Members of Ruchelman P.L.L.C. contribute to publications throughout the world and the Firm’s monthly tax journal, Insights.
Taxpayers holding valuable works of art receive different tax treatment, depending on the characterization of the individual. Is the individual the artist, a dealer, an investor, or a collector? Rusudan Shervashidze and Nina Krauthamer examine various planning tools available, focusing mostly on the collector.
Read MoreTax-smart investors in U.S. real estate understand that the principal method of disposing real property is to participate in a two-party swap transaction with the ultimate purchaser or a three-party deferred swap through a qualified intermediary. In Bartell v. Commr., the U.S. Tax Court allowed a replacement property to be purchased by an exchange accommodation title holder with whom it was parked for 17 months prior to its transfer. However, the I.R.S. has issued a notice of nonacquiescence, advising taxpayers that it disagrees with the holding of the court. Rusudan Shervashidze and Nina Krauthamer explain the facts in Bartell, the safe harbor that was published in Rev. Proc 2000-37, and the status of the facilitator as a beneficial owner for purposes of allowing tax deferral in the swap transaction.
Read MoreThe U.S. enters into bilateral investment treaties to protect and promote foreign investment. Unlike double taxation agreements, which relate exclusively to tax matters, they are not usually seen as a defense mechanism when dealing with foreign tax authorities. Interestingly, they are! Rusudan Shervashidze and Nina Krauthamer explain.
Read More“Phishing.” Many have heard the word, which is used to describe scams intended to acquire sensitive information. Few are prepared to be its target. Unwary individuals are often drawn in by scammers pretending to call from the I.R.S. and threatening imprisonment unless a bogus tax bill is paid promptly. Rusudan Shervashidze offers insights into the workings of these scammers, relaying her personal experience with an “I.R.S.” phishing call and providing tips to avoid falling into one of these traps.
Read MoreWhen 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.
Read MoreIn Rev. Rul. 2017-09, the I.R.S. addressed “north-south” transactions. In these transactions, a shareholder transfers property to a corporation in a transaction structured to be free of tax under Code §351. At about the same time, the corporation distributes shares of its subsidiary to the shareholder in a spinoff. If the transactions are considered separate for income tax purposes, each can be effected free of gain recognition and the imposition of income tax. On the other hand, if the transactions are integrated into a single multi-step transaction, gain will be recognized and tax imposed on each step of the arrangement. The ruling announces that the I.R.S. will once again rule on the status of these transactions and provides guidance on the standard that the I.R.S. will apply. Rusudan Shervashidze and Nina Krauthamer explain the factual context and the approach of the I.R.S. in granting relief.
Read MoreIn April, coordinated tax raids targeted three separate offices Credit Suisse involved in tax fraud examinations by the Netherlands, France, Germany, the U.K., and Australia. Was it merely a coincidence that these are countries with which the U.S. regularly cooperates in the exchange of tax information? Rusudan Shervashidze and Stanley C. Ruchelman discuss the many avenues through which the I.R.S. furnishes and receives information. One thing is clear: The I.R.S. had the means to transfer information to the relevant tax authorities.
Read MoreSection 911 of U.S. tax law provides certain tax benefits to persons who report foreign earned income. To be entitled to the benefits, an individual must have a “tax home” abroad, provided that he or she does not have an “abode” in the U.S. A recent summary opinion by the Tax Court illustrates the difference between those two terms. Rusudan Shervashidze and Philip R. Hirschfeld explain.
Read MoreTax planners to New York City real estate families understand that real estate should never be sold. Rather, it should be exchanged in a tax-free, like-kind exchange. The exchange can be bifurcated into two independent transactions – one a purchase and the other a sale – without affecting tax-free treatment, provided certain well identified rules are followed. Moreover, the replacement can be acquired before the sale of an existing parcel is effected. In a recent advisory opinion affecting property in New York State, the Department of Taxation and Finance issued a taxpayer-friendly advisory opinion involving real estate transfer tax exposure in a reverse like-kind exchange. Rusudan Shervashidze and Nina Krauthamer explain the ruling.
Read MoreCode §338(g) allows a taxpayer to elect to treat certain share purchases as if the transactions were asset purchases. As a result, the premium paid for the shares can be pushed down to increase the basis in operating assets of the acquired company. The step-up in depreciable basis results in steeper depreciation and amortization deductions for U.S. tax purposes. Because a comparable tax benefit is not obtained in the jurisdiction where the target operates, the Code §338(g) treatment magnifies the effective tax rate in the foreign country when looked at from a U.S. tax viewpoint. This creates mountains of excess foreign tax credits that can be used to reduce U.S. tax on other items of foreign-source income, provided those items are subject to little or no foreign tax and fall within the same foreign tax credit limitation basket. A similar result can be achieved through a check-the-box election, which acts as a poor man’s Code §338(g) election. Code §901(m) attempts to disallow the enhanced level of the foreign tax credit, and the I.R.S. recently issued temporary and proposed regulations. Rusudan Shervashidze and Stanley C. Ruchelman explain the labyrinth of rules.
