May 23, 2017

Tax 101: Taxation of Intellectual Property – The Basics

May 23, 2017/ Ruchelman P.L.L.C.

This month, Tax 101 presents an overview of the basic U.S. Federal tax considerations of transactions that occur over the life cycle of intellectual property (“I.P.”) – from its creation to its acquisition, exploitation, and ultimate sale in a liquidity event. The article address several important questions: Should expenditures be capitalized or deducted? If capitalized, over what period is the expenditure amortized? How are acquisitions of I.P. reported to the I.R.S. when an entire business is acquired? What is the character of gain on sale? When is a sale treated as a license? And when is a license treated as a sale? Elizabeth V. Zanet and Stanley C. Ruchelman explain.

April 28, 2017

How to Calculate Gain or Loss on Payables & Receivables Denominated in Nonfunctional Currency

April 28, 2017/ Ruchelman P.L.L.C.

If all currencies were pegged to one single standard and did not fluctuate in value among themselves, the concept of currency gain and loss would not be needed. However, no universal standard exists and major currencies tend to fluctuate. Consequently, a uniform method must be applied to identify the amount of a transaction when the conversion rate changes between a booking date and a payment date of a transaction denominated in a non-functional currency. In a recent International Practice Unit (“I.P.U.”), the LB&I Division of the I.R.S. provides a broad overview of how currency gains and losses are recognized for U.S. tax purposes. Elizabeth V. Zanet and Stanley C. Ruchelman examine the applicable rules in the I.P.U.

March 31, 2017

Good News for REITs Investing in Non-US Real Estate→

March 31, 2017/ Ruchelman P.L.L.C.

Published in the GGi Insider, No. 88, March 2017 (p. 44).

March 27, 2017

A Look at the House G.O.P.’s “Destination-Based Cash Flow with Border Adjustment”

March 27, 2017/ Ruchelman P.L.L.C.

Last June, the House Ways and Means Committee released its tax reform plan, which includes sweeping changes to the U.S. corporate income tax. The plan repeals the current corporate income tax and replaces it with a new regime, commonly referred to as the border adjustment tax. This regime, which taxes imports and exempts exports, is viewed to be the principal funding mechanism for reductions in the corporate and individual tax rates. Elizabeth V. Zanet explains the anticipated workings of the proposal.

February 21, 2017

I.R.S. Rules Subpart F & P.F.I.C. Income Inclusions Are R.E.I.T. Qualifying Income

February 21, 2017/ Ruchelman P.L.L.C.

A R.E.I.T. is a tax-favorable investment entity used for investment in real estate and real estate mortgages. R.E.I.T.’s that invest in non-U.S. real estate often make such investments through foreign corporate entities that may be classified as C.F.C.’s or P.F.I.C.’s. Qualification as a R.E.I.T. requires the entity to meet certain income and passive asset tests designed to ensure that a R.E.I.T.’s gross income is largely composed of passive income related to real estate or real estate mortgage investments. In a recent private letter ruling, income from a R.E.I.T.’s ownership of C.F.C.’s and P.F.I.C.’s was determined to be passive investment income, thereby providing favorable treatment for the R.E.I.T. Elizabeth V. Zanet and Philip R. Hirschfeld explain the R.E.I.T. rules and the private letter ruling.

January 26, 2017

Trump and the Republican-Led Congress Seek Overhaul of International Tax Rules

January 26, 2017/ Ruchelman P.L.L.C.

Elizabeth V. Zanet and Beate Erwin compare the proposals that comprise the Trump tax plan and the House Republican Tax Reform Blueprint, which will be submitted to Congress as part of a massive overhaul of U.S. tax law. Tax rates for individuals and corporations would likely be lowered, the standard deduction would be increased, and capital gains tax rates would remain at the same level. The net investment income tax would be repealed. The estate tax and generation skipping tax would be repealed. The gift tax would remain. Other provisions are discussed, also.

December 22, 2016

The 2016 U.S. Model Income Tax Treaty

December 22, 2016/ Ruchelman P.L.L.C.

