May 30, 2023

International Marriages – Special U.S. Tax Concepts

May 30, 2023/ Ruchelman P.L.L.C.

Continuing with the theme of cross-border mobility and resulting tax consequences, U.S. tax law contains provisions that affect married couples coming to live in the U.S. from a country that has a community property regimes in force and effect. They may find that income tax consequences are not necessarily controlled by the marital laws of the former home country. The Internal Revenue Code contains provisions that apply to earned income that override community property regimes when one or both spouses are not U.S. residents or citizens. Nina Krauthamer and Galia Antebi address the circumstances controlled by Code §879. They also address rules for filing joint income tax returns when one spouse is not a U.S. citizen or resident, available elections under Code §6013(g) and (h) to allow for the filing of joint tax returns, elections for arriving persons to be treated as residents with an accelerated residency starting date, and tricky trust and estate rules that apply to a donor spouse when the donee spouse is not a citizen. A must read for arriving individuals.

January 30, 2022

Israeli Start-Up Expansion to the U.S.: Who Should Be On Top?

January 30, 2022/ Ruchelman P.L.L.C.

Israeli high-tech companies have been quite successful in the past year in developing new technologies in Med Tech and Fin Tech spaces. Naturally, liquidity events followed. In their article, Anat Shavit and Yuval Peled, partners in the tax practice of FBC & Co., Tel Aviv, and Galia Antebi address the tax planning decision points that must be addressed in Israel and the U.S. Where should the I.P. be owned? What structures are demanded by angel investors? What tax issues are raised by the Israeli tax authorities? Can structures be revised? Is there a taxable presence in the U.S. for an Israeli company? What U.S. anti-deferral regimes could apply with a U.S. company as parent? When should planning take place for Q.S.B.S. tax benefits in the U.S.? Is there a cookie-cutter solution that fits all situations? These and other questions are addressed.

September 27, 2021

Domestic Trust – Does Yours Satisfy the Court Test?

September 27, 2021/ Ruchelman P.L.L.C.

In comparison to tax laws in many countries, where the tax residence of a trust may depend on the residence of the trustee or the relevant law for the trust, U.S. tax law provides that the residence of a trust is dependent on two factors. All trusts no matter where formed are considered to be foreign trusts unless two tests are met, causing the trust to be considered a domestic trust. The first is a court test, under which a U.S. court is able to exercise primary supervision over trust administration. The second is a control test, under which U.S. persons control all substantial trust decisions. Nina Krauthamer and Galia Antebi point out that while the tax law is clear, applicable trust law – not tax law – may contain hidden risk regarding the court test. Comments to Section 108 of the Uniform Probate Code and Uniform Trust Code provide that the identification of a trust’s principal place of administration will ordinarily determine which the court that has primary jurisdiction over the trust. Advisers representing foreign families should be mindful because facts change and unknown facts may exist. Officers of a privately held trust company may live and carry out their duties outside the U.S. or an individual trustee may move outside the U.S. Where either fact exists, a U.S. domestic trust may find that it has become a U.S. foreign trust. The result may not be pretty.

January 24, 2021

Tax 101: Taxation of Equity-Based Compensation and Cross Border Issues

January 24, 2021/ Ruchelman P.L.L.C.

Equity-based compensation has long been a popular way to attract talent and align the interests of corporations and service providers. This type of compensation allows cash-poor companies to attract highly skilled individuals to join the company workforce or its board of directors. With mobility that existed in the pre-pandemic world, noncitizen individuals have moved to the U.S. becoming U.S. tax residents at the time of vesting or exercising conversion rights. Galia Antebi and Nina Krauthamer examine the tax rules in the U.S. Also discussed is the cross-border tax problem that arises when equity based compensation is taxed at different times in the home country and the U.S. and no effective mechanism is available to eliminate double taxation.

November 25, 2020

With Great Power (Control) Comes Great Responsibility – Form 5471 Category 4 Filer

November 25, 2020/ Ruchelman P.L.L.C.

Like Spiderman, it is imperative that controlling shareholders of foreign corporations must recognize that if they have the power to control a foreign corporation, they face a greater responsibility when filing Form 5471, the reporting form for ≥10% shareholders. Neha Rastogi and Galia Antebi take a deep dive into the reporting obligations of a Category 4 Filer. Must read for those U.S. persons that reside outside the U.S. and operate through owner managed businesses.

November 25, 2020

Don’t Let Your I.T.I.N. Expire

November 25, 2020/ Ruchelman P.L.L.C.

Individual Taxpayer Identification Numbers (“I.T.I.N.’s”) are required by any individual who has a U.S tax filing obligation but is not eligible to be issued a Social Security Number. Without affixing an I.T.IN to a document filed with the I.R.S., it is extremely difficult for the document to be tracked by I.R.S. computers. When used on documents, an I.T.I.N. expires every five years. Otherwise, it expires after three consecutive years of non-use. In a series of F.A.Q.’s, Galia Antebi and Samantha Benenson address important questions. When do I.T.I.N.’s expire? Should you renew your I.T.I.N. if you are issued an S.S.N.? What are the implication of an expired I.T.I.N.? Can an I.T.I.N. be renewed before it is set to expire?

