This article discusses new traps for the uninitiated created by these revisions and the new reporting requirements for certain taxpayers who previously may not have been required to file this form.
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Topics
International Tax
Effect of Debt Recharacterization on Worthless Securities Deductions
The IRS recently addressed concerns that the recharacterization of intercompany debt as common equity might prevent a worthless securities deduction.
Expatriation and the New Mark-to-Market Rules
New rules subject taxpayers that renounce their U.S. citizenship or abandon their U.S. residency to a mark-to-market exit tax on their assets.
Adopting or Changing a Foreign Corporation’s Accounting Method
Many companies are experiencing decreased cashflow during the present economic downturn and as a result are evaluating options to raise cash to fund ongoing business operations. One option that U.S. multinational corporations may consider is repatriation of earnings from related foreign corporations.
FBAR Penalties Reduced for Six Months
The IRS has provided a framework for voluntary disclosure requests containing offshore issues, such as previously undisclosed foreign financial accounts and entities.
Subpart F and the New Contract Manufacturing Regs.
Final regulations were issued on the application of the manufacturing exception to certain contract manufacturing arrangements—arrangements where a CFC does not itself perform the manufacturing but instead contracts with a third party to perform the manufacturing.
Tax Treaty Net Basis Elections
Tax treaties may offer special elections that recharacterize certain types of FDAP income that would otherwise be subject to withholding tax as effectively connected and thus taxable on a net basis at U.S. graduated rates.
Transfer Pricing: The New Temporary Cost-Sharing Regs.
On December 31, 2008, the IRS introduced new temporary cost-sharing regulations (T.D. 9441) that replace the old cost-sharing regulations introduced in 1995.
New Subpart F Regs. Address Manufacturing Exception and Branch Rules
Treasury published final, temporary, and proposed regulations under Sec. 954 addressing the treatment of contract manufacturing arrangements and the branch rules applicable to foreign base company sales income (FBCSI), a type of subpart F income applicable to the sale of inventory.
IRS Provides a Simplified Method for Late Filing Relief
The IRS has provided a simplified method to request relief for certain late filings under Secs. 897 and 1445.
IRS Crackdown on Form 5471: A Sign of Things to Come?
In August 2008, the IRS began sending “soft” letters to corporate taxpayers warning that beginning in 2009, the Service would automatically assert penalties on any late-filed Forms 1120 that include a Form 5471.
Requirements for the Creation of Permanent Establishment in Germany
The German federal tax court ruled that use of business premises or a plant does not constitute a permanent establishment under §12 of the general tax code, subject to taxation in Germany, when the foreign company does not have certain authority over the business premises or plant in which it operates.
Tips for Preparing the Form 5471 for Controlled Foreign Corporations
This article gives an overview of the issues faced by practitioners when preparing Form 5471 and can serve as a roadmap to the potential problems and traps for the unwary.
IRS Focuses on Form 1042 Examinations
In July 2008, the IRS issued a new Internal Revenue Manual (IRM) section that provides for an increased level of focus by IRS examiners to examine and enforce the statutory requirements for withholding and the related compliance reporting of FDAP-type payments to foreign persons.
Automatic Penalty Assertions Begin for Delinquent Forms 5471
In August 2008, the IRS began mailing “soft letters” to corporations that had, during the past two years, filed a late Form 1120 that included at least one Form 5471, to inform them of the new automatic penalty assertion procedures.
IRS Changes Policy for Asserting Penalties for Late-Filed Form 5471
The IRS recently sent letters to certain corporate taxpayers advising them that effective January 1, 2009, penalties for late-filed Forms 5471 will automatically be asserted when such forms are attached to a late-filed Form 1120.
IRS Provides Liquidity Assistance, Relief
In response to the liquidity crisis, the IRS temporarily expanded the short-term financing exception to Sec. 956, which will permit corporations to access cash from their controlled foreign corporations (CFCs) without having an income inclusion for U.S. tax purposes.
Selected Provisions of the Fifth Protocol to the U.S.-Canada Income Tax Treaty
In 2007, the United States and Canada signed the Fifth Protocol to the 1980 U.S.-Canada Income Tax Treaty. The changes to the treaty resulting from this new protocol are numerous and are quite significant for cross-border business
New Temp. Regs. Under Sec. 905(c)
The IRS issued new temporary and proposed regulations under Secs. 905(c) and 6689, which update the 1988 temporary regulations governing a taxpayer’s obligations with respect to a foreign tax redetermination.
Treatment of Loans to U.S. Partners Under the U.S.-Germany Tax Treaty
Germany’s federal tax court ruled that interest payments received by a U.S.-resident partner on a loan to his German partnership can be taxed only in the United States in accordance with Article 11(1) of the U.S.-Germany income tax treaty and are exempt from German taxation.
PRACTICE MANAGEMENT
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