January 28, 2019

I.R.S. Adds New Issues of Focus for Cross-Border Audits

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

In late 2018, LB&I announced five additional campaigns aimed at determining whether taxpayers are complying with tax rules in the following areas of the law: (i) foreign tax credits claimed by U.S. individuals, (ii) offshore service providers that assist taxpayers in creating foreign entities and tiered structures to conceal the U.S. beneficial ownership of foreign financial accounts, (iii) F.A.T.C.A. compliance by F.F.I.’s and N.F.F.E.’s, (iv) tax return compliance by foreign corporations that ignore the fact that they are engaged in a U.S. trade or business under the rules of U.S. tax law, and (v) late issuance of Work Opportunity Tax Credit (“W.O.T.C.”) certifications that result in the need to file amended tax returns and result in a misuse of I.R.S. resources when returns are filed without the W.O.T.C certifications. The move follows more than two years, of I.R.S. publications that alert the public to certain issue-based approaches being followed by examiners. Galia Antebi and Elizabeth V. Zanet summarize the new releases.

October 31, 2018

In the Fight Against Money Laundering, Europe Tackles Cash Controls

October 31, 2018/ Ruchelman P.L.L.C.

In early October, the European Council adopted a regulation aimed at improving controls on cash entering or leaving the E.U. The new regulation provides necessary tools to address threats arising from terrorist financing, money laundering, tax evasion, and other criminal activities. It is based on current standards for combating money laundering and terrorism financing developed by the Financial Action Task Force (“F.A.T.F.”). Among other things, the new regulation requires a declaration of unaccompanied cash – that is, (i) cash sent by post, freight, or courier shipment and (ii) highly liquid instruments and commodities, such as checks, traveler’s checks, prepaid cards, and gold. Once the new regulation is signed by the European Council and the European Parliament, it will be published in the E.U. Official Journal and will enter into force 20 days thereafter. Galia Antebi explains all.

October 31, 2018

Qualified Business Income – Are You Eligible for a 20% Deduction? Part II: Additional Guidance

October 31, 2018/ Ruchelman P.L.L.C.

In August, the I.R.S. issued much-awaited proposed regulations under the new Code §199A covering Qualified Business Income (“Q.B.I”). This provision of recently enacted U.S. tax law allows entrepreneurial individuals to claim a 20% deduction on taxable business profits of a sole proprietorship, partnership, L.L.C. or S-corporation. Galia Antebi, Nina Krauthamer, and Fanny Karaman ask and answer the pertinent questions: Who may benefit? How do the rules addressing R.E.I.T.’s and publicly traded partnerships (“P.T.P.’s”) affect Q.B.I when a net negative result is reported by the R.E.I.T. and the P.T.P.? When is an individual’s income effectively connected to a trade or business and when is the. income a form of disguised salary for which no deduction is allowed? What is a specified trade or business (“S.S.T.B.”) for which the resulting income cannot benefit from the Q.B.I. deduction? How does the de minimis rule work under which a limited Q.B.I. deduction is allowed S.S.T.B. income does not exceed a specified ceiling? How does the ceiling based on W-2 wages work when calculating the Q.B.I. deduction?

September 26, 2018

The Opportunity Zone Tax Benefit – How Does it Work and Can Foreign Investors Benefit?

September 26, 2018/ Ruchelman P.L.L.C.

State Aid to entice investment and development in a specific region is bad in Europe but encouraged in the U.S. The Tax Cuts and Jobs Act added an important new provision that is expected to unlock unrealized gains and defer the tax on the gain when it is invested in active operating businesses in distressed areas designated as “Opportunity Zones.” The tax is deferred until the targeted investment is sold, or until 2026 at the latest. A progressive partial step-up in basis is also granted if the investment is held for a minimum of five years. The entire appreciation in value of the new targeted investment is excluded from tax if held for ten years. In a plain English primer, Galia Antebi and Nina Krauthamer explain the concept and the necessary implementation steps and consider whether the new provision can eliminate F.I.R.P.T.A. tax for foreign investors.

July 30, 2018

Blockchain 101

July 30, 2018/ Ruchelman P.L.L.C.

Blockchain has been in the spotlight since early 2017, mostly due to the 2017 surge in cryptocurrency values and the rise of initial coin offerings (“I.C.O.’s”). Many legal advisors have clients who use or wish to use blockchain in their businesses, and yet, the actual technology is often not discussed in the legal field. In a series of Q&A’s, Fanny Karaman and Galia Antebi explain the rationale behind blockchain technology and reasons for its reliability. Because blockchain is a decentralized system with inherent proof of work built into the program, it can eliminate the need for intermediaries, such as banks, lawyers, and brokers. Advisers should be aware of the benefits of the technology, as well as its potential for disrupting the legal landscape.

