International Tax Blog

Inbound Overview Flowchart (for Sale)

2013-05-10T11:40:37-04:00

Today our sister website, Tax-Charts.com, published a flowchart that provides an overview of the U.S. tax “inbound” rules. The inbound rules deal with the U.S. taxation of income earned by non-U.S. persons.

Specifically, the Inbound Overview flowchart outlines the rules to determine (i) when gross income is effectively connected with a U.S. trade or business, and (ii) whether U.S. source fixed or determinable annual or periodical (“FDAP”) income is subject to the U.S. 30% tax on gross income.

The Inbound Overview flowchart is available for sale for $149.

Barnes Group - Structured Repatriation Was a Dividend

2013-05-10T07:55:31-04:00

Last month the Tax Court issued its opinion in Barnes Group, Inc. v. Commr., T.C. Memorandum 2013-109.

In the case, Barnes indirectly owned 100% of ASA, a Singapore controlled foreign corporation. ASA had excess cash that Barnes wanted to repatriate to the U.S. However, Barnes would have had to pay U.S. tax if ASA had distributed the cash as a dividend to Barnes, or if ASA had loaned the cash to Barnes.

Barnes sought advice from multiple advisors looking for methods to repatriate the cash without paying U.S. tax. After rejecting advice from Ernst & Young and Deloitte Touche, Barnes spoke with PriceWaterhouseCoopers (“PwC”). PwC suggested a plan in which the cash could be repatriated in a tax free manner through two Code §351 exchanges.

In the first Code §351 exchange, ASA and Barnes transferred cash to a Bermuda corporation (“Bermuda”) in exchange for Bermuda stock. In the second Code §351 exchange, Bermuda transferred cash and Barnes transferred Bermuda common stock to a Delaware corporation (“Delaware”) in exchange for Delaware stock. Delaware then loaned the cash to Barnes.

Although Bermuda’s ownership of shares in Delaware was an investment in U.S. property under Code §956, the taxpayer argued that Bermuda’s basis in the Delaware shares was zero (under Rev. Rul. 74-503) and that the 956 inclusion should therefore be zero.

The Tax Court held that the cash that started at ASA and ended at Barnes was in substance a dividend and was taxable to Barnes under Code §301. Shown below is a chart of the case (here for PDF of Barnes):

Q1 2013 - Highest Quarterly Number of Expatriates Ever (But . . . )

2013-05-08T11:13:27-04:00

Today the Treasury Department published the names of individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) during the first quarter of 2013.

The number of Published Expatriates was 679. This is the highest quarterly number of Published Expatriates ever. However, the prior quarter number of expatriates (Q4 2012) was only 45. For the 8 quarters prior to the fourth quarter of 2012, the average number of names listed per quarter was 383. The average of the two quarters (Q4 2012 and Q1 2013) is 362. It appears that the government forgot to include some of the names in the Q4 2012 list, and that they have now included those names in the Q1 2013 list.

The following graph shows the quarterly number of Published Expatriates since 2005.

Section 911 Housing Cost Amounts Updated for 2013

2013-05-06T12:00:08-04:00

Recently the IRS published Notice 2013-31 which provides adjustments to the limitation on housing expenses for specific locations in 2013.

Code §911(a) allows a qualified individual to elect to exclude from gross income an “Exclusion Amount” related to foreign earned income and a “Housing Cost Amount”. The Exclusion Amount for 2013 is $97,600.

The Housing Cost Amount is generally defined as an amount equal to the excess of (A) the “Housing Expenses” of an individual for the taxable year, over (B) 16% of the Exclusion Amount.

For example, if an individual had Housing Expenses during 2013 of $20,000, the Housing Cost Amount that could be excluded from that individual’s income would be $4,384 (20,000 - [97,600 X 16%]).

Housing Expenses, however, are generally limited to an amount equal to 30% of the Exclusion Amount in effect for the calendar year ($29,280 for 2013). Thus, the maximum Housing Cost Amount for 2013 which is excludible from income would generally be $13,664 ($29,280 - [97,600 X 16%]).

The I.R.S. is authorized to issue guidance to adjust the limit on Housing Expenses based on geographic differences in housing costs relative to housing costs in the United States. Pursuant to this authority, the I.R.S. published Notice 2013-31 to provide adjustments to the limitation on Housing Expenses for high cost locations.

For example, the limitation on Housing Expenses for 2013 in Tokyo is $117,100. Therefore, an individual living in Tokyo with housing expenses in 2013 of $117,100 or more could exclude from income an amount of $101,484 ($117,100 - [97,600 X 16%]).

An individual generally qualifies for Code §911 during the period which the individual meets the tax home requirement and either the bona fide residence requirement or the physical presence requirement. If it is the first year or the last year that an individual meets these requirements, the amounts above are prorated for the year accordingly.

Code §911 Foreign Earned Income Exclusion - Adverse Conditions

2013-04-12T03:17:40-04:00

Revenue Procedure 2013-23 announced that the Central African Republic, Sudan and Tunisia are the only three countries for 2012 where it was determined that war, civil unrest, or similar adverse conditions precluded the normal conduct of business for purposes of Code § 911. The effective date for the Central African Republic was December 28, 2012, the effective date for Sudan was September 15, 2012, and the effective date for Tunisia was September 15, 2012.

Code § 911(a) allows a “qualified individual” to exclude foreign earned income and housing cost amounts from gross income, typically referred to as the “foreign earned income exclusion.” Code § §911(d)(1) defines the term “qualified individual” as an individual whose tax home is in a foreign country and who is:

(A) a citizen of the United States and establishes to the satisfaction of the Secretary of the Treasury that the individual has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire taxable year, or

(B) a citizen or resident of the United States who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days.

Code § 911(d)(4) provides an exception to the eligibility requirements of Code § 911(d)(1) if the individual left the country during a period for which the Secretary of the Treasury, after consultation with the Secretary of State, determines that individuals were required to leave because of war, civil unrest, or similar adverse conditions that precluded the normal conduct of business.

For purposes of Code § 911, an individual who left the Central African Republic, Sudan, or Tunisia on or after the specified dates during 2012 will be treated as a qualified individual with respect to the period during which that individual was present in, or was a bona fide resident of, such foreign country. However, to meet this exception, the individual must also establish that but for those conditions the individual could reasonably have been expected to meet the eligibility requirements.

