tax law Archives | Page 4 of 30

20Jan 2022 by Anthony Diosdi

Don’t Expatriate from the U.S. to Avoid the PFIC or GILTI and Subpart F Regimes- Keep Your U.S. Citizenship and Become a Resident of Puerto Rico Instead

Tax Law

By Anthony Diosdi U.S. shareholders of controlled foreign corporations (“CFCs”) or passive foreign investment company stock or (“PFICs”) stocks use various planning options to reduce or defer U.S. taxation on foreign source income. Few of these investors understand that they can relocate to a tax haven to avoid the taxes associated with being a CFC or PFIC shareholder. So, just where is this tax haven? The tax haven is Puerto Rico.Puerto Rico is an unincorporated U.S. territory. Since Puerto Rico is an unincorporated U.S. territory, Internal Revenue Code Section 933(1) excludes U.S. federal income tax income derived from sources within Puerto Rico. After enduring economic hardship, Puerto Rico enacted Act 60 which provides some U.S. citizens a 100 percent exclusion from Puerto Rican income tax for all interest, dividends, and…

20Jan 2022 by Anthony Diosdi

The Corporate Transparency Act- A New FinCEN Filing Requirement With Significant Delinquency Penalties

Tax Law

By Anthony Diosdi The Corporate Transparency Act (“CTA”) was enacted on January 1, 2021, as part of the National Defense Authorization Act (“NDAA”). It effectively creates a national beneficial ownership registry. The CTA requires certain business entities to report beneficial owners and “applicants” to FinCEN. CTA is intended to strengthen anti-money laundering laws and countering terrorism financing. Section 6403(a)(b) of the CTA requires that, starting in 2022, newly formed U.S. corporations, limited liability companies, and certain other entities classified as a “reporting company” must report their beneficial ownership to Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“FinCEN”) at the time of formation or registration. Pre-existing reporting companies (those formed before the effective date of the CTA regulations), likely will start reporting in 2024, two years after…

18Jan 2022 by Anthony Diosdi

A Closer Look at Tax-Free Corporate Divisions or Type D Reorganizations

Tax Law

Corporate divisions involve the breaking of one corporation into multiple corporations. Such a transaction can be either taxable or tax-free. Corporate divisions tend to come in three basic flavors: spin-off, split-off, and split-up. Each variation involves a slightly different type of distribution of stock or securities. In general, if the transaction successfully runs the gauntlet of Internal Revenue Code Section 355, the tax treatment to the shareholders and the corporation will be the same regardless of whether the transaction is a spin-off, split-off, or split-up. In a spin-off, the distributing corporation distributes stock of a controlled corporation (a subsidiary) to its shareholders. This subsidiary may be either a recently created subsidiary “spun off” through the parent corporation’s transfer of assets in return for stock or an existing subsidiary. The shareholders…

18Jan 2022 by Anthony Diosdi

A Closer Look at Taxable Corporate Mergers and Acquisitions

Tax Law

Corporations sometimes purchase stock in other corporations to hold for investment or purchase assets from other corporations to hold for investment or to use for business operations. The tax lawyer generally would not refer to these day-to-day corporate purchases of stock or assets as corporate acquisitions. A “corporate acquisition” generally refers to an acquisition of control by one corporation over another. (For purposes of this article, “control” refers to the 80 percent control requirement under Internal Revenue Code Section 1504). One corporation may acquire control over another through two different transaction types. First, a simple asset acquisition from the target corporation itself offers the purchaser direct control over the selling corporation’s assets. Second, a stock acquisition from the target corporation’s shareholders provides the purchaser with indirect control over the selling…

18Jan 2022 by Anthony Diosdi

Stock Acquisitions Treated as Asset Acquisitions under Section 338

Tax Law

The starting point in any discussion of Internal Revenue Code Section 338 is the case of Kimbell-Diamond Milling Co. v. Commissioner, 14 T.C. 74 (1950), 187 F.2d 718 (5th Cir. 1951), cert. denied, 342 U.S. 827 (1951). The corporate taxpayer in Kimbell-Diamond sustained a fire casualty that destroyed its mill. In its search to replace the mill property, Kimbell-Diamond found Whaley, a target corporation with a comparable mill. Kimbell-Diamond purchased 100 percent of Whaley’s stock and shortly thereafter liquidated the target, thus acquiring direct ownership of the mill. The issue before the court was the proper basis of the mill for purposes of depreciation. Kimbell-Diamond argued that it had legitimately liquidated the target, Whaley, and that the mill should have the same basis in its hands that it had in…

18Jan 2022 by Anthony Diosdi

Can Chinese Investors in U.S. Real Estate Skirt the $50,000 Transfer Limit by Using Cryptocurrency Trading Agreements?