May 09, 2018

Code §962 Election Offers Benefits Under U.S. Tax Reform

May 09, 2018/ Ruchelman P.L.L.C.

Two provisions in the recent tax reform legislation – Code §§965 (transition tax) and 250 (50% deduction for G.I.L.T.I.) – focus on C.F.C.’s and their U.S. Shareholders. In each case, corporate U.S. Shareholders are entitled to a deduction that is not granted to an individual with regard to income that is taxed under Subpart F. However, Code §962 may allow an individual who is a U.S. Shareholder of a C.F.C. to elect to be taxed on the Subpart F Income as if a corporation. This allows for tax at a lower rate and a foreign tax credit for corporate income taxes paid by the C.F.C. Elizabeth V. Zanet and Galia Antebi explain the workings of Code §962 and focus on the position of naysayers who caution that it may not provide the relief it appears to provide.

April 01, 2018

Investing in U.S. Real Estate on a (Possibly) Tax-Free Basis

April 01, 2018/ Ruchelman P.L.L.C.

A Real Estate Investment Trust, or R.E.I.T., is a popular type of investment vehicle. A R.E.I.T. is an entity that generally owns and typically operates a pool of income-producing real estate properties, including mortgages. Its investors generally look to a return on investment in two forms: (i) distributions from the R.E.I.T. and (ii) dispositions of the R.E.I.T. stock. If certain facts exist, U.S. tax law offers foreign investors a completely tax-free avenue to invest in a R.E.I.T. Galia Antebi and Neha Rastogi explain the ins and outs of tax-free treatment for the foreign investor.

February 28, 2018

B.E.A.T.-ing Base Erosion: U.S. Subjects Large Corporations to Anti-Abuse Tax

February 28, 2018/ Ruchelman P.L.L.C.

Cross-border payments to related parties have been an arrow in the quiver of cross-border tax planners since the time that income tax and global trade first intersected. The new Code §59A introduces the Base Erosion and Anti-Abuse Tax (“B.E.A.T.”) on large corporations that significantly reduce their U.S. tax liability through the use of cross-border payments to related persons. It is structured as another form of the now-repealed corporate Alternative Minimum Tax rather than a disallowance of a deduction in computing regular taxable income. Banks that have significant interest payments and U.S. companies that pay significant royalties for trademarks, copyrights, and know-how are the targets of the tax to the extent full 30% withholding tax is not imposed. Galia Antebi and Sheryl Shah explain how the tax is computed. Is this another step towards a global trade war?

February 07, 2018

Reform of the U.S. Tax Regime – The Swiss Perspective→

February 07, 2018/ Ruchelman P.L.L.C.

Published by Prager Dreifuss, Tax Newsletter (February 2018).

November 30, 2017

Anti-Inversion Rules Are Not Just for Mega-Mergers – Private Client Advisors Take Note

November 30, 2017/ Web Admin

The U.S. has rules that attack inversion transactions, wherein U.S.-based multinationals effectively move tax residence to low-tax jurisdictions. If successful, these moves allow for tax-free repatriation of offshore profits to the inverted parent company based outside the U.S. However, the scope of the anti-inversion rules is broad and can also affect non-citizen, nonresident individuals who directly own shares of private U.S. corporations. Attempts to place those shares under a foreign holding company as an estate planning tool may find that the exercise is all for naught once the anti-inversion rules are applied. Elizabeth V. Zanet, Galia Antebi, and Stanley C. Ruchelman discuss the hidden reach of the anti-inversion rules to private structures.

August 15, 2017

Family Limited Partnerships in Estate Planning – Is Estate of Powell the End or the Beginning of Aggressive Tax Planning?

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

When transactional tax advisers come across estate planning advice, amazement is often expressed over the importance given to form rather than economic substance. Value can be reduced when property is transferred to a family partnership. In Estate of Powell, the Tax Court went beyond form to look at substance in determining the scope of the decedent’s taxable estate. Galia Antebi and Rusudan Shervashidze explore the holding of the case.