International PLRs & CCA of the 11th week of 2013

2013-03-22T00:01:54-04:00

Last week the IRS published the following Private Letter Rulings and Chief Counsel Advice relating to international taxation.

PLR 201311001 - Consent was granted to change methods for measuring and timing and identifying employee stock options, restricted stock units, and performance-based restricted stock units pursuant to Treas. Reg. §1.482-7(d)(3)(iii)(C) for purposes of determining the amount the taxpayer must include in its cost sharing arrangement as intangible development costs.

PLR 201311004 - The generation-skipping transfer tax does not apply to taxable distributions or taxable terminations to the extent the initial transfer of property to the trust by a nonresident alien transferor was not subject to the federal estate or gift tax. Distributions from a foreign estate and terminating distributions from a foreign trust were not subject to generation-skipping transfer tax.

PLR 201311006 - Lawsuit damages payments were excluded from the gross income of nonresident aliens under Code §104(a)(2). Consequently, the payments were not subject to withholding under Code §1441.

PLR 201311008 - Late entity classification election for a foreign entity to be treated as an association. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201311013 - Late entity classification election for a foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201311014 - Late passive foreign investment company ("PFIC") mark-to-market election. Form 8621. Treas. Reg. §1.1296-1(h).

PLR 201311018 - Consent granted to prospectively change method for measuring employee stock options and restricted shares as well as the method for identification pursuant to Treas. Reg. §1.482-7(d)(3)(iii)(C) and Notice 2005-99.

CCA 201311024 - 863(c), ocean activity income vs. transportation income from leasing a vessel.

International PLRs of the 10th week of 2013

2013-03-21T23:28:08-04:00

Two weeks ago the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201310016 -US Parent is the common parent of an affiliated group. US Parent is a wholly-owned subsidiary of Foreign Parent, which is a publicly-traded Country Z entity. US Parent owns all of the issued and outstanding stock of Subsidiary 1. Subsidiary 1 owns all of the issued and outstanding stock of Subsidiary 2.

In order for Subsidiary 2 to perform certain contracts, it needs security clearances. Because of the indirect foreign ownership of stock in Subsidiary 2, Subsidiary 2 must be effectively insulated from foreign ownership, control, or influence in order to maintain those clearances. To create a security measure designed to insulate Subsidiary 2 from any foreign control or influence that might arise from Foreign Parent’s indirect ownership of stock in Subsidiary 2, Foreign Parent, US Parent, Subsidiary 1, and Subsidiary 2 became parties to a Special Security Agreement (“SSA”). Under the SSA, the management of Subsidiary 2 must be conducted by a board of directors that is constituted in accordance with, and whose powers are defined by, certain requirements (described below) related to national security. These requirements do not impact Subsidiary 1’s economic interest in, and rights with respect to, Subsidiary 2.

The SSA does not prevent Subsidiary 2 from being a member of the affiliated group (within the meaning of section 1504(a)) of which US Parent is the common parent or prevent Subsidiary 2 from joining in the filing of a consolidated federal income tax return (within the meaning of sections 1501 and 1502 and the regulations thereunder) with such affiliated group.

PLR 201310018 - Late IC DISC election. Form 4876-A, Code §992(b)(1)(A).

International PLRs of the 9th week of 2013

2013-03-04T11:32:18-05:00

Last week the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201309001 - Late Canadian registered retirement savings plan ("RRSP") deferral election. Form 8891. Rev. Proc. 2002-23.

PLR 201309011 - Certain funds of a foreign corporation that had elected to be treated as a domestic corporation under Code §953(d) did not fail the diversification requirements of Code §817(h).

International PLRs of the 8th week of 2013

2013-02-26T07:21:29-05:00

Last week the IRS published the following Private Letter Rulings relating to international taxation.

Late Canadian registered retirement savings plan ("RRSP") deferral election. Form 8891. Rev. Proc. 2002-23.

PLR 201308003

PLR 201308006

Late entity classification election for a foreign entity to be treated as a corporation. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201308012

PLR 201308013

PLR 201308014

PLR 201308023 - Permission granted for early re-election of 911 exclusion. Form 2555. Treas. Reg. §1.911-7(b).

International PLR of the 7th week of 2013

2013-02-20T08:41:40-05:00

Last week the IRS published the following Private Letter Ruling relating to international taxation.

PLR 201307003 - Late Canadian registered retirement savings plan ("RRSP") deferral election. Form 8891. Rev. Proc. 2002-23.

48% Decrease in Number of Expatriates for 2012

2013-02-14T07:45:14-05:00

The number of Published Expatriates for the fourth quarter of 2012 was 45, and in 2012 the total number of expatriates was 932. The number of expatriates for 2012 decreased by 48% compared to 2011.

The following graph shows the annual number of Published Expatriates from 1998 to 2012:

The following graph shows the quarterly number of Published Expatriates from 2005 to 2012:

FATCA, NFFEs, and Draft W-8BEN-E - Unnecessary Complexity

2013-02-13T14:11:38-05:00

The U.S. Treasury Department recently finalized the FATCA regulations.(FN 1)

The bulk of the regulations deal with certain U.S. source payments to foreign financial institutions (“FFIs”).

However, the regulations also require a withholding agent to generally withhold 30% of certain U.S. source payments (made after December 31, 2013) to a payee that is a non-financial foreign entity (“NFFE”) unless three requirements are met. The three requirements are:

The beneficial owner of the payment is the NFFE or another NFFE;
The withholding agent can treat the beneficial owner of the payment as an NFFE that does not have any substantial U.S. owners, or as an NFFE that has identified its substantial U.S. owners; and
The withholding agent reports certain information relating to substantial U.S. owners of the NFFE.(FN 2)

Simple Reporting in Many Circumstances

In many circumstances it will be quite easy to confirm that the NFFE has no substantial U.S. owners or to identify who the substantial U.S. owners are. For example, a Canadian non-financial company that is wholly owned by a Canadian citizen who lives in Canada should be able to easily certify that it is the beneficial owner of a payment and that it has no substantial U.S. owners.

