December 03, 2023

Did You Just Manifest the Opposite of What You Wanted - (IN)Ability to Use G.I.L.T.I. Losses to Offset Gain

December 03, 2023/ Ruchelman P.L.L.C.

Forward-looking tax planning for U.S. taxpayers and their foreign subsidiaries was never an easy task. Since the adoption of the G.I.L.T.I. regime, domestic tax plans must be adjusted when applied to a cross border scenario. In their article, Stanley C. Ruchelman and Neha Rastogi examine a straightforward merger of related corporations, each operating at a loss, followed by a significant gain from the sale of an operating asset. What is a statutory merger when two companies are based outside the U.S.? What information must be reported on a U.S. Shareholder’s U.S. income tax return? What forms are used to report the information? Do the G.I.L.T.I. rules make operating losses of a C.F.C. useless to a U.S. Shareholder when a C.F.C. sells operating assets at a sizable gain? These and other issues are explored by the authors.

May 30, 2023

Farhy v. Commr. – The Penalty for Failing to Timely File Form 5471 May Not Be Assessed Administratively

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

Sometimes, good things happen to the undeserving. In the play “Pygmalion,” Alfred Doolittle – the undeserving father of Eliza Doolittle – receives a bequest from a faraway benefactor. In Farhy v. Commr., a scofflaw who refused to file Form 5471 for several Belize companies and received penalty notices regarding the seizure of his property convinced the Tax Court that the penalty was not self-enforcing. Rather, the Department of Justice would be required to initiate enforcement proceedings in District Court to collect the assessed penalties. Stanley C. Ruchelman and Wooyoung Lee explain the reasoning of the decision and then ask which other penalties have similar requirements. In answer, they survey client alerts published on the internet by various firms. Surprisingly, the answers are not consistent.

November 29, 2022

When It Comes To Penalty Abatement, Is the I.R.S. Offside?

November 29, 2022/ Ruchelman P.L.L.C.

When it comes to abatement of penalties regarding late filing of international information returns, the voluntary disclosure system adopted by the I.R.S. in its Delinquent International Information Return Submission Procedures suggests that penalties may be assessed but that there is a procedure to have them abated. In practice, penalties always seem to be assessed and the standard that must be met in order to have them abated is high. Reasonable cause from the viewpoint of a taxpayer need not be reasonable when reviewed by an I.R.S. Appeals Officer. Wooyoung Lee looks at the decided cases and the approaches taken by the I.R.S. to reduce penalties without fully abating them. He also comments on the facts of a case that has been filed in U.S. District Court challenging the apparent policy of mitigation rather than full abatement.

September 29, 2022

Tax 101: U.S. Tax Compliance For Dual Citizen Young Adults

September 29, 2022/ Ruchelman P.L.L.C.

It is not uncommon for a young adult who was born in the U.S. to noncitizen parents living temporarily in the U.S. to live abroad. Although he or she may never have returned to the U.S., the young individual is a U.S. citizen, and that status brings with it U.S. tax obligations. In their article, Nina Krauthamer, Wooyoung Lee, and Stanley C. Ruchelman address the tax obligations in the context of Ms. A, a typical young adult, born in the U.S., but living abroad. She may have a bank account in a foreign county, but ordinarily will not have her own source of income. At some point, Ms. A may receive gifts and bequests from her foreign parents or grandparents. At this point in her life, Ms. A’s U.S. tax compliance obligations become complex. Just how complex is explained by the authors.

March 30, 2022

The Price is Right: Former I.R.S. Attorney Discusses Information Return and F.B.A.R. Penalties

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

Ever wonder what happens to well-crafted reasonable cause statements attached to late-filed I.R.S. information returns, such as Forms 5471, 5472, and 3520? In a presentation before the San Francisco Tax Club, a retired long-term I.R.S. attorney named Daniel Price provided the answer: nothing happens to them. Over the years, the I.R.S. has increased the number of information returns that must be filed by taxpayers. To keep up the pace, I.R.S. delegates many tasks to lower-level employees who may not have been trained sufficiently to make discretionary judgments. Moreover, they are managed by relatively inexperienced supervisors. Stanley C. Ruchelman and Wooyoung Lee explain the problem and several suggestions offered by Mr. Price. Recent experience with F.B.A.R. penalty inconsistencies are also discussed.

