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Insights Vol. 5 No. 3: Updates & Other Tidbits

Insights Vol. 5 No. 3: Updates & Other Tidbits

This month, Tomi Oguntunde, Sheryl Shah, and Nina Krauthamer look briefly at four recent developments in international tax: (i) the E.U. counteroffensive to U.S. tax reform involving stricter tax rules, (ii) the amendment of Form 1023-EZ, which is a streamlined application for non-profit entities applying for tax exempt status, (iii) Spain’s crackdown on celebrities attempting to evade tax, and (iv) Luxembourg’s continued pushback against the Amazon State Aid case.

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I.R.S. Offers Additional Guidance on Code §965 Transition Tax

I.R.S. Offers Additional Guidance on Code §965 Transition Tax

On the way toward a dividends received deduction for certain dividends paid by foreign subsidiaries, Congress enacted a one-shot income inclusion of all post-1986 earnings from C.F.C.’s and foreign corporations having 10% U.S. Shareholders that are corporations.  In March, the I.R.S. issued an F.A.Q. providing additional guidance on open issues for 2017 tax returns.  Rusudan Shervashidze and Stanley C. Ruchelman explain the mechanics of the income inclusion and an election to defer payments for eight years, sometimes more.

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New York Resisting S.A.L.T. Cap Under Federal Tax Reform

New York Resisting S.A.L.T. Cap Under Federal Tax Reform

When the T.C.J.A. capped the deduction for state and local income and property taxes at $10,000 – more tax can be paid, but only $10,000 can be deducted – state governments did not take the provision lightly.  One proposal that has gained traction in Albany and other state capitals involves creating charitable funds that would raise voluntary capital for specific governmental purposes.  The goal is for taxpayers to claim the charitable contributions as a deduction for Federal tax purposes and, at the same time, benefitting from a substantial credit against their state income tax liabilities.  Another, less contentious proposal would utilize employer-side payroll taxes to offer employees a credit against state and local taxes.  Nina Krauthamer, Elizabeth V. Zanet, and Sheryl Shah assess the viability of these proposals and the likely impact of tax reform on New York State.  Opinions are not consistent.  Stay tuned.

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Can the Arm’s Length Standard Beat the R.A.P.? Transfer Pricing After the T.C.J.A.

Can the Arm’s Length Standard Beat the R.A.P.? Transfer Pricing After the T.C.J.A.

Experienced tax litigators know that Congress often protects the I.R.S. when an important case is lost.  Yes, the taxpayer wins.  But Congress codifies the I.R.S. position by an amendment to the law.  The T.C.J.A. revised Code §482 legislatively, thereby reversing Tax Court decisions in the Amazon and Veritas cases that dismissed two arguments raised by the I.R.S. in transfer pricing litigation – mandatory use of aggregate basis of valuation (grouping of intangibles for valuation purposes) and the realistic alternative principle (challenging the business judgment for the transaction).  Michael Peggs and Sheryl Shah explain this attack on the arm’s length principle of taxation.

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When "Defective" Is Desirable – Pre-Immigration Planning for Families with U.S. Persons

When "Defective" Is Desirable – Pre-Immigration Planning for Families with U.S. Persons

The term “intentionally defective” sounds problematic, but in reality, is quite favorable when it comes to estate planning.  Intentionally defective grantor trusts are an especially useful tool when combined with pre-immigration planning for a family where only one spouse is a U.S. citizen because these trusts are disregarded for income tax purposes but respected for estate tax purposes.  If set up and funded by a non-citizen spouse before arrival in the U.S., gift and estate tax planning can be achieved in a low tax environment.  In these trusts, the settlor continues to pay tax on the income even though not a beneficiary.  As a result, the beneficiary does not pay income tax on trust distributions and the tax payment by the grantor is not considered to be gift to the beneficiary.  Hence, no gift tax.  Fanny Karaman and Nina Krauthamer explain all.

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