Similarly, if that same Canadian company were 50% owned by the Canadian citizen and 50% owned by a U.S. citizen, the company should be able to easily certify that it is the beneficial owner of a payment and that it has a 50% substantial U.S. owner. The reporting of the substantial U.S. owner will be done on I.R.S. Form 8966 (or such other form as the I.R.S. may prescribe).(FN 3)

Excepted NFFEs

No withholding is required under the FATCA rules if the payment is beneficially owned by an “excepted NFFE.”(FN 4) Excepted NFFEs include:

Publicly traded companies;
Affiliates of publicly traded companies;
Certain entities organized in U.S. territories;
Active NFFEs;
Certain non-financial entities (such as holding companies, treasury centers, captive financial companies of a non-financial group, start-up companies, liquidating or bankrupt companies, and not-for-profit organizations).

An “active NFFE” is an entity that meets an income test and an asset test.(FN 5) Under the income test, the entity must have less than 50% of its gross income for the preceding calendar year as passive income. Under the asset test, the entity must have less than 50% of its assets for the preceding calendar year as passive assets (i.e., assets that produce or are held for the production of passive income).

Very generally, “passive income” can be thought of as investment income, such as dividends, interest, rents and royalties (other than certain active rents and royalties), annuities, the excess of gains over losses from the sale or exchange of the foregoing types of property, etc.(FN 6)

A “passive NFFE” is an NFFE other than an excepted NFFE.(FN 7)

Draft Form W-8BEN-E

The current draft version of the Form W-8BEN-E (found here) is eight pages long and has 25 parts.

Parts 1, 2, 3, and 24 represent the four parts included in the existing W-8BEN. Parts 4 through 22 include various categories, including multiple types of FFIs and excepted NFFEs.

Part 23 addresses passive NFFEs and requires that the foreign entity certify that (i) it is not a financial institution, (ii) it is not an excepted NFFE, and (iii) either (a) it has no substantial U.S. owners, or (b) it has provided certain information about each of its substantial U.S. owners in Part 25 of the form.

Unnecessary Complexity

Unfortunately, the way that the W-8BEN-E is currently drafted, a foreign non-financial entity must certify that it is either an active NFFE (in Part 22) or a passive NFFE (in Part 23). If it is an active NFFE, then there is no need to provide information about the substantial U.S. owners. If it is a passive NFFE, then it must provide information about the substantial U.S. owners in Part 25 of the form.

As currently drafted, there is no option to avoid the legwork required to determine whether the NFFE is active or passive, and to simply volunteer the information about the substantial U.S. owners (or lack thereof).

To determine whether a foreign entity is an active or passive NFFE, both its income statement and its balance sheet must be reviewed for the prior calendar year. What if the NFFE has a fiscal year rather than a calendar year? Must calendar year financial statements be created and reviewed? What if there are substantial book-tax differences? Are assets valued on a fair market value basis or using U.S. tax basis? If using fair market value, must a valuation be performed? If using U.S. tax basis, has the foreign entity been tracking the U.S. tax bases of its assets (even though it may be 100% foreign owned)?

Foreign non-financial entities should be able to avoid making the determination as to whether they are active or passive NFFEs. The NFFE would voluntarily provide the information about the substantial U.S. owners (or lack thereof). The I.R.S. would get the information that it seeks without requiring an extensive analysis to be performed with respect to the foreign entity’s financial statements.

The Form W-8BEN-E should be modified to allow a NFFE to volunteer the substantial U.S. owner information in Part 25 and not have to certify that it is or is not an active NFFE (or any other type of excepted NFFE). One can only hope that the Treasury Department will add this simplification to the final Form W-8BEN-E.

________________________________________________

Footnotes:

1 Treasury Decision 9610.

2 Treas. Reg. §1.1472-1(b)(1).

3 Treas. Reg. §1.1474-1(i)(2).

4 Treas. Reg. §1.1472-1(c).

5 Treas. Reg. §1.1472-1(c)(1)(iv).

6 Id.

7 Treas. Reg. §1.1471-1(b)(88).

International PLR of the 6th week of 2013

2013-02-11T17:21:58-05:00

Last week the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201306007 - Code §1504(a) - A U.S. company was acquired by a foreign parent. A subsidiary of the U.S. company (“Proxy Sub”) was required to have security clearances granted by the U.S. Government. Because of the foreign indirect ownership of stock in Proxy Sub, the U.S. Government required that Proxy Sub be effectively insulated from foreign ownership, control, or influence in order to maintain the security clearances.

Various entities in the chain of ownership executed a Proxy Agreement whereby certain resident U.S. citizens, as Proxy Holders, became directors of Proxy Sub. The equity interest in Proxy Sub was deposited with the Proxy Holders in order to enforce the terms of the Proxy Agreement; however the Proxy Holders did not own an economic interest in Proxy Sub.

The Proxy Holders were the only parties with the right to vote with respect to the management of Proxy Sub. In their role as directors, the Proxy Holders were specifically authorized to take certain actions such as the appointing or removing of non-Proxy Holder directors at their sole discretion.

The ruling held that Proxy Sub will be a member of the U.S. affiliated group and will be permitted to join in the filing of a consolidated federal income tax return.

PLRs of the 5th week of 2013

2013-02-01T15:24:01-05:00

Yesterday the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201305002 - Late IC DISC election. Form 4876-A. Code §992(b)(1)(A).

PLR 201305006 - Contractual arrangement treated as a separate foreign business entity for which a check-the-box election could be made to treat the arrangement as a foreign corporation for U.S. tax purposes. Treas. Reg. §301.7701-2, -5. Form 8832.

In the PLR, the Taxpayer intended to enter into a joint venture with an Affiliate by executing a “profit participation agreement (the “Agreement”) under which Affiliate will acquire a percentage interest in the capital, profits, and losses of the Taxpayer’s branches in a particular region in return for a cash investment. No separate juridical legal entity will be created and the Taxpayer will retain legal ownership of all assets, liabilities, and contractual obligations of the region branches. The Agreement (i) will be signed outside the U.S., (ii) will be governed by the laws of a foreign country, and (iii) will be subject to the exclusive jurisdiction of the foreign courts.

International PLRs of the 4th week of 2013

2013-01-26T07:33:09-05:00

Yesterday the IRS published the following Private Letter Ruling relating to international taxation.

PLR 201304001 - Late IC DISC election. Form 4876-A. Code §992(b)(1)(A).

Form 5471 Videos

2013-01-25T11:31:15-05:00

Today we published two videos discussing Form 5471, Information Return of U.S. Person With Respect to Certain Foreign Corporations. The first video discusses page 1 of Form 5471 and it is about 7 minutes long. The second video discusses pages 2 - 4 of Form 5471 and it is about 10 minutes long.