September 28, 2020

New Partnership International Information Return Schedules

September 28, 2020/ Ruchelman P.L.L.C.

· The I.R.S. recently released drafts of two new partnership return schedules and accompanying instructions to address the reporting of income from international transactions. The new forms are required because of tax law changes enacted as part of the Tax Cuts & Jobs Act in 2017 and recent changes in I.R.S. policy regarding partnerships as aggregates rather than entities. Schedule K-2 and Schedule K-3 each contain nine parts, generally covering the information required with respect to the most common international tax provisions of U.S. tax law. Schedule K-3 contains a tenth part applicable only to the distributive share of a partner in relation to a sale of a partnership interest. Galia Antebi and Nina Krauthamer explain all.

June 02, 2020

U.S.: CARES Act Loans and Business Tax Provisions and I.R.S. Announcements on Stranded Individuals

June 02, 2020/ Ruchelman P.L.L.C.

New York City and much of the U.S. has been under some form of COVID-19 lockdown since the middle of March. During that time, Congress has enacted two stimulus packages, and a follow-up package has been approved by the House of Representatives. Stanley C. Ruchelman looks back at all that has happened in the past two and one-half months to protect the economic health of the country.

June 02, 2020

How Not to Borrow a Treaty: Smith v. Commr.

June 02, 2020/ Ruchelman P.L.L.C.

For individual entrepreneurs operating across the globe, generating profits in corporations based in tax favored jurisdictions is a key ingredient in making and keeping a substantial share of profits. However, when the entrepreneur is a U.S. citizen, bringing those profits home requires careful planning in order to take advantage of the qualified dividend rules. Having a structure that is on the right side of the rules reduces the income tax rate on dividends to 20%. Having a structure on the wrong side, leaves the top rate at 37%. Too many entrepreneurs wait until the last minute to plan and even then have difficulty in following a plan based on tax law and economic substance. Galia Antebi and Stanley C. Ruchelman discuss a case in which one taxpayer was addicted to cutting corners or did not appreciate the risk when deviating from a plan. Whatever the reason, the plan crafted by his tax advisers never made it to the implementation stage. On paper, the plan worked. In substance, nothing was done. Big tax resulted.

March 20, 2020

Foreign Tokens – U.S. Tax Characterization: Questions and Discussion

March 20, 2020/ Ruchelman P.L.L.C.

· Initial coin offerings (“I.C.O.’s”) provide blockchain-based companies with a new way to raise capital. Companies in the U.S. and abroad have been raising capital using blockchain technology since 2016. As this means of raising funds gained popularity, the S.E.C. ruled that some tokens are securities, making U.S. I.C.O.’s subject to Federal securities laws. Tax questions also arose, but not all questions have been addressed by the I.R.S. Specifically, no guidance exists with respect to the proper characterization of a token, and as a result, U.S. investors are not assured of the tax consequences of their investments. Galia Antebi and Andreas A. Apostolides guide the reader through the issues, identify the problems, and suggest solutions where appropriate.

November 20, 2019

I.R.S. Releases Relief Procedures for Certain Expats While Warning Bells Ring for Others

November 20, 2019/ Ruchelman P.L.L.C.

The I.R.S. recently announced new procedures that will enable certain individuals who have or will relinquish their citizenship after March 18, 2010, to come into compliance with related U.S. tax and filing obligations. As a first step, U.S. citizenship must be relinquished. Once that is completed, specified identification documents, a complete dual-status tax return for the year of expatriation, and tax returns for the five tax years preceding the expatriation must be submitted. Comparable provisions will apply for long-term residents who relinquish that status. Galia Antebi and Hannah Daniels, an extern at Ruchelman P.L.L.C. and student at New York Law School, explain.

September 30, 2019

Do You Have to Withhold 30% on Payments to a Non-U.S. Independent Contractor?

September 30, 2019/ Ruchelman P.L.L.C.

A common theme when a business engages the services of an individual is whether the individual is an independent contractor or an employee. The stakes become higher when the individual and the business are not resident in the same country. Galia Antebi address the applicable rules and special I.R.S. procedures for businesses located in the U.S. engaging service providers based in other countries to work in whole or in part in the U.S. Even when a tax treaty exempts the payment from income tax, businesses should be prepared to collect potentially refundable 30% withholding tax in the absence of an advance notice to the I.R.S.

June 28, 2019

Qualified Opportunity Zones: Second Set of Proposed Regulations Offers Greater Clarity to Investors

June 28, 2019/ Ruchelman P.L.L.C.

The Opportunity Zone tax benefit, which was crafted as part of the 2017 tax reform, aims to encourage taxpayers to sell appreciated capital properties and rollover the gains into low-income areas in the U.S. One major benefit – reducing recognition of deferred gains by up to 15% – is available only to investments made before the end of 2019, although other benefits will continue to be available to later investments. The clock is ticking on the 15% reduction, and the I.R.S. is accelerating the issuance of guidance. In late April, the I.R.S. released a second set of proposed regulations that address many of the issues that were deferred in the initial set. They also address issues raised by written comments and testimony at the well-attended public hearing in February. In their article, Galia Antebi and Nina Krauthamer lead the reader through the important and the practical parts of the second set of guidance.

