credit for foreign income taxes paid or accrued. The main purpose of the foreign tax credit is…

12Jan 2021 by Anthony Diosdi

Common Mistakes CFC Shareholders or Their Advisors Make When Computing Tested Income and Tested Loss for the GILTI Taxing Regime

Tax Law

By Anthony Diosdi The Tax Cuts and Jobs Act, created a new global minimum tax on certain foreign income of U.S. shareholders or global intangible low-taxed income (“GILTI”). The Congressional intent of GILTI is to discourage U.S. multinational corporations from shifting the income of foreign subsidiaries into foreign countries with low tax rates. Although GILTI’s intent was to discourage U.S. multinationals from shifting income of foreign subsidiaries into foreign jurisdictions with low tax rates, the mechanical nature of the GILTI’s calculations means it impacts most foreign corporations (“CFCs”) and CFC shareholders. GILTI also triggers unexpected results that may catch unsuspecting practitioners by surprise. GILTI is calculated by including in the income of a CFC shareholder of a CFC the excess of a “deemed tangible return” on its tangible fixed assets.…

12Jan 2021 by Anthony Diosdi

The GILTI High-Tax Election for Multinational Corporations- Be Careful What You Wish For

Tax Law

By Anthony Diosdi For many years, U.S. multinational corporations were able to utilize a high-tax election to defer Subpart F income. However, when the global intangible low-tax income (“GILTI”) taxing regime was announced in late 2017, a corresponding high-tax election was not available. Shortly after the enactment of the GILTI taxing regime, U.S. multinational corporations and their advisors began lobbying the Department of Treasury (“Treasury”) and the Internal Revenue Service (“IRS”) to issue regulations to permit the use of a high-tax election for GILTI income. On July 20, 2020, the Department of Treasury (“Treasury”) promulgated final regulations which permit a high-tax election for global intangible low-taxed income (“GILTI”). This was welcome news to many U.S. multinational corporations and their advisors. In general, the Final Regulations enable U.S. multinationals to exclude…

06Jan 2021 by Anthony Diosdi

A Deep Dive Into U.S. Estate and Gift Tax Treaties

Tax Law

By Anthony Diosdi Introduction In the individual foreign investor setting, inbound tax planning often requires a balancing of U.S. income tax considerations and U.S. federal gift and estate tax considerations. While U.S. federal income tax rates on the taxable income of an individual foreign investor are the same as those applicable to a U.S. citizen or resident, the federal estate and gift tax as applied to individual foreign investors can and often results in a dramatically higher burden on a taxable U.S. estate or donative transfer of a foreign investor than for a U.S. citizen or domiciliary. As a result, for many individual foreign investors, the most important U.S. tax consideration is the U.S. federal estate and gift taxation. The United States imposes estate and gift taxes on certain transfers…

06Jan 2021 by Anthony Diosdi

The U.S. Tax Effects of Entities Used by Foreign Investors

Tax Law

By Anthony Diosdi Introduction Foreign investors typically have the same objectives of minimizing their income tax liabilities from their real estate and businesses located in the U.S. as do their domestic counterparts. However, foreign investors are subject to an even more complicated set of tax laws than their domestic counterparts. Foreign investors must understand the difference between effectively connected income compared to not effectively connected income. Foreign investors must also understand the difference between income earned in a trade or business compared to passive income. These distinctions in income make a big difference for U.S. tax purposes. For example, if a foreign investor derives certain types of passive income from the U.S., the income is typically taxed at a flat 30 percent rate (without allowance for deductions), unless an applicable…

04Jan 2021 by Anthony Diosdi

Things to Know About the 2021 Tax Season

tax planning

2020 was an unusual year, to say the least, and taxes were no different. While the pandemic and related financial crisis continue across the country as we enter 2021, what can you expect this year when it comes to your tax filings? The following are some things to know, and you can always discuss the matter more closely with a tax lawyer in San Francisco. No Filing Extension Yet As of now, the tax deadline is the traditional date of April 15, 2021, and there has been no extension announced for filing 2020 taxes by the Internal Revenue Service (IRS). Make your appointment with an attorney now, so you can be prepared to file on time. Income Brackets and Deductions The income brackets and standard deductions were also adjusted for…

31Dec 2020 by Anthony Diosdi

Cross-Border Taxation of the Digital Economy

Tax Law

By Anthony Diosdi Introduction and Summary of the Law Governing Digital TransactionsNew technology and new transactions often raise difficult issues of tax policy and administration. The dramatic expansion of electronic commerce facilitated by the use of the Internet and other technology is subjecting existing tax principles to new pressures. One area of concern is the application of source rules to electronic commerce transactions. Suppose, for example, that a corporation delivers electronically software or a digital product to a customer on the Internet. The customer can download the product and use it commercially. Depending upon the nature of the transaction and the property interests involved, the income to the corporation might appropriately be characterized as a royalty for the use of technology, profit from the sale of a product or a…

31Dec 2020 by Anthony Diosdi

Can “Knowhow” Constitute Property in Exchange for Stock of a Foreign Corporation Under a Section 351 Tax-Free Exchange?

Tax Law

By Anthony Diosdi When a U.S. corporation making a direct investment in a foreign corporation contributes intangible property rights to the enterprise, it may consider the possibility of transferring these rights in exchange for stock. The corporation supplying the intangible rights may make such a transfer whether it emerges as the owner of 100 percent or some lesser percentage of the stock of the transferee foreign corporation. In most cases, intangible property rights transferred to a foreign corporation will have a value in excess of their tax cost or basis. On such a transfer, any gain realized will be recognized and taxed unless Internal Revenue Code Section 351 operates to prevent its recognition. Whether recognized gain will be treated as ordinary income or capital gain may turn on the nature…

31Dec 2020 by Anthony Diosdi

What Happens When You Marry a Nonresident Alien for U.S. Tax Purposes?

Tax Law

By Anthony Diosdi Many Americans that reside outside the United States marry a non-American and remain overseas. This often results in confusion when it comes to filing a U.S. individual income tax return. Americans often do not know what filing status they can claim on their U.S. tax returns and how to treat the foreign spouse’s income. This brief article discusses the basic rule in both cases. However, this article does not discuss the filing of any required foreign information returns such as FBARs or IRS Form 8938s.If an American marries a spouse that has not been awarded a green card or if the spouse is a nonresident alien for U.S. tax purposes, the American taxpayer has two options.First, the American can treat his or her spouse as a resident…

23Dec 2020 by Anthony Diosdi

A Quick Look at the PTEP Basis Adjustment Rules For CFC Stocks

Tax Law

By Anthony Diosdi Virtually all controlled foreign corporations (“CFCs”) generate earnings and profits that become previously taxed earnings and profits (“PTEP”). Special rules under Internal Revenue Code Section 959 apply in determining the ordering and taxation of distributions of a PTEP. The rules governing PTEP distributions also apply in determining the basis of CFC corporate stocks. This is because the PTEP regime requires upward and downward basis adjustment in CFC stock for gross income inclusions at the U.S. shareholder level attributable to such CFC. The purpose of the basis adjustments rules of the PTEP regime is to prevent the earnings of a CFC from being taxed at the time of an income inclusion and again when the CFC shareholder sells his or her shares. When a U.S. shareholder has a…