Form 5471, Page 1

Form 5471, Pages 2 - 4

International PLRs of the 3rd week of 2013

2013-01-19T13:12:22-05:00

Yesterday the IRS published the following Private Letter Ruling relating to international taxation.

PLR 201303005 - Extension of time granted to make an election under Code §953(d) for a foreign insurance company to be treated as a domestic corporation for U.S. tax purposes.

International PLRs for the 2nd week of 2013

2013-01-19T13:11:02-05:00

Last week the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201302010 - Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") election. Form 8621. Treas. Reg. §1.1295-3(f).

PLR 2012011 - Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") election. Form 8621. Treas. Reg. §1.1295-3(f).

PLR 2012012 - Late entity classification election for a foreign entity to be treated as a partnership. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 2012019 - Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") election. Form 8621. Treas. Reg. §1.1295-3(f).

PLR 2012020 - Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") election. Form 8621. Treas. Reg. §1.1295-3(f).

Free Section 351 Exchange Flowchart

2013-01-18T11:33:36-05:00

Today our sister website, Tax-Charts.com, published a free flowchart regarding the requirements for a “tax-free” exchange under Code §351. The flowchart includes the three primary requirements under Code §351 (transfer of property, in exchange for stock, and control), as well as the numerous modifications and exceptions these requirements. Some of the specials rules include:

Stock received from underwriters,
Stock received for services,
Property contributed of a relatively small value,
Post-exchange transfers of stock, and
Diversification rules for investment companies.

Although the flowchart addresses the assumption of liabilities as potentially being “boot,” it does not address which types of liabilities assumed are treated as boot under Code §357.

The flowchart is available for free here and a printable version of the flowchart can be found here.

International PLRs of the 1st week of 2013

2013-01-04T21:12:25-05:00

Yesterday the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201301005: Late entity classification election for a foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201201006: Late entity classification election for a foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

Senate Fiscal Cliff Bill Includes Retroactive Reinstatement of CFC Look-Thru Rule

2013-01-01T14:18:39-05:00

Section 323 of the current version of the fiscal cliff bill that passed the Senate last evening includes a retroactive reinstatement of the CFC look-thru rule under Code §954(c)(6). Under the current version, the CFC look-thru rule would apply for all of 2012 and for 2013.

See section 323 of the Bill

International PLRs of the 52nd Week of 2012

2012-12-28T08:56:44-05:00

Yesterday the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201252002: Two Code §368(a)(1)(A) reorganizations, three Code §368(a)(1)(D) reorganizations, and two Code §351 exchanges involving foreign corporations.

PLR 201252008: Multiple cross-chain sales of foreign corporations to which Code §304 applied and a Code §331 liquidation of a foreign corporation resulting from a check-the-box election in which loss was recognized.

PLR 201252011: Amalgamation of a foreign newco and a foreign target was treated as a Code §368(a)(1)(F) reorganization followed by a Code §338 qualified stock purchase for which a Code §338(g) election could be made.

International PLRs & CCA’s of the 51st week of 2012

2012-12-27T12:33:44-05:00

Last week the IRS published the following Private Letter Rulings and Chief Counsel Advice relating to international taxation.

PLR 201251003: Shares of a domestic corporation were transferred to foreign corporation in order to deconsolidate the domestic corporation. Code §1502.

PLR 201251005: A real estate investment trust’s (REIT’s) deemed inclusions as Subpart F Income under Code §951 and passive foreign investment company (“PFIC”) inclusions under Code §1293 are considered qualifying income under Code §856(c)(2). In addition, currency gain or loss under Code §986(c) is also considered qualifying income under Code §856(c)(2).

CCA 201251012: “DOM,” a U.S. citizen who resides in the U.S. and operates a sporting event bookmaking business, contracts with a foreign corporation (“FOR”) to maintain betting information about DOM’s bettors. FOR’s participation in the arrangement is limited to data maintenance. DOM is accepting wagers and is liable for the Code §4401 excise tax on wagers.

CCA 201251015: Brief email indicating that a taxpayer would be eligible under Article 19 of a treaty for the $5,000 annual exclusion for a period of no more than 5 years.

The de-consolidation effected in PLR 201251003 can be graphically represented as (for a PDF click here):

International PLRs for the 50th week of 2012

2012-12-20T15:26:55-05:00

Last week the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201250001 - A nonresident alien (“NRA”) who was an income beneficiary of trusts created by her father proposed to release her income interests to the remainder beneficiaries (her descendants). The NRA’s income interests in the trusts constituted intangible property (within the meaning of Code §2501(a)(2)), not tangible or real property. Consequently, the transfer was not subject to U.S. gift tax. In addition, the release of the income interests was not a “qualified disclaimer” as defined in Code §2518(b), and it was not subject to the generation-skipping transfer (GST) tax.

PLR 201250004 - Inbound "F" reorganization and foreign to foreign "D" reorganizations (complex fact pattern - 18 pages long).

PLR 201250016 - Late entity classification election for a foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

Teaching International Tax at Quinnipiac University School of Law

2012-12-20T11:05:55-05:00

I am proud to announce that in a few weeks I will start teaching as an adjunct professor at Quinnipiac University School of Law.

Quinnipiac is an ABA accredited law school located in Hamden, Connecticut. The campus is right across from the picturesque Sleeping Giant Mountain. Below is a picture I took while visiting Quinnipiac the other day.

I am excited about this opportunity to teach the International Tax class at Quinnipiac.

International PLRs of the 49th week of 2012

2012-12-13T11:48:40-05:00

Last week the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201249008 Late entity classification election for a foreign entity to be treated as a partnership. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201249014 Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") election. Form 8621. Treas. Reg. §1.1295-3(f).

Doctrine of Constructive Receipt

2012-12-13T11:43:57-05:00

In international tax planning, one of the issues that frequently comes up is whether certain income that is not technically received by a taxpayer is nonetheless taxable to them because they “turned their back” on receiving the income. The rule that makes such income currently taxable to the taxpayer is known as the “constructive receipt doctrine.”

The constructive receipt doctrine is defined in Treas. Reg. §1.451-2(a) as the following:

General rule. Income although not actually reduced to a taxpayer’s possession is constructively received by him in the taxable year during which it is credited to his account or set apart for him so that he may draw upon it at any time. However, income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions. Thus, if a corporation credits its employees with bonus stock, but the stock is not available to such employees until some future date, the mere crediting on the books of the corporation does not constitute receipt.