On February 17, 2016, the U.S. Treasury Department released its 2016 Model Treaty. This month, as we reminisce on the best of 2016, we review significant revisions to the baseline text from which the U.S. initiates treaty negotiations.

October 26, 2016

Regulations Would Address Foreign Tax Credit Planning for E.U. State Aid Adjustments

October 26, 2016/ Ruchelman P.L.L.C.

Now that Apple, Starbucks, and other U.S. companies face significant tax adjustments in Europe, the I.R.S. is concerned with protection of the U.S. tax base. In Notice 2016-52, the I.R.S. announced that the foreign tax credit splitter rules will be applied in future regulations to ensure that the increased taxes are not separated from the earnings and profits to which they relate. Elizabeth V. Zanet and Stanley C. Ruchelman explain these preemptive steps to prevent the creation of imaginative financial products that monetize unused foreign tax credits of target companies.

August 29, 2016

German-Trained Lawyer Could Not Deduct U.S. Educational Expenses

August 29, 2016/ Ruchelman P.L.L.C.

Taxpayers generally may deduct all the ordinary and necessary expenses paid or incurred, during the tax year, in carrying on a trade or business. Interesting questions arise when an individual moves to a new country of residence. This was recently illustrated by a Court of Appeals decision involving a U.S. citizen who was German lawyer. He returned to the U.S. and, in order to sit for the bar, was required to take additional law school classes. Elizabeth V. Zanet explores whether U.S. law school tuition was deductible.

August 29, 2016

Crowdfunding: A Popular Way to Invest, but Watch Out for Taxes

August 29, 2016/ Ruchelman P.L.L.C.

Crowdfunding is an internet-based form of raising capital for businesses and other endeavors that is popular with millennials. Millions of dollars are raised each month through crowdfunding, but it is unlikely that much thought has been given to the tax consequences for investors and the companies being funded. The ways in which crowdfunding transactions are structured vary significantly, and as a result, the tax consequences vary. In Information Letter 2016-0036, the I.R.S. explains its view of the tax consequences. The tax consequences may not be benign for the company raising the funds unless certain conditions exist. Philip R. Hirschfeld and Elizabeth V. Zanet explain the I.R.S. view.

June 30, 2016

Income Tax Treaties v. Domestic Law: An International Look at the Current Score

June 30, 2016/ Ruchelman P.L.L.C.

Ask most tax advisers outside the U.S. about the way to resolve a conflict between the provisions of an income tax treaty and domestic law, and the almost universal view is to look to the treaty for resolution. However, in some countries, an income tax treaty is not the last word in resolving conflicts. In the U.S., the saving clause of a treaty preserves the supremacy of U.S. domestic tax rules as they affect U.S. citizens and residents, as defined in the treaty. In Brazil, a presidential decree may govern the outcome. And in India, a domestic tax provision may be crafted in such a way as to circumvent a treaty by altering the identity of the technical taxpayer. Elizabeth V. Zanet, Galia Antebi, and Neha Rastogi examine ways in which those three countries directly or indirectly override treaty provisions that are deemed domestically undesirable.

May 23, 2016

Insights Vol. 3 No. 5: Updates & Other Tidbits

May 23, 2016/ Ruchelman P.L.L.C.

In this month’s update, Elizabeth V. Zanet and Nina Krauthamer report on (i) attacks on cash pooling arrangements as part of earnings-stripping rules under Code §385, (ii) the latest regulations aimed at increasing financial transparency, including adoption of a customer due diligence (“C.D.D.”) final rule, (iii) proposed beneficial ownership legislation, and (iv) new reporting rules for foreign-owned, single member L.L.C.’s that engage in business with the foreign owner; as well as a new wave hiring by the I.R.S. of enforcement officers.

April 29, 2016

What Is a Corporate Business Purpose for a Tax-Free Corporate Division?

April 29, 2016/ Ruchelman P.L.L.C.

As Insights continues to look at various provisions of the Internal Revenue Code applicable to corporate reorganizations and divisions, Elizabeth V. Zanet and Beate Erwin delve deeper into the requirements to address an eternal question relating to a tax-free spin-off.

