tax law Archives | Page 3 of 30

02Feb 2022 by Anthony Diosdi

Planning Opportunities Available for Foreign Persons to Eliminate or Significantly Reduce Taxable Real Estate Gains through Shared Appreciation Loans and Income Tax Treaties

Tax Law

By Anthony Diosdi Foreign investors generally have the same goals of minimizing their income tax liabilities from their U.S. real estate as do their U.S. counterparts, although their objective is complicated by the very fact that they are not U.S. persons. That is, non-U.S. investors must be concerned not only with income taxes in the United States, but also income taxes in their home country. U.S. tax law contains the following two-pronged territorial system for taxing the U.S.-source income of nonresident individuals and foreign corporations: 1) U.S. trade or business profits- If a nonresident alien individual or foreign corporation is engaged in a trade or business within the United States, the net amount of income effectively connected with the conduct of that U.S. trade or business is taxed at the…

02Feb 2022 by Anthony Diosdi

Been Assessed Penalties by the IRS for Failing to Report a Foreign Pension Plan or Retirement Plan on Forms 3520 or 3520-A? Consider Requesting Relief Under Rev. Proc 2020-17

Tax Law

By Anthony Diosdi In an increasing global economy, workers are experiencing unprecedented mobility. As a result Americans and foreign nationals that become green card holders often participate in a pension or retirement plan in the foreign country. In most cases, the model resembles the one in the United States: Pretax money is contributed into retirement accounts where it accumulates tax-free until retirement. Unknown to many participants of these plans, the Internal Revenue Code often requires U.S. tax filers to disclose these plans on Internal Revenue Service (“IRS”) Form 3520 and/or Form 3520-A. The penalties for failing to disclose a foreign pension or foreign retirement plan on a Form 3520 and/or 3520-A can be substantial. Fairly recently, the IRS promulgated Rev. Proc. 2020-7. This revenue procedure provides an exemption from filing…

28Jan 2022 by Lynn Ching

The Good, The Bad and The Unknown Inherited Family Property In California How Much Will Proposition 19 Cost Your Children?

Tax Law

By Lynn K. Ching In the State of California, real property is reassessed at market value if it is sold or transferred and property taxes can sometimes increase dramatically as a result. However, prior to November 2020, children could inherit their parents’ primary residence and a second home (or rental property) without triggering a reassessment of the property. This was a boon to families. Parents were able to leave their primary residence (no value limit) and $1 million in any real property to their children, without a property reassessment. The children were about to take over the inherited property, without a big increase in property taxes. No longer. All of that changed when Proposition 19 was narrowly passed by California voters in November 2020. Now, children who inherit their parents’…

27Jan 2022 by Anthony Diosdi

State of California Residency Considerations for Non-resident Corporate Executives that are Physically Present in California Part-Time

Tax Law

By Anthony Diosdi Just like many Americans, executives from foreign countries are drawn to California for its natural beauty, nearly perfect weather, and its economy. To take advantage of California’s economic opportunities and natural beauty, many foreign executives establish a “part-time” residence in California. This may result in the executive being classified as a California resident for income tax purposes and being subject to California state income tax on the executive’s worldwide income. This article will discuss the factors the California taxing authorities consider in determining whether “part-time” resident can be classified as a resident for state income tax purposes.In order to go through the various tests the California taxing authorities use to determine tax residency, we will utilize a hypothetical individual named Tom. Let’s assume that Tom and his…

27Jan 2022 by Anthony Diosdi

Can Holding or Blocker Company be Used to Reduce GILTI Tax Liability?

Tax Law

By Anthony Diosdi The GILTI or “global intangible low-taxed income regime under Internal Revenue Code Section 951(a) captures a significant amount earned by a controlled foreign corporation (“CFC”). The U.S. federal income tax liability associated with GILTI is dramatically different to an individual CFC shareholder compared to domestic subchapter C corporation. Individual CFC shareholders are subject to GILTI tax at federal rates of up to 37 percent (plus 3.8 percent medicare tax, applicable state and local taxes). Absent planning, individual CFC shareholders cannot claim indirect foreign tax credit to reduce U.S. federal income tax liability. On the other hand, domestic C corporations are typically only subject to tax on GILTI inclusions at a Federal rate of 10.5 percent. In addition, a domestic C corporation may utilize an indirect foreign tax…