Many cases have dealt with the constructive receipt doctrine or doctrines of a similar nature. For example, in Lucas v. Earl,(FN 1) it was held that the taxpayer was liable for income tax upon the whole of his salary and attorney’s fees even though he had made a valid prior assignment of one half of those amounts to his wife, and the Supreme Court, speaking through Mr. Justice Holmes, said:

[T]he tax could not be escaped by anticipatory arrangements and contracts however skillfully devised to prevent the salary when paid from vesting even for a second in the man who earned it. * * * [N]o distinction can be taken according to the motives leading to the arrangement by which the fruits are attributed to a different tree from that on which they grew.(FN 2)

In Corliss v. Bowers,(FN 3) the Supreme Court, considering a revocable trust created by a husband in favor of his wife, established the principle that the power to revoke the trust and regain control of the income producing property makes the holder of that power liable for taxes on the income from that source. Mr. Justice Holmes, again speaking for the Court, said:

But taxation is not so much concerned with the refinements of title as it is with actual command over the property taxed--the actual benefit for which the tax is paid. * * * The income that is subject to a man’s unfettered command and that he is free to enjoy at his own option may be taxed to him as his income, whether he sees fit to enjoy it or not.(FN 4)

These principles were applied in Helvering v. Horst.(FN 5) In that case the owner of certain coupon bonds detached certain coupons which fell due during the year and gave them to his son. In due course the coupons were paid to the son but it was held that the donor realized income in the year equal to the face amount of the coupons. The Supreme Court explained its reasoning:

The power to dispose of income is the equivalent of ownership of it. The exercise of that power to procure the payment of income to another is the enjoyment, and hence the realization, of the income by him who exercises it.(FN 6)

The constructive receipt doctrine is an important principle to keep in mind when doing any type of tax planning.

________________________________________________

Footnotes:

1 281 U. S. 111 (1930).

2 281 U. S. at 115.

3 281 U. S. 376 (1930).

4 281 U. S. at 378.

5 311 U. S. 112 (1940).

6 311 U. S. at 118.

International PLRs of the 48th week of 2012

2012-11-30T11:10:39-05:00

This week the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201248002 - Granted request to revoke a Code §1504(d) election to treat a contiguous country corporation as a domestic corporation. The revocation was treated as an outbound F reorganization, with a termination of the year under Treas. Reg. §1.367(a)-1T(e) and deemed exchanges under Treas. Reg. §1.367(a)-1T(f).

Although the ruling provided that the transaction would be "tax free" under Code §368(a)(1)(F), it explicitly did not express an opinion as to how Code §§367(a) and (d), 987, 1503(d), 904(f), and the regulations thereunder, would apply to the transaction.

PLR 201248005 - Late entity classification election for a foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201248009 - Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") election. Form 8621. Treas. Reg. §1.1295-3(f).

PLR 201248010 - Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") election. Form 8621. Treas. Reg. §1.1295-3(f).

Summary of Form 8938 Filing Thresholds

2012-11-28T08:43:40-05:00

Below is a table summarizing the filing thresholds for Form 8938. If an individual's foreign financial assets exceed either the year end threshold or the during the year threshold, then the individual must file Form 8938.

The IRS has a nice comparison table showing the types of assets that need to be included on Form 8938 versus the FBAR at Form 8938 / FBAR comparison.

International PLRs of the 47th week of 2012

2012-11-24T07:58:16-05:00

This week the IRS published the following Private Letter Rulings and Chief Counsel Advice relating to international taxation.

PLR 201247002: Late entity classification election for foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201247003: Late entity classification election for foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

CCA 201247013: A U.S. citizen cannot be treated as a nonresident alien under a “tie-breaker” provision of the Israeli treaty.

CCA 201247015: The term “gross income” (for purposes of the 25% omission from gross income in computing the 6 year statute of limitations under Code §6501(e)) has the same meaning as the general definition under Code §61(a). “Gross income” for this purpose includes the entire net gain on the disposition of passive foreign investment company (“PFIC”) stock and not only the portion taxed as ordinary income and included in taxable income.

International PLRs of the 46th week of 2012

2012-11-24T07:49:56-05:00

This week the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201246006 - Late entity classification election for foreign entities to be treated as partnerships. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201246014 -Late entity classification election for a foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201246015 -Late entity classification election for a foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201246016 -Late entity classification election for a foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201246021 -Extension of time granted to file Code §338(g) elections for qualified stock purchases of four controlled foreign corporations by a disregarded entity of an S corporation.

PLR 201246027 -Code §355 spin-offs involving U.S. corporations that are directly or indirectly owned by a foreign parent company.

International PLRs of the 45th week of 2012

2012-11-24T07:35:22-05:00

This week the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201245003: A Mexican fideicomiso (or Mexican Land Trust) was not a trust for U.S. tax purposes.

PLR 201245006 - Foreign trust treated as grantor trust. Following the death of a nonresident alien taxpayer/grantor of a foreign trust, the basis of the property held in the trust will be the fair market value of the property at the date of taxpayer’s death under Code §1014(a). Code §672(f) will not prevent taxpayer from being treated as the owner of the trust. The taxpayer will be treated as the owner of the trust under Code §677(a). The trustees of the trust are required are to pay all of the income of trust to the taxpayer during his lifetime and may, in the trustees’ absolute discretion, pay principal of trust to the taxpayer. Upon the death of the taxpayer, any income of the trust and any corpus remaining in the trust are to be paid or transferred to or in trust for one or more of taxpayer’s issue in such proportions as the taxpayer may appoint by deed or will. In default of appointment, corpus and accumulated income will be held in further trust for the benefit of the taxpayer’s issue. During the taxpayer’s lifetime no adverse party within the meaning of Code §672(a) is eligible to serve as trustee.

I.R.S. Rules that Mexican Fideicomiso is Not a Trust

2012-11-15T08:02:10-05:00

Yesterday the I.R.S. released PLR 201245003, which concluded that a Mexican fideicomiso (or Mexican Land Trust) was not a trust for U.S. tax purposes. If a Mexican fideicomiso is not a trust, then it is not a foreign trust and no Form 3520 or 3520-A would need to be filed.