Read MoreAs a litigation strategy, a large corporation that is important to a community may decide that it is better to pay the tax and demand a jury trial in U.S. District Court as part of its claim for refund, rather than to defer payment while it argues the case before the Tax Court. The basic theory is that the jury will not be sympathetic towards the I.R.S. In a recent jury trial involving Wells Fargo, it found that the strategy did not work when the issue involved a tax shelter knows as a S.T.A.R.S. (structured trust advantaged repackaged securities) transaction. Rusudan Shervashidze and Galia Antebi explain.
Read MoreClients that invest in U.S. real property have discovered that income tax planning for the structure is only once piece of the planning puzzle. A second piece relates to the imposition of transfer taxes on the sale. If the property is in New York City, planning must consider the real property transfer tax rules of both the city and New York State. Both jurisdictions impose tax. Rusudan Shervashidze looks at recent cases in the State of New York Division of Tax Appeals Tribunal and the New York City Appeals Tribunal involving the same plan, implemented by the same taxpayer, regarding the same parcel of real property. For New York State purposes, the plan was successful. However, for New York City purposes, the plan was overturned. The statutes at the state and city level are almost identical.
Read MoreMany countries provide a tax deferral benefit for property gains through the form of a reinvestment reserve. Although U.S. tax law does not provide reserves, it does permit a taxpayer to participated in a three-party exchange of properties that may offer deferral benefits that are comparable to a reserve. Most three-party exchanges involve a sale as the first step and a reinvestment of proceeds as the second step, but in some instances, the reinvestment may occur before the sale. The I.R.S. position on these reverse exchanges is that several enumerated hurdles must be overcome before tax deferral is allowed. However, as one recent U.S. Tax Court case demonstrates, the I.R.S. view is not the last word. Rusudan Shervashidze and Nina Krauthamer explain the holding in the case, place it in context, and suggest that it may offer hope for reverse three-party exchanges that do not meet I.R.S. guidelines.
Read MoreMany jurisdictions have special provisions that apply when two businesses owned by a corporation or corporate group are divided and shares of group members are distributed to shareholders. Sometimes referred to as a “demerger” in Europe and other times as a “butterfly” in Canada, in the U.S. these transactions are called Code §355 spin-offs, split-ups, and split-offs. In the U.S., several hurdles must be overcome for the transaction to be free of tax at the level of the company making the distribution and the shareholder receiving the distribution. The I.R.S. recently issued proposed regulations clarifying the application of two of these hurdles: the transaction must not be a “device” to distribute earnings, and companies conducting two or more active business must be involved. The proposed regulations were motivated by a proposal by Yahoo! to distribute shares of Alibaba. Rusudan Shervashidze and Andrew P. Mitchel analyze the proposed regulations and how they will apply to circumstances involving a spin-off of a corporation operating a small business but having a large investment asset.
Read MoreRusudan Shervashidze and Andrew P. Mitchel continue their examination of U.S. tax rules applicable to cross-border reorganizations, formations, and liquidations. This month, they review the rules embodied in Code §1248, a provision that converts capital gain from the sale of shares in a C.F.C. into dividend income for certain shareholders. Although for individuals, the tax rates for qualified dividends and gains are the same, the source of the income is changed in a way that may allow a benefit for unused foreign taxes. If the dividend is not qualified, tax is imposed at a much greater rate. For corporations that are shareholders, dividend income may bring along indirect foreign tax credits. Code §1248 also defines the extent of a toll charge if a foreign corporation undergoes a tax-free reorganization that eliminates C.F.C. status.
Read MoreRusudan Shervashidze and Andrew P. Mitchel continue their examination of U.S. tax rules applicable to cross-border reorganizations, formations, and liquidations. This month, they review rules applicable to the liquidation of a wholly-owned domestic subsidiary corporation into its foreign parent corporation. Also discussed is the toll charge imposed on asset reorganizations that result in the domestication of a foreign subsidiary.
Read MoreThe offshore community often accuses the I.R.S. of having insufficient U.B.O. reporting for offshore companies forming single-member L.L.C.’s that serve as U.S. fronts for global business. The L.L.C. conducts business, but the I.R.S. treats the taxpayer as foreign. If no effectively connected income is generated, no U.S. tax returns are filed. The I.R.S. announced that information reporting will be required, much like partnership reporting by U.S. partnerships not having U.S. members or U.S. effectively connected income. Galia Antebi and Rusudan Shervashidze explain.
Read MoreThe U.S. has extensive rules regarding tax-free reorganizations in a domestic context. When the transaction involves cross-border exchanges, these rules are supplemented by Code §367(a). Rusudan Shervashidze and Andrew P. Mitchel explain how the rules work when shares of a U.S. corporation are transferred to a foreign corporation in a §351 exchange.
Read MoreContinuing their series on the basic rules that must be met for a transaction to be treated as tax-free reorganization under U.S. tax law, Rusudan Shervashidze and Andrew P. Mitchel discuss practical mergers, acquisitive D-reorganizations, recapitalizations, and changes to the identity, form, or place of organization of a single corporation.
Read MoreThis month, Insights looks at the latest development in the deferred prosecution agreement with Swiss banks, a property tax increase in Jerusalem for “ghost apartments,” Canadian procedures to exempt foreign employers from withholding tax on salaries paid to certain individuals that are resident outside of Canada but work in Canada from time to time, and the adverse effect outside the U.S. of deferred CbC reporting for U.S.-based multinationals.
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