June 28, 2019

Grecian Magnesite Put to Bed: Tax Court Ruling Affirmed on Appeal

June 28, 2019/ Ruchelman P.L.L.C.

The battle is over. It is agreed that the emporer’s new clothes are made of fairy dust, and Rev. Rul. 91-32 is not worth the paper on which it was printed in the I.R.S. Cumulative Bulletin for 1991. In June, the Court of Appeals for the D.C. Circuit affirmed the 2017 Tax Court ruling in the matter of Grecian Magnesite Mining v. Commr., which held that a foreign corporation was not liable for U.S. tax on the gain arising from a redemption of its membership interest in a U.S. L.L.C. treated as a partnership. In their article, Galia Antebi and Stanley C. Ruchelman address the history of the I.R.S. position and the disdain given to it by the courts. However, they caution that the taxpayer victory applies only to sales, exchanges, and dispositions effected through November 26, 2017. Thereafter, new Code §864(c)(8) modifies the law by adopting a look-thru rule when determining the character of gain from the sale of a membership interest. Win some, lose some.

June 28, 2019

Updates & Other Tidbits

June 28, 2019/ Ruchelman P.L.L.C.

This month, Fanny Karaman, Galia Antebi, and Stanley C. Ruchelman look at interesting items of tax news, including (i) the I.R.S. announcement that French contribution sociale généralisée ("C.S.G.") and contribution au remboursement de la dette sociale ("C.R.D.S.") are now considered creditable foreign income taxes as they are no longer considered to fall under the provisions of the France-U.S. Totalization Agreement, (ii) the Senate Foreign Relations Committee has recommended approval of protocols to income tax treaties with Japan, Luxembourg, Spain, and Switzerland, paving the way for Senate approval, and (iii) proposed regulations under Code §951A now allow taxpayers to claim the benefit of the high-tax kickout to limit the inclusion of G.I.L.T.I. income, thereby allowing individuals to avoid current taxation of net tested income when the controlled foreign corporation incurs foreign income taxes imposed at a rate that exceeds 18.9%.

April 30, 2019

The Responsible Party – Changes Effective May 2019

April 30, 2019/ Ruchelman P.L.L.C.

The U.S. Taxpayer Identification Number used by entities is the Employer Identification Number (“E.I.N.”). To apply for an E.I.N., the entity must identify the “responsible party” who ultimately owns or controls the entity or who exercises ultimate effective control over the entity – in other words, the person who controls, manages, or directs the entity and the disposition of its funds and assets. In March, the I.R.S. announced that, beginning on May 13, 2019, only individuals with a U.S. Taxpayer Identification Number will be allowed to request an E.I.N. Moreover, the responsible party must be a natural person – not an entity – unless the applicant is a government entity. This change will affect many foreign companies entering the U.S. market after the effective date. Galia Antebi and Nina Krauthamer explain all and speculate on whether revisions to the new procedure should be anticipated.

April 30, 2019

It’s Time for Cayman Shell Entities to Come Out of Their Shells and Show Economic Substance

April 30, 2019/ Ruchelman P.L.L.C.

· It is said that beauty is in the eye of the beholder. The same can be said about economic substance. In a step to adopt a standardized definition in the context of business arrangements that are typical for Cayman Islands companies, the country enacted the International Tax Cooperation (Economic Substance) Law, 2018 (“E.S. Law”) on December 27, 2018, and issued supplemental guidance on February 22, 2019. Neha Rastogi and Galia Antebi address relevant aspects of the new rules, including (i) entities that fall within the ambit of the E.S. Law, (ii) entities that are exempt, (iii) identified business activities under the E.S. Law, and (iv) steps that may be taken to meet the economic substance test.

February 28, 2019

Proposed Amendments to F.A.T.C.A. Suggest Reducing or Deferring Withholding

February 28, 2019/ Ruchelman P.L.L.C.

In mid-December 2018, revised F.A.T.C.A. regulations were proposed by the I.R.S. Highlights included (i) the elimination of withholding on payments of gross proceeds, (ii) deferral, but not elimination, of withholding on foreign passthru payments, (iii) clarification of the definition of an investment entity, and (iv) changes to the consequence of hold-mail instructions on presumptions of residence. Galia Antebi explains all.

January 28, 2019

Additional Guidance on New Opportunity Zone Funds

January 28, 2019/ Ruchelman P.L.L.C.

Days after Galia Antebi and Nina Krauthamer published “The Opportunity Zone Tax Benefit – How Does It Work and Can Foreign Investors Benefit,” the I.R.S. issued guidance in proposed regulations. Now, in a follow-up article, Galia Antebi and Nina Krauthamer focus on the new guidance as it relates to the deferral election and the Qualified Opportunity Zone Fund. In particular, they address (i) which taxpayers are eligible to make the deferral election, (ii) the gains eligible for deferral, (iii) the measurement of the 180-day limitation, (iv) the tax attributes of deferred gains, and (v) the effect of an expiration of a qualifying zone status on the step-up in basis to fair market value after ten years.