In the ruling, a U.S. corporation (“X”) was formed that was owned by a husband and wife (“A and B”). A and B caused X to purchase a condominium in Mexico. X signed a fideicomiso or Mexican Land Trust (“MLT”) agreement with a Mexican Bank (“Bank) and the public deed to the condominium was recorded in the name of the Bank.

The Mexican Federal Constitution prohibits non-Mexican citizens from owning real property located within 100 kilometers of Mexico’s inland borders or within 50 kilometers of its coastline. These areas are known as the “restricted zone” and only Mexican citizens (or Mexican corporations whose bylaws forbid the ownership of stock by non-Mexican citizens) are allowed to directly own real property within the restricted zone.

The condominium was located within the restricted zone. X, A, and B are not Mexican citizens and are thus prohibited from directly owning the condominium. Accordingly, in order for X to acquire the condominium, X was required to obtain a permit from the Mexican Ministry of Foreign Affairs and to purchase the beneficial interests in the MLT under which legal title to the condominium was held by the Bank, a Mexican bank.

A and B negotiated directly with the seller of the condominium regarding the terms of the sale, paid the seller directly, and had no interactions with the Bank. X has the unrestricted right to sell or mortgage the condominium and does not require the permission of the Bank to do either. X is directly responsible for all tax obligations and is required to pay any taxes due directly to the Mexican taxing authority. A and B, through X, have the exclusive right to possess the condominium and to make any desired modifications, limited only by the need to obtain the proper licenses and permits. If the condominium is leased, X directly receives the rental income and must pay taxes on the income. X represents that the condominium is not ordinarily leased and if it is leased in the future, the income will be reported on the appropriate U.S. federal income tax return. The Bank collects an annual fee and disclaims all responsibility for the condominium, including obtaining clear title, and has no duty to defend or maintain the condominium. As part of the arrangement, the Bank holds only legal title to the condominium. Accordingly, the Bank does not hold or accept cash or any other property under the MLT arrangement other than legal title to the condominium.

X sought, and received, a private letter ruling that its MLT agreement with Bank was not a trust for U.S. federal income tax purposes. The private letter ruling relied on Rev. Rul. 92-105. Under the facts of Rev. Rul. 92-105, a single taxpayer created an Illinois land trust and named a domestic corporation as trustee. Under the deed of trust, the taxpayer transferred legal and equitable title to real property to the trust, subject to the provisions of an accompanying land trust agreement. The land trust agreement provided that the taxpayer retained exclusive control of the management, operation, renting, and selling of the real property, together with an exclusive right to the earnings and proceeds from the real property. Under the agreement, the taxpayer was required to file all tax returns, pay all taxes, and satisfy any other liabilities with respect to the real property.

Rev. Rul. 92-105 concluded that, because the trustee’s only responsibility was to hold and transfer title at the direction of the taxpayer, a trust, as defined in Treas. Reg. §301.7701-4(a), was not established. Instead, the trustee was a mere agent for the holding and transfer of title to real property, and the taxpayer retained direct ownership of the real property for federal income tax purposes.

PLR 201245003 held that the above described fideicomiso was similar to an Illinois Land Trust. The sole purpose of the fideicomiso/MLT was to satisfy the Mexican Federal Constitution by vesting legal title to the property in the name of the trustee. The trustee’s sole responsibility for the property was to hold and transfer title at the exclusive direction of the taxpayer. The trustee had no duty and no right to defend, maintain, or manage the property.

The taxpayer retained sole authority to manage and control the property, the direct right to collect any rents or proceeds generated by the property, and the direct obligation to pay all taxes and liabilities related to the property.

The I.R.S. also noted that there was no arrangement between Bank, X, A, B or any other person to utilize the condominium in an activity for profit, such that ownership of the condominium could be classified as a business entity.

This ruling has broad implications for many taxpayers owning real estate in Mexico. Taxpayers for years have had questions about whether Mexican fideicomisos are trusts. Some of these taxpayers may have even entered into voluntary disclosure programs and paid significant penalties over the fear that they may be subject to various penalties. However, if a Mexican fideicomiso is not a trust, then it is not a foreign trust, and no Form 3520 or Form 3520-A would be required to be filed.

Of course, private letter rulings are directed only to the taxpayer requesting it and they may not be used or cited as precedent. However, Rev. Rul. 92-105 is a ruling on which taxpayers can rely and can cite as precedent. Because there can be huge penalties for failing to file Forms 3520 and 3520-A and because the terms of each fideicomiso will vary, taxpayers should be cautious in determining whether they need to file Forms 3520 and 3520-A for Mexican fideicomisos.

International PLRs of the 44th week of 2012

2012-11-10T07:31:20-05:00

Last week the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201244001 - Late entity classification election for a foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201244003 - Late passive foreign investment company ("PFIC") mark-to-market election. Form 8621. Treas. Reg. §1.1296-1(h).

PLR 201244006 - Code §355 spin-offs involving foreign corporations with foreign parent company.

PLR 201244008 - Code §355 spin-off and reorganizations of controlled foreign corporations.

PLR 201244011 - Late entity classification election for a foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201244013 - Late Canadian registered retirement savings plan ("RRSP") deferral election. Form 8891. Rev. Proc. 2002-23.

Graphic on Inbound & Outbound

2012-11-07T10:16:17-05:00

Below is a diagram showing the broad categories of U.S. international taxation segregated into "inbound" topics, "outbound" topics, and overlapping topics.

As indicated in the diagram, "inbound" generally means foreign persons (e.g., foreign corporations, nonresident aliens, etc.) with U.S. income, and "outbound" generally means U.S. persons (e.g., domestic corporations, U.S. citizens and residents, etc.) with foreign income. Click on image to enlarge.

For related blog post see inbound-outbound.

International PLRs of the 43rd Week of 2012

2012-11-05T10:28:22-05:00

Two weeks ago the IRS published the following Private Letter Ruling relating to international taxation.

PLR 201243012 - Extension of time granted for an estate to comply with the requirements of Code §2056A regarding the treatment of an IRA as a qualified domestic trust (“QDOT”), where there was a delay in the transfer of funds from the decedent’s 401(k) to the non-citizen spouse’s IRA.

International PLRs of the 42nd week of 2012

2012-11-05T10:27:37-05:00

Several weeks ago the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201242001 - Late IC DISC election. Form 4876-A. Code §992(b)(1)(A).

PLR 201242004 - Late Canadian registered retirement savings plan ("RRSP") deferral election. Form 8891. Rev. Proc. 2002-23.