26Jan 2022 by Lynn Ching

Has the IRS Assessed You a Penalty for a Late Filed Form 3520-A? You May Be Eligible For an Abatement of Penalties Assessed or a Refund of Penalties Paid

Tax Law

By: Lynn K. Ching Penalties For Failure to File Form 3520-A. A foreign trust (including a foreign retirement trust) with a U.S. owner must file Form 3520-A in order for the U.S. owner to satisfy its annual information reporting requirements under IRC 6048(b). Failure to timely file the Form 3520-A may result in significant penalties. However, U.S owners of certain foreign tax favored retirement trusts, and eligible foreign tax favored non-retirement trusts established almost exclusively to provide or to earn income for the provision of medical, disability, or educational benefits, may be eligible for an exemption and an abatement of penalties assessed or a refund of penalties paid. IRS Says Certain Tax Favored Retirement Trusts Are Exempt From 3520-A Reporting Under IRS Revenue Procedure 2020-17 (“Rev Proc 2020-17”), certain U.S.…

25Jan 2022 by Anthony Diosdi

The Current State of the IRS OVDP and an Overview of the Pre-Clearance IRS CI Form 14457

Tax Law

By Anthony Diosdi As most tax practitioners know, on September 28, 2018, the Internal Revenue Service ended the most recent interaction of the Offshore Voluntary Disclosure Program (“OVDP”). While the OVDP as we know it sunset on September 28, 2018, this does not mean that individuals with undisclosed foreign financial accounts and/or unreported foreign income no longer have an avenue to make a voluntary disclosure to the IRS. On November 20, 2018, announced a new way of disclosing previously undisclosed foreign assets and/or foreign income. Since November 20, 2018, individuals who wish to disclose previously undisclosed foreign financial accounts and/or unreported foreign will need to rely on traditional voluntary disclosure practices when making voluntary disclosures to the IRS. This article discusses the current state of the IRS offshore voluntary disclosure…

25Jan 2022 by Anthony Diosdi

The Different Ways an LLC Can be Taxed a Look at the Check-The-Box Regulations

Tax Law

By Anthony Diosdi Probably one of the most frequent questions any tax professional receives from his or her clients is how should my limited liability company (“LLC”) be taxed. As usual in any area of tax planning, there is no one-size-fits-all approach. Each individual’s circumstances must be carefully considered in determining how an LLC should be taxed.An LLC is an entity formed under state law. Once an LLC is formed under state law, a determination must be made for federal (and in some cases for state tax purposes) how the LLC will be taxed. The Income Tax Regulations typically treat an LLC that has a single owner as a “tax nothing.” This means that a single-owner LLC is disregarded for tax purposes and treated as an extension of its owner.…

25Jan 2022 by Anthony Diosdi

The 2022 Guide to Income and Estate Taxation of Cryptocurrency and NFTs or Non-Fungible Tokens

Tax Law

By Anthony Diosdi Cryptocurrency has grown in popularity and ubiquity in the past few years. Cryptocurrency is a type of digital or virtual currency that uses cryptography for security. Virtual currency is a digital representation of value that functions as:1) A medium of exchange;2) A unit of account; and3) A store of value other than a representation of the United States dollar or a foreign currency. Cryptocurrency allows parties to transact directly without an intermediary using blockchain technology, a shared distributed ledger that verifies, records, and settles transactions on a secure, encrypted network. Although some major retainers accept cryptocurrencies like Bitcoin, cryptocurrency is not money. Money means coin and paper money that Congress declares is legal tender. Cryptocurrency is also unlikely to be a “security,” with the possible exception of…

25Jan 2022 by Anthony Diosdi

Planning Options to Defer the Recognition of Subpart F or GILTI Income- Section 962 Election vs. High-Tax Exception: The Epic Showdown

Tax Law

By Anthony Diosdi Prior to the enactment of the 2017 Tax Cuts and Jobs Act, Controlled Foreign Corporations (“CFCs”) were able to defer the U.S. taxation of foreign source income through tax planning. The 2017 significantly reduced (but did not eliminate) a CFC’s U.S. shareholder’s ability to defer the U.S. taxation of foreign source income. This article will discuss two remaining options available to CFC shareholders to defer the recognition of U.S. tax on foreign source income. CFC shareholders can make either a so-called 962 election or a high-tax exception (also known as a Section 954 election) to defer the taxation on foreign income. This article will compare and contrast each of these elections.Section 962 ElectionInternal Revenue Code Section 962 allows an individual U.S. shareholder of a CFC to elect…