March 31, 2016

2016 Model Treaty – B.E.P.S. and Expatriated Entities

March 31, 2016/ Ruchelman P.L.L.C.

On February 17, 2016, the Treasury Department released its 2016 Model Treaty. The model serves as the baseline from which the U.S. initiates treaty negotiations. Various provisions are discussed in detail in this month’s Insights.

The 2016 Model Treaty adopts certain B.E.P.S. provisions, including those that eliminate double non-taxation through a splintered operation which divides a long-term project among several related parties and each party maintains the project for a limited time. That type of planning no longer works. Other B.E.P.S.-related revisions are missing. Sheryl Shah and Elizabeth V. Zanet explain what is out and what is in. They also address the way payments from expatriated entities are treated. It is not all bad news.

February 29, 2016

3M Case to Test “Foreign Legal Restrictions” Regulations Under Code §482

February 29, 2016/ Ruchelman P.L.L.C.

Who knows best, the I.R.S. or the U.S. Supreme Court? Refusing to give up on its position that Code §482 trumps a foreign law that caps amounts used in related-party transactions, the I.R.S. is challenging 3M, a corporation that is acting in compliance with Brazilian law. Elizabeth V. Zanet and Galia Antebi delve into a legal issue that most adviser though was settled years ago by the U.S. Supreme Court.

January 15, 2016

Insights Vol. 3 No. 1: Updates & Other Tidbits

January 15, 2016/ Web Developer

This month, Insights discusses recent events including a Beanie Baby billionaire’s light sentence; a tax reform report by the European Parliament addressing tax rulings, a common consolidated corporate tax base, a crackdown on tax havens, whistle-blower protection, public access to country-by-country (CbC) reports, and a lower threshold to approve E.U. tax legislation; a House Ways and Means Committee action in regard to B.E.P.S., E.U. investigations on State Aid, patent box regimes, and inversions; identity theft risk in I.R.S. proposed regulations regarding charitable deductions; and allowance of accounting non-conformity for foreign-based groups that do not adopt L.I.F.O. accounting when that method is adopted by a U.S. member.

January 15, 2016

P.A.T.H. Act Leads to Widespread Tax Changes

January 15, 2016/ Web Developer

Everyone likes Christmas presents and the P.A.T.H. Act delivers. It provides favorable tax treatment in the form of (i) F.I.R.P.T.A. exemptions for foreign pensions funds, (ii) increased ownership thresholds before F.I.R.P.T.A. tax is imposed on C.I.V. investment in R.E.I.T.’s, (iii) increased ownership thresholds before F.I.R.P.T.A. tax is imposed on foreign investment in domestically-controlled R.E.I.T.’s, (iv) a reduction in the time that must elapse in order to avoid corporate level tax on built-in gain when an S-election is made by a corporation after the close of the year of its formation, and (v) a permanent exemption from Subpart F income for active financing income of C.F.C.’s.

However, not all taxpayers benefitted from the Act. The P.A.T.H. Act increases F.I.R.P.T.A. withholding tax to 15%, adopts new partnership tax examination rules, and tightens rules regarding I.T.I.N.’s. Elizabeth V. Zanet, Christine Long, Rusudan Shervashidze, and Philip R. Hirschfeld explain these and certain other legislative changes.

December 15, 2015

Tax 101: How to Structure a Corporate Division

December 15, 2015/ Ruchelman P.L.L.C.

With all the brouhaha over the announced Alibaba spinoff by Yahoo!, Elizabeth V. Zanet explains the circumstances in which a corporate division – known as a demerger in many countries – can be achieved in a tax-free manner under U.S. tax law. The path is not easy as these divisions are the lone vestiges allowing tax-free corporate distributions of appreciated assets under U.S. tax law.

November 15, 2015

President's Legislative Proposals

November 15, 2015/ Web Developer

In late September, the Obama Administration released the tax revisions that are part of its Fiscal Year 2016 Budget Proposal (the Proposal). These changes are designed to provide deficit reduction measures through additional revenue increases and spending cuts. We explain the new twists to seasoned proposals. If enacted, the changes described in the Proposal could influence global patterns of investment and employment by U.S. multinationals.