PLR 201242007 - A U.S. LLC contributed cash to newly formed foreign corporation. The foreign corporation, immediately thereafter and pursuant to a preexisting binding commitment, used the contributed cash to purchase certain assets from the U.S. LLC. The circular flow of cash was disregarded and the transfer of the assets from the U.S. LLC to the foreign corporation was treated as a Code §351 exchange. The foreign corporation was treated as a U.S. corporation under Code §7874(b). Thus, Code §367(a) did not apply to the Code §351 exchange.

International PLRs for the 41st week of 2012

2012-11-05T10:24:23-05:00

Several weeks ago the IRS published the following Private Letter Ruling relating to international taxation.

PLR 201241002 - Permission was granted to revoke an election under Treas. Reg. §1.954-2(g)(4).

International PLRs of the 38th, 39th & 40th weeks of 2012

2012-11-03T11:57:31-04:00

Several weeks ago the IRS published the following Private Letter Rulings and Chief Counsel Advice relating to international taxation.

PLR 201238005 - Late Canadian registered retirement savings plan ("RRSP") deferral election. Form 8891. Rev. Proc. 2002-23.

PLR 201239003 - Code §368(a) reorganizations involving foreign subsidiaries.

PLR 201239005 - Late Canadian registered retirement savings plan ("RRSP") deferral election. Form 8891. Rev. Proc. 2002-23.

PLR 201240017 - Code §355 spin-offs involving foreign corporations with foreign parent company.

CCA 201240019 - Code §§114 and 951, the extraterritorial income ("ETI") exclusion for purposes of computing Subpart F income is zero (i.e., ETI cannot be excluded from Subpart F income).

Expatriates for the Third Quarter of 2012

2012-11-01T07:15:58-04:00

Today the Treasury Department published the names of certain individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) during the third quarter of 2012.

The number of Published Expatriates for the third quarter of 2012 was 238. The following graph shows the quarterly number of Published Expatriates since 2005.

USD School of Law - Procopio International Tax Institute

2012-10-26T18:39:43-04:00

Yesterday and today I attended the University of San Diego School of Law - Procopio International Tax Institute in beautiful San Diego.

Although this was the first time that I attended, it was the eighth annual USD / Procopio conference. I was very impressed with quality of the speakers. The speakers included high level U.S. government tax officials and high level Mexican government tax officials. The private practice speakers were also top knotch.

Some of the topics covered included;

Structuring for acquiring U.S. businesses,
Structuring for investing into Mexico,
New FATCA rules,
Criminal and civil tax investigations for both the U.S. and Mexico, and
U.S. and Mexican tax directors round tables.

I also met some very interesting folks at the conference. There were a lot of tax professionals from Mexico and a couple of the speakers spoke in Spanish (although the vast majority of the conference was in English).

2013 Inflation Adjustments for Individuals in the International Tax Arena

2012-10-23T20:39:23-04:00

Last week the I.R.S. published Revenue Procedure 2012-41, setting forth inflation adjusted items for 2013. In the international arena, some of the important inflation adjustments include:

$155,000 --- Code § 877(a)(2)(A) --- The average annual net income tax that must be imposed for the five taxable years ending before the date of the loss of United States citizenship (or cessation of long-term permanent residency) for an individual to be considered a “covered expatriate” under Code § 877A(g)(1). This amount is up from $151,000 in 2012. See Rev. Proc. 2011-52.

$668,000 --- Code § 877A(a)(3) --- The amount that can be excluded from the mark-to-market gain upon expatriation of a covered expatriate. This amount is up from $651,000 in 2012. See Rev. Proc. 2011-52.

$97,600 --- Code § 911(b)(2)(D)(i) --- Foreign earned income exclusion. This amount is up from $95,100 in 2012. See Rev. Proc. 2011-52.

$14,000 --- Code § 2503 --- The amount of the annual gift tax exclusion for gifts to any person. This amount is up from $13,000 in 2012. See Rev. Proc. 2011-52.

$143,000 --- Code § 2523(i) --- The amount of the annual gift tax exclusion for gifts to non-citizen spouses. This amount is up from $139,000 in 2012. See Rev. Proc. 2011-52.

$15,102 --- Code § 6039(F) --- Notice of large gifts received from foreign persons. This amount is up from $14,723 in 2012. See Rev. Proc. 2011-52.

Repatriate Now? (Before the Bush Tax Cuts Expire)

2012-10-19T10:32:43-04:00

U.S. individuals who own or control certain foreign corporations may want to consider having their foreign corporations pay as large of a dividend as possible before the end of 2012.

Under current U.S. tax law, dividends received (directly, or indirectly through partnerships or “S” corporations) by individuals from qualified foreign corporations are currently taxed in the U.S. at a maximum Federal tax rate of 15%. Qualified foreign corporations are, very generally, corporations that qualify for benefits under a comprehensive income tax treaty with the U.S.

If Congress takes no action, dividends paid by foreign corporations to U.S. individuals after 2012, will be subject to Federal ordinary income tax rates of as much as 43.4% (reversion to the Clinton era maximum ordinary income tax rate of 39.6% plus the Unearned Income Medicare Contribution tax of 3.8% [enacted in 2010 and goes into effect in 2013]).

Although capital gains have been subject to preferential tax rates for decades, dividend income did not benefit from reduced tax rates until 2003. If Congress does nothing, the maximum Federal capital gains tax rate increases from 15% to 20%. However, the maximum Federal tax rate on qualified dividend income increases from 15% to 43.4%.

One consideration in deciding whether to repatriate funds now is the amount of foreign withholding taxes imposed on dividends paid by foreign corporations. However, foreign dividend withholding taxes may be allowed as foreign tax credits against U.S. income taxes.

U.S. state income taxes may also be imposed on dividend income from foreign corporations.

Some tax advisors hold out hope that Congress may enact a “one-time” tax holiday to repatriate funds from foreign corporations, similar to the 2004 special tax holiday. However, the 2004 special tax holiday only applied to U.S. “C” corporations that owned foreign subsidiaries. Even if this “one-time” provision were to come around again, it may not apply to dividends received by individuals.

For taxpayers considering repatriating foreign corporation earnings, it is important to perform the proper U.S. tax analysis (prior to the payment of the dividend) to confirm that the maximum Federal rate of 15% will apply. You should contact a competent U.S. tax advisor in this regard.

