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Additional Guidance on New Opportunity Zone Funds

Additional Guidance on New Opportunity Zone Funds

Days after Galia Antebi and Nina Krauthamer published “The Opportunity Zone Tax Benefit – How Does It Work and Can Foreign Investors Benefit,” the I.R.S. issued guidance in proposed regulations. Now, in a follow-up article, Galia Antebi and Nina Krauthamer focus on the new guidance as it relates to the deferral election and the Qualified Opportunity Zone Fund. In particular, they address (i) which taxpayers are eligible to make the deferral election, (ii) the gains eligible for deferral, (iii) the measurement of the 180-day limitation, (iv) the tax attributes of deferred gains, and (v) the effect of an expiration of a qualifying zone status on the step-up in basis to fair market value after ten years.

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Code §962 Election: One or Two Levels of Taxation?

Code §962 Election: One or Two Levels of Taxation?

Code §962 allows an Individual U.S. Shareholder to apply corporate tax rates and offers relief from double taxation in certain situations, but where new provisions of the Tax Cuts & Jobs Act (“T.C.J.A.”) are involved, the application is murky. The T.C.J.A. introduced two provisions designed to limit the scope of deferral for the earnings of foreign subsidiaries operating abroad. One provision is the one-time deemed repatriation tax regime of Code §965, which looks backward to tax what had been permanently deferred earnings. The other provision is the global intangible low taxed income (“G.I.L.T.I.”) regime, which eliminates most deferral on a go-forward basis. Each provision limits deferral but, at the same time, imposes relatively benign tax on U.S.-based multinationals. Interestingly, it seems that it was only in the last days of the legislative process that Congress became aware that owner-managed businesses also operate abroad. While the provisions clearly apply to corporations, Congress may or may not have provided a benefit for the U.S. individuals who own of these companies. Sound cryptic? Fanny Karaman and Nina Krauthamer explain all.

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Qualified Business Income – Are You Eligible for a 20% Deduction? Part II: Additional Guidance

Qualified Business Income – Are You Eligible for a 20% Deduction? Part II: Additional Guidance

In August, the I.R.S. issued much-awaited proposed regulations under the new Code §199A covering Qualified Business Income (“Q.B.I”). This provision of recently enacted U.S. tax law allows entrepreneurial individuals to claim a 20% deduction on taxable business profits of a sole proprietorship, partnership, L.L.C. or S-corporation. Galia Antebi, Nina Krauthamer, and Fanny Karaman ask and answer the pertinent questions: Who may benefit? How do the rules addressing R.E.I.T.’s and publicly traded partnerships (“P.T.P.’s”) affect Q.B.I when a net negative result is reported by the R.E.I.T. and the P.T.P.? When is an individual’s income effectively connected to a trade or business and when is the. income a form of disguised salary for which no deduction is allowed? What is a specified trade or business (“S.S.T.B.”)  for which the resulting income cannot benefit from the Q.B.I. deduction? How does the de minimis rule work under which a limited Q.B.I. deduction is allowed S.S.T.B. income does not exceed a specified ceiling? How does the ceiling based on W-2 wages work when calculating the Q.B.I. deduction? 

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The Opportunity Zone Tax Benefit – How Does it Work and Can Foreign Investors Benefit?

The Opportunity Zone Tax Benefit – How Does it Work and Can Foreign Investors Benefit?

State Aid to entice investment and development in a specific region is bad in Europe but encouraged in the U.S. The Tax Cuts and Jobs Act added an important new provision that is expected to unlock unrealized gains and defer the tax on the gain when it is invested in active operating businesses in distressed areas designated as “Opportunity Zones.” The tax is deferred until the targeted investment is sold, or until 2026 at the latest. A progressive partial step-up in basis is also granted if the investment is held for a minimum of five years. The entire appreciation in value of the new targeted investment is excluded from tax if held for ten years. In a plain English primer, Galia Antebi and Nina Krauthamer explain the concept and the necessary implementation steps and consider whether the new provision can eliminate F.I.R.P.T.A. tax for foreign investors.

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F.A.T.C.A. – Where Do We Stand Today?

F.A.T.C.A. – Where Do We Stand Today?

When F.A.T.C.A. was adopted in 2010, the hoopla from the U.S. Senate promoted the idea that the I.R.S. would become invincible in rooting out recalcitrant Americans not wanting to pay tax and the financial institutions willing to assist them. In principle, information in U.S. tax returns could be compared with F.A.T.C.A. reporting by foreign financial institutions to identify which taxpayers remained offside and which banks had insufficient reporting systems. A recent report by the Treasury Inspector General for Tax Administration (“T.I.G.T.A.”) concluded that after spending nearly $380 million, the I.R.S. is still not prepared to enforce F.A.T.C.A. compliance. In their article, Rusudan Shervashidze and Nina Krauthamer summarize the principal shortfalls and possible solutions identified by T.I.G.T.A. and which suggested action plans the I.R.S. will contemplate.

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