June 27, 2017

I.R.S. Pushes to Ease Implementation of Country-by-Country Reporting for U.S. M.N.E.’s

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

It is widely known that the U.S. is following its own path towards international tax compliance. It has not signed onto the O.E.C.D.’s Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports; it does not participate in the Common Reporting Standard; and it did not sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent B.E.P.S. Nonetheless, at the request of U.S. multinationals, the I.R.S. has adopted domestic income tax regulations on country-by-country (“CbC”) reporting. In May, the I.R.S. confirmed the first bilateral competent authority agreement regarding CbC reporting was signed with the Netherlands. That agreement has now been followed by agreements with Canada, Denmark, Guernsey, Iceland, Ireland, Korea, Latvia, New Zealand, Norway, Slovakia, and South Africa. Galia Antebi and Kenneth Lobo delve into the U.S. rules and forms for CbC reports.

May 23, 2017

Foreign Tax Credits: General Principles and Audit Risks

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

In April, the Large Business & International Division (“LB&I”) of the I.R.S. published an International Practice Unit directed to the foreign tax credit claimed by individuals. Tax advisers to Americans living abroad or having global investment portfolios may find that the Practice Unit indicates topics of interest for the I.R.S. Fanny Karaman and Galia Antebi explain the concepts covered, including persons eligible to claim the credit, foreign taxes that qualify for credit, whether to deduct or credit a foreign income taxes, foreign tax credit limitations, and means of ameliorating the effect of unused credits in a particular year.

May 23, 2017

Foreign Tax Credit May Not Be Available for Gains Derived Outside the U.S.

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

Merely because a foreign country imposes an income tax and the tax is creditable does not mean that effective relief from double taxation is available. The U.S. retains the first right to tax income and gains that are domestic in character, and the income or gain on which the foreign tax is imposed must be categorized as foreign for relief to be provided. Kenneth Lobo and Galia Antebi focus on this issue and advise that advance planning will be required.

April 28, 2017

LB&I Audit Insights: Using a Code §6038A Summons When a U.S. Corporation is 25% Foreign Owned

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

Code §6038A provides that a U.S. corporation that is 25% or more foreign-owned must provide the I.R.S. with information on certain transactions with its 25% foreign owner and any other foreign related party. The goal is to obtain access to documents that are helpful in determining the correctness of the U.S. tax return. In an I.P.U., LB&I explains how it plans to obtain documents held outside the U.S. This may include a requested exchange under a tax information exchange agreement or a summons served on a domestic agent appointed to receive a summons that is enforceable abroad. Galia Antebi and Stanley C. Ruchelman explain the process that will be followed by the I.R.S.

March 27, 2017

I.R.S. LB&I Announces 13 New “Campaigns” for Audit Guidance

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

The I.R.S. Large Business and International (“LB&I”) Division has announced 13 issue-based campaigns targeting specific “Practice Areas” for audit and other enforcement activity. The campaigns involve a combination of examinations, outreach, guidance, and other approaches. Galia Antebi and Stanley C. Ruchelman look at the new I.R.S. approach to tax examinations in an age of increased complexity and limited budgets for examiners.

February 21, 2017

Debt v. Equity: Judicial Factors Still Applicable Post-§385 Regulations

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

The last quarter of 2016 saw the introduction of final regulations establishing benchmarks for treating a debt instrument as true debt for U.S. income tax purposes. These regulations apply to companies over a certain size issuing debt instruments exceeding $50 million. Debt issued by owner-managed companies are not covered by the regulations and, as a result, tests established by case law will continue to apply. Galia Antebi and Kenneth Lobo look at a relatively recent case, Sensenig v. Commr., in which the standard tests were applied – the equivalent of comfort food for tax lawyers.

January 26, 2017

Foreign Charities active in the U.S. – Public? Or Private Foundations?

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

Foreign nonprofit organizations have become more active in the U.S. in carrying out their charitable mandates. Such activities include performances in the U.S. by foreign artistic companies and the use by U.S. charities of technology and know-how developed by foreign charities. Fees earned by foreign charities could be subject to U.S. income or withholding taxes, but those taxes can be reduced or eliminated if specific procedures are followed. Much will depend on the status of organization as a “public charity” or a “private foundation,” terms that make reference to the organization’s funding sources. Nina Krauthamer and Galia Antebi explain the U.S. rules that are applicable.

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.

November 30, 2016

Insights Vol. 3 No. 10: Updates & Other Tidbits

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

This month Sultan Arab, Nina Krauthamer, and Galia Antebi look briefly at several timely issues, including (i) a Swiss court order granting UBS the right to appeal an administrative order to disclose French client information to French tax authorities, (ii) the expansion of I.R.S. offshore tax avoidance investigations to banks in countries other than Switzerland, and (iii) a continuing controversy over the Common Consolidated Tax Base, known as the C.C.T.B., proposed by the E.U. Commission.