There may never be another opportunity for individuals to pull cash out of foreign corporations at such a low U.S. tax cost.

Form 1099 for Payments to Foreign Contractors for Services?

2012-10-07T18:16:32-04:00

One question that often comes up is how a domestic U.S. business should treat payments to a foreign contractor for services performed outside the U.S. Is a Form 1099 required? Is withholding required?

As long as the foreign contractor is not a U.S. person and the services are wholly performed outside the U.S., then no Form 1099 is required and no withholding is required.

Not a U.S. Person

So, how do you “know” that the foreign contractor is not a U.S. person? If the contractor is an individual, perhaps he or she is a U.S. citizen living outside the U.S.? While you may be able to rely on certain presumptions regarding the foreign contractor’s status (Treas. Reg. §1.1441-1(b)(3)), it is generally easier to simply ask him or her to complete a Form W-8BEN. By signing Form W-8BEN, the foreign contractor is certifying that he or she is not a U.S. person.

In this circumstance there is no need for the foreign contractor to get a U.S. taxpayer identification number or to complete Parts II or III of Form W-8BEN. All that the foreign contractor needs to do is to complete the basic information in Part I and sign in Part IV, attesting that the information is true, correct, and complete. No Form 1099 then needs to be filed for payments to foreign persons. Treas. Reg. §1.6041-4(a).

The Form W-8BEN is not filed with the I.R.S. It is kept on file with the U.S. payor in case the U.S. payor is audited. If audited, the Form W-8BEN supports why no Form 1099 was issued and why no tax was withheld.

Where Were the Services Performed?

Now that you know that the foreign contractor is not a U.S. person, how do you know that he or she is not performing some or all of the services in the U.S.? Perhaps he or she spends two or three months a year at his or her second home in the U.S. and he or she works on your project while in the U.S.?

You won’t know if the services are performed in the U.S., unless you ask. There is no special form for this. The easiest way is to get a signed statement from the foreign contractor that he or she will not perform any of the services in the U.S. It is typically best to attach this statement to the W-8BEN.

Form 1042 must be filed with respect to certain payments to foreign persons. Code §1461 and Treas. Reg. §1.1461-1. However, Form 1042 is required only for payments of “U.S. source income.” If the payments are for services and the services are performed outside the U.S., then the payments will be foreign source income (Code §861(a)(3) and Treas. Reg. §1.861-4), and no Form 1042 will be required.

When in Doubt, Withhold

Say that you have some reason to doubt the veracity of the foreign contractor’s statements. Perhaps you know that he or she was born in the U.S. (which would make him or her a U.S. citizen, unless he or she renounced his/her U.S. citizenship)? Perhaps you know that the foreign contractor spends a good amount of time in the U.S. and you believe some of the services may be performed in the U.S.?

If you do not withhold tax on the payments to the foreign contractor but you are required to withhold, then you, as the payor (i.e., the “withholding agent”), can be held liable for the tax that you did not withhold. Treas. Reg. §1.1441-1(b)(7). Thus, if you are uncertain as to whether you need to withhold, it is generally better to withhold. If the foreign contractor does not owe U.S. tax, then he or she can file a U.S. tax return and claim a refund for the tax that was withheld.

Senate Committee Video Testimony - Offshore Profit Shifting

2012-10-01T08:15:30-04:00

On September 20, 2012 the U.S. Senate Permanent Subcommittee On Investigations held a meeting on Offshore Profit Shifting. The full 4.5 hour video can be found here

For some highlights of the testimony, see:

Stephen Shay (7 minutes)

Reuven S. Avi-Yonah (7 minutes)

Jack Ciesielski (7 minutes)

International PLRs of the 37th week of 2012

2012-09-15T08:08:37-04:00

Last week the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201237002, PLR 201237004, PLR 201237011 - Late Canadian registered retirement savings plan ("RRSP") deferral election. Form 8891. Rev. Proc. 2002-23.

PLR 201237006 - Late IC DISC election. Code §992(b)(1)(A).

8th Annual USD School of Law-Procopio International Tax Law Institute (Oct. 25th & 26th)

2012-09-10T07:19:49-04:00

On October 25th & 26th the University of San Diego School of Law and Procopio, Cory, Hargreaves & Savitch LLP will hold the Eighth Annual International Tax Law Institute in San Diego. The conference is dedicated to the latest developments in international tax law in the United States, Mexico and Canada.

Although I have not yet attended this conference, it looks like a good one, especially if you have operations or clients in Mexico or Canada.

International PLRs of the 36th week of 2012

2012-09-08T14:53:03-04:00

Last week the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201236001 and PLR 201236016 - Late entity classification elections for foreign entities to be treated as disregarded entities. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201236019, PLR 201236020, and PLR 201236021 - Late entity classification elections for foreign limited liability companies to be treated as “other than [the] default classification[s].” Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201236024 - Late entity classification election for a foreign entity to be treated as a partnership. Form 8832. Treas. Reg. §301.7701-3(c).

9/11/12 UPDATE: In reading CCA 201236025, I noticed that it has an international component to it. In this CCA, it was determined that certain stock that was labeled as "preferred stock" should properly treated as "common stock" for purposes of Code §302(b)(2). The stock in question was not limited or preferred as to dividends, not limited as to liquidating distributions, and allowed the holder to participate in corporate growth to a significant extent. The international aspect of the CCA is that some non-U.S. shareholders had common stock redeemed and treated the redemption as an exchange under Code §302(b)(2).

Accounting Firm "Screw Up"

2012-09-05T07:00:00-04:00

Continuing our series on Famous Tax Quotes (quotes from court opinions and rulings with language that is colorful or that concisely states an important tax principle) today's tax quote is:

That an accounting firm should so screw up its taxes is the most remarkable feature of the case. (Emphasis in original).

Mulcahy, Pauritsch, Salvador & Co., Ltd., v. Commissioner, __ F.3d __ (7th Cir. 2012)

Hat tip: Steve Odem

International PLR of the 35th week of 2012

2012-09-04T09:37:57-04:00

Last week the IRS published the following Private Letter Ruling relating to international taxation.

PLR 201235007 - Late election allowed to exclude certain foreign currency gain or loss from foreign personal holding company income and instead include such foreign currency gain or loss in the category (or categories) of Subpart F Income to which such gain or loss relates. Treas. Reg. §1.954-2(g)(3).