In 2007, the Tax Court in case after case decided that taxpayers cannot exclude income earned while in Antarctica under the foreign earned income exclusion provisions of Sec. 911.
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International Tax
Revisions to 2007 Form 1120-F
The IRS has revised Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, and related schedules, effective for filing periods ending on or after December 31, 2007.
Commentary on the Canada-U.S. Tax Treaty’s Fifth Protocol
The U.S. Secretary of the Treasury and the Canadian Minister of Finance signed an important tax agreement (the Fifth Protocol) updating certain provisions of the Canada-U.S. Tax Treaty.
IRS to Perform Mandatory Audits of Foreign Earnings Repatriation
The IRS LMSB Division has identified foreign earnings repatriation as a Tier I compliance issue, making it a mandatory examination item for those U.S. taxpayers selected for audit that have elected to repatriate foreign earnings under Sec. 965.
IRS Announces Program to Share Employment Tax Exam Results with States
The IRS and 29 state workforce agencies jointly announced that they have entered into agreements to share with each other the results of employment tax examinations.
Global Harmonization of Taxation
The European Union (EU) was a catalyst for the acceptance of international financial reporting standards (IFRS) in Europe. The EU and the International Organization of Securities Commissions (IOSCO) adopted IFRS in 2002, the U.S. Securities and Exchange Commission (SEC) anticipates IFRS acceptance by 2009, and the Financial Accounting Standards Board
Foreign Earned Income Exclusion Housing Cost Limitations Increase
In Notice 2007-77, the IRS has adjusted the 2007 limitation on housing expenses under Sec. 911 for specific locations in countries with high housing costs relative to U.S. housing costs. The adjusted housing expense limitations are to be used in determining the housing cost amount eligible for exclusion or deduction
2008 Tax Rate Changes in China
Editor: Michael D. Koppel, CPA, PFS The Enterprise Income Tax Law (EITL) will become effective in China on January 1, 2008. It was approved at the 10th National People’s Congress of China, which concluded on March 16, 2007. The function of the EITL is to streamline the new tax rates
Notice 2007-13: Loosening the Rules Surrounding Substantial Assistance
Editor: Kevin F. Reilly, J.D., CPA The global marketplace has undergone a dramatic transformation since the regulations governing foreign base company services income were issued in 1968. As this change continues, the IRS must give serious consideration to the relevance of existing statutes that originated when American commerce was far
U.S. Individual’s Investment in Overseas Rental Property
Editor: Kevin F. Reilly, J.D., CPA The regulations under Sec. 904, issued in July 2004, make clear that the subpart F provisions continue to apply to overseas investment in real property by individuals. Those regulations expand the definition of what are considered active rents for the purposes of determining the
The Impact of Sec. 897 on an NRA or Foreign Corporation’s Sale of Domestic Stock
This article highlights some of the important issues under Sec. 897 when an NRA or foreign corporation sells stock of a domestic corporation, focusing primarily on when a domestic corporation is treated as a USRPHC and the requirements needed to establish that such an entity is not a USRPHC
How to Avoid Triple Taxation Under the Branch Profits Tax and FIRPTA
Editor: Kevin F. Reilly, J.D., CPA Under certain realistic scenarios, shareholders of a U.S. company with a foreign subsidiary who do not correctly structure their situation with an exit plan in mind may find themselves paying three levels of U.S. tax on a foreign corporation’s profits due to the interplay
Sec. 1446 Withholding
Editor: Joel E. Ackerman, CPA, MST Foreign investment in the United States continues to rise. The investment vehicle of choice, especially in the case of real estate, is generally a tax-transparent entity such as a limited partnership, limited liability company, or similar foreign transparent entity that is treated as a
Individuals’ Use of Offshore Holding Companies (Part II)
This article explores the tax consequences of using an offshore company to make more significant investments in foreign businesses, including situations in which the use of an offshore holding company may be consistent with bona fide U.S. federal income tax planning objectives.
New Foreign Trust Tax Form Project: 1041NR
IRS representatives recently approved a joint project with the AICPA Foreign Trust Task Force. Together they will design a new Form 1041NR, U.S. Income Tax Return for Foreign Estates and Trusts, which tax return preparers and IRS personnel will find easier to understand, prepare, and process.
Private Equity Funds and the New Portfolio Interest Regs.
Editor: Frank J. O’Connell, Jr., CPA, Esq. On April 12, 2007, the IRS issued final regulations that address withholding on interest earned by a partnership and allocable to the partnership’s foreign investors (TD 9323). Regs. Sec. 1.871-14(a) provides that, as a general rule, no tax shall be imposed under Secs.
IRS Releases Draft Form 1120-F and Schedule M-3 and Instructions
The IRS recently released draft versions of revised Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, for 2007 and related schedules, including a new Schedule M-3, Net Income (Loss) Reconciliation for Foreign Corporations with Reportable Assets of $10 Million or More. The new Form 1120-F, Schedule M-3, will
Repatriated Earnings under Sec. 965: Using the Safe-Harbor Test in 2007 to Ease Compliance Reporting and Protect Tax Benefits
Editor: Anthony S. Bakale, CPA, M.Tax. U.S. multinational corporations repatriated billions of dollars in earnings from foreign subsidiaries to the U.S. under Sec. 965 during the time such repatriation was allowed. Companies that took advantage of this unique opportunity benefited from the temporary 85% dividends-received deduction (DRD) applied to qualifying
Individuals’ Use of Offshore Holding Companies (Part I)
This article provides an overview of the controlled foreign corporation anti-deferral regime as it relates to “portfolio-type investments” through a foreign holding company structure and the statutory deterrents to using such a structure.
New Regs. for Use of Foreign Losses Included in U.S. Tax Filings: Dual Consolidated Losses
Editor: Anthony S. Bakale, CPA, M.Tax. On March 19, 2007, new regulations were issued to control the use of losses generated in a foreign jurisdiction and included in a U.S. tax filing; see TD 9315. These final regulations apply to dual consolidated losses (DCLs) incurred in tax years beginning after
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