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
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International Tax
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
Increased Compliance Burden under New Sec. 987 Prop. Regs.
Editor: Annette B. Smith, CPA Increased Compliance Burden under New Sec. 987 Prop. Regs. In September 2006, the IRS issued new proposed regulations (REG-208270-86, 9/7/06) (2006 Prop. Regs.) that provide guidance under Sec. 987 in determining foreign currency gains and losses of qualified business units (QBUs) operating in a functional
Hybrid Financing Structures
Editor: Annette B. Smith, CPA Over the years, hybrid financing structures (Structures) have attracted scrutiny from the IRS and Treasury. Structures generally use a combination of hybrid entities and hybrid notes to achieve a “double dip”—i.e., a deduction in two different taxing jurisdictions on the same loan, through intercompany financing
Choice of Entity for Expansion of Operations into a Foreign Country
Executive Summary When flowthrough treatment is desired, a U.S. business may expand into a foreign country with a branch office or plant. A foreign partnership is advantageous when foreign operations are expected to generate flowthrough losses to a U.S. partner, and foreign taxes are high. A foreign corporate entity
Withholding Requirements for Nonresident Directors’ Fees
Editor: Terence E. Kelly, CPA Multinational corporations are taking advantage of worldwide expertise to adapt to the changing economic landscape. Corporations frequently have foreign nationals on their boards of directors. This item will assist U.S. companies and/or tax professionals dealing with the taxation of such directors. Cross-Border Example A resident
U.S. Investment in German REITs
Investment in German real estate has increased significantly, in part because the German market is perceived as less inflated than others. In response to such demand and to offer an internationally recognized investment vehicle, on Nov. 2, 2006, the German government issued a draft bill for the introduction of German
Changes to Subpart F Services “Substantial Assistance” Test
Editor: Terence E. Kelly, CPA Subpart F of the Code provides that U.S. taxpayers doing business through the use of certain controlled foreign corporations (CFCs) may be subject to current income inclusion when a CFC derives foreign base company services income (FBCSI). FBCSI generally includes income from services a CFC
Time to Evaluate Cost-Sharing Arrangements
Co-Editors: Michael Metz, CPA; Nick Gruidl, CPA, MBT Treasury proposed new regulations on cost-sharing arrangements (CSAs) in REG-144615-02 (8/29/05). CSAs can help businesses operate in the global marketplace in a tax-efficient manner; however, the proposed regulations need to be carefully reviewed. Definition CSAs, formally prescribed by regulations effective on Jan.
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