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.

August 15, 2017

I.R.S. Explains “Substantially Complete” in Relation to International Information Return

August 15, 2017/ Ruchelman P.L.L.C.

Taxpayers having cross-border operations are confronted with numerous tax information forms to be filed as part of the annual tax return. Because the forms are not directly used to compute taxable income, they frequently are completed at the last minute and with less attention to detail. However, the I.R.S. imposes penalties for filing an incomplete form. Taxpayers faced with asserted penalties often argue that the forms are substantially complete. In a recent International Practice Unit (“I.P.U.”) issued by the Large Business & International Division of the I.R.S., the I.R.S. view regarding substantially complete form was explained. Not surprisingly, the I.R.S. view is significantly different from taxpayer expectations. It also differs from holdings in several Tax Court decisions involving other forms. Neha Rastogi and Stanley C. Ruchelman discuss the I.P.U. in detail.

January 15, 2016

International Practice Unit: Monetary Penalties for Failure to File Form 5471

January 15, 2016/ Web Admin

The I.R.S. has initiated increased enforcement efforts to ensure compliance with information reporting obligations. Such efforts include increased assessment of penalties. Galia Antebi explains.

January 15, 2016

Taxpayers Take Note: I.R.S. Publishes Audit Guides for International Examiners

January 15, 2016/ Web Admin

U.S.-based companies facing an I.R.S. examination of international operations may secretly wish to obtain an advance look at how I.R.S. examiners plan to carry out the examination. After all, what better way to prepare for a test than to get the questions in advance? Surprise – the Large Business & International (LB&I) Division of the I.R.S. has published its training guides for examiners.

LB&I is responsible for examining tax returns reporting international transactions, and it is in the process of revising the method by which returns are chosen for examination and the the process by which those examinations are conducted. Several aspects of the guidance will be addressed through out this edition of Insights. Stanley C. Ruchelman explains.

March 15, 2014

Tax 101: Form 5471 - How to Complete the Form in Light of Recent Changes

March 15, 2014/ Web Admin

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INTRODUCTION

As part of the obligation to file income tax returns, U.S. persons owning 10% or more of the stock of a foreign corporation – measured by voting power or value of the stock that is owned – are obligated to provide information on the foreign corporation. Ownership is determined by reference to stock directly held, indirectly held through foreign entities, and deemed held through attribution from others. The scope and detail of the information to be reported is dependent on the percentage of ownership maintained by the U.S. taxpayer. As the degree of ownership increases, the amount of information increases. The reporting vehicle is Form 5471 (Information Return of U.S. Persons with Respect to Certain Foreign Corporations). For returns that report on tax year 2013, this form also reports on the net investment income tax (“N.I.I.T.”) arising through a controlled foreign corporation (“C.F.C.”).

Great emphasis is put on international tax compliance, and from 2009, the I.R.S. systematically assesses penalties for late filing of Form 5471. In addition, the 2010 Foreign Account Tax Compliance Act (“F.A.T.C.A.”) extended the statute of limitations for the I.R.S. to examine a tax return if certain information returns, including Forms 5471, were not timely or properly filed. The statute of limitations will remain open on the entire tax return and not only on Form 5471 if Form 5471 is not timely filed. Once the form is filed the statute of limitation will begin to run. To assist the I.R.S. to spot inconsistencies, beginning in tax year 2012, the I.R.S. assigned a unique reference identification number to each foreign entity, which allows the I.R.S. to compare forms filed with respect to a certain company over several years.