Tax Law

By Anthony Diosdi Chinese investors have a huge appetite for U.S. real property. However, many Chinese investors cannot buy U.S. real estate because local currency restrictions prevent them from transferring funds to the U.S. China controls inbound and outbound foreign exchange flows. If a Chinese citizen or business entity needs to make an overseas payment it is required to purchase the foreign funds with RMB (the Renminbi ‘RMB’ is the official currency of the People’s Republic of China) from a bank qualified to do foreign exchange business. Most banks in China are qualified to do foreign exchange business.When converting RMB to a foreign currency, the bank is required to review whether the outbound capital is for investment or for regular payment. Outbound capital investment refers to overseas equity investment and…

06Jan 2022 by Anthony Diosdi

Indirect Methods that the IRS Uses to Establish Criminal Tax Evasion and Potential Defenses

Tax Law

By Anthony Diosdi The most common forms of indirect methods of proving criminal tax evasion is the net worth plus non deductible expenditures method and the bank deposit method. These methods can be used in a single year; different methods can be used in different years in the same case; any of these methods can be combined with specific item proof or be made to stand on its own. To adequately prepare for an Internal Revenue Service (“IRS”) criminal tax evasion investigation, or to prepare properly for a criminal trial which will employ one of these methods, a criminal tax attorney must have a working knowledge of the varieties of circumstantial proof that can be gathered by an IRS special agent, the manner in which such evidence can be structured…

06Jan 2022 by Anthony Diosdi

The Importance of Digital Evidence and Digital Forensics in a Criminal Tax Case

Tax Law

By Anthony Diosdi Digital evidence permeates every aspect of the average person's life in today’s society. No matter what someone does these days, a digital footprint is likely being created that contains some type of digital evidence that is recoverable. Sending an email, drafting a document, or surfing the internet all creates digital evidence. The collection and analysis of this digital evidence could be extremely important in a criminal tax prosecution. Today, modern devices can serve as huge repositories of personal information yet be carried in a pocket and assessed with a single hand or even a voice command. In criminal tax cases, the Internal Revenue Service (“IRS”) typically seizes evidence through a search warrant with no forewarning to the persons in possession of the evidence. In many cases, the…

29Dec 2021 by Anthony Diosdi

One Potential Strategy Foreigner Investors Can Utilize to Transfer U.S. Real Property out of their Estate to Avoid the Estate and Gift Tax

Tax Law

By Anthony Diosdi Individuals that are not domiciled in the United States are subject to an estate and gift tax on the transfers of real property physically located in the United States. U.S. estate and gift taxes are charged at high effective rates (up to 40%) in the case of nonresident aliens, because the unified credit provides an exemption amount equivalent to just $60,000, an amount that has not increased in decades. See IRC Section 2101. For U.S. federal estate and gift tax purposes, the term “residency” means “domicile.” While the U.S. federal income tax concept of residency relates only to physical presence in a place for more than a transitory period of time, domicile relates to a permanent place of abode. For U.S. federal estate tax purposes a person…

29Dec 2021 by Anthony Diosdi

Anything You Email Can and Will Likely be Used Against You in a Criminal Tax Case- Unless an Exception Applies to Exclude the Email

Tax Law

By Anthony Diosdi When an individual is charged with murder, the focus of the investigation is directed immediately to a limited historical event. Questions of where the defendant was on the night in question, what his relationship was to the victim, whether he had any motive to kill the victim, can be pursued immediately by both the prosecution and the defense. Criminal tax cases are different. Most criminal tax investigations start with a defendant and seek to find crime. This is the case whether a tax crime was committed yesterday or five years ago. If the initial suspicion that precipitated the investigation proves worthless, it does not mean that the individual being investigated by the Internal Revenue Service (“IRS”) gets off “scot free.” There are other years and other transactions…