February 28, 2019

Proposed Code §864(c)(8) Regulations Codify Tax on Gain from Sale of Partnership Interest

February 28, 2019/ Ruchelman P.L.L.C.

Enacted as part of the Tax Cuts and Jobs Act, Code§864(c)(8) codifies the holding in Rev. Rul. 91-32 and overturns the result ofthe Grecian Magnesite case. In late December 2018, the I.R.S. released pro- posed regulations containing guidance under new Code §864(c)(8). Among the points addressed in the proposed regulations are (i) rules to compute the amount of E.C.I. gain or loss, (ii) coordination with F.I.R.P.T.A. tax and withholding, (iii) interaction with income tax treaties, and (iv) anti-abuse rules. Fanny Karaman and Nina Krauthamer discuss these and other aspects of the proposed regulations.

January 28, 2019

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

January 28, 2019/ Ruchelman P.L.L.C.

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.

November 29, 2018

How to Handle Dual Residents: The I.R.S. View on Treaty Tie-Breaker Rules

November 29, 2018/ Ruchelman P.L.L.C.

The first step in advising a foreign individual who is neither a U.S. citizen nor a green card holder on U.S. income tax laws is to determine the person's residence for income tax purposes. But what is to be done when the individual is resident in multiple jurisdictions? A recent LB&I International Practice Unit offers a quick understanding of the tax issues I.R.S. examiners raise when dealing with individuals who are dual residents for tax purposes. Virtually all income tax treaties entered into by the U.S. contain a tiebreaker rule under which the exclusive residence of an individual is determined for purposes of applying the income tax treaty. Fanny Karaman and Beate Erwin explain how these rules are applied. One point to remember is that the tiebreaker test for treaty residence purposes does not affect an individual's obligation to file an F.B.A.R. form.

October 31, 2018

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

October 31, 2018/ Ruchelman P.L.L.C.

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?

September 26, 2018

Hybrid Mismatches: Where U.S. Tax Law and A.T.A.D. Meet

September 26, 2018/ Ruchelman P.L.L.C.

When U.S. tax planners attend foreign conferences, it is not uncommon to hear pointed barbs that the U.S. is an outlier when it comes to rules enforcing “best practices” on global business transactions. However, when it comes to reverse hybrids and hybrid mismatches, the rules are not all that different on both sides of the Atlantic. Fanny Karaman and Beate Erwin compare approaches taken by ATAD 2 with U.S. tax law after the Tax Cuts and Jobs Act.

July 30, 2018

Blockchain 101

July 30, 2018/ Ruchelman P.L.L.C.

Blockchain has been in the spotlight since early 2017, mostly due to the 2017 surge in cryptocurrency values and the rise of initial coin offerings (“I.C.O.’s”). Many legal advisors have clients who use or wish to use blockchain in their businesses, and yet, the actual technology is often not discussed in the legal field. In a series of Q&A’s, Fanny Karaman and Galia Antebi explain the rationale behind blockchain technology and reasons for its reliability. Because blockchain is a decentralized system with inherent proof of work built into the program, it can eliminate the need for intermediaries, such as banks, lawyers, and brokers. Advisers should be aware of the benefits of the technology, as well as its potential for disrupting the legal landscape.

June 14, 2018

Foreign Investor in a U.S. L.L.C. – How to Minimize Withholding Tax on Sale of L.L.C. Interest

June 14, 2018/ Ruchelman P.L.L.C.

U.S. tax law was revised in last year’s tax reform legislation to impose tax on non-U.S. persons recognizing a gain from the sale of a partnership that engages in a U.S. business. Worse, purchasers must collect and pay over to the I.R.S. a withholding tax equal to 10% of the amount realized by the seller. Because of the way U.S. tax law treats partners of partnerships financed with debt, the withholding tax can be greater than the cash that is set to be paid to the foreign seller. In April, the I.R.S. issued guidance on the problem, leading some to recommend a two-step plan to align the withholding tax with the ultimate income tax that will be due. Fanny Karaman and Stanley C. Ruchelman explain the I.R.S. guidance and the two-step plan.

April 01, 2018

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

April 01, 2018/ Ruchelman P.L.L.C.

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.

February 28, 2018

Qualified Business Income - Are You Eligible for a 20% Deduction?

February 28, 2018/ Ruchelman P.L.L.C.

Have you ever been asked to define the undefinable? At first glance, the new 20% Q.B.I. deduction – a reduced tax rate for the self-employed and partnerships introduced by the Tax Cuts and Jobs Act (“T.C.J.A.”) – seems to be just that: a maze in which the general rule is modified in hidden ways through subdivisions of subsections and in definitions that have substantive effect. In their article, Stanley C. Ruchelman and Fanny Karaman logically guide the reader in detail and with illustrations.

January 26, 2018

Individual, Corporate, and Trust News from France

January 26, 2018/ Ruchelman P.L.L.C.

The end of each year in France is marked by a fiscal legislative process to amend the current year’s finance law and to draft the law for the upcoming year. The year 2017 was no exception. Changes will be made to wealth tax, tax brackets, tax on investment income, corporate tax rates, and the 3% additional tax on dividend distributions (retroactively). Fanny Karaman and Nina Krauthamer explain the tax changes.

December 27, 2017

Tax 101: Virtual Currency – What Is It? And How Is It Taxed?

December 27, 2017/ Web Developer

With the recent launch of Bitcoin futures trading, this once obscure asset class may soon become a mainstream investment. Alev Fanny Karaman delves into the details of virtual currency in the U.S. context. She explains the blockchain computations that make Bitcoin and other cryptocurrencies attractive to investors and the U.S. tax treatment and reporting obligations of virtual currency holders.

November 30, 2017

Employment Tax Basics and Paths to Compliance

November 30, 2017/ Ruchelman P.L.L.C.

When a company expands across a border, it faces a complex web of employment-related taxes. Penalties for failure to properly comply with these rules can be severe. Fanny Karaman looks at the U.S. rules that are applicable to the payment of wages and bonuses, the penalties that can be imposed on compliance failures, and the procedures that are available to cure errors. The rules are not straightforward, guidance is often minimal, and an experienced advisor is extremely valuable.

September 20, 2017

The Economic Substance Doctrine: A U.S. Anti-Abuse Rule

September 20, 2017/ Ruchelman P.L.L.C.

While the O.E.C.D. and the European Commission have only recently discovered the “principal purpose” test as a tool to combat aggressive tax planning, U.S. case law has enforced an economic substance rule for over 85 years and that rule was codified in 2010. Fanny Karaman, Neha Rastogi, and Stanley C. Ruchelman explain the hurdles that must be achieved in order for a plan to have economic substance.

August 15, 2017

European Commission Proposes New Advisor Disclosure Obligation for Aggressive Tax Planning

August 15, 2017/ Ruchelman P.L.L.C.

In June, the European Commission proposed a set of rules calling on tax advisers to report aggressive tax plans submitted to clients. The proposal identifies the hallmarks of aggressive plans and provides rules for the timing of reports and the exchange of information within Europe. Fanny Karaman and Stanley C. Ruchelman explain.

June 27, 2017

Qualified Small Business Stock & the EB-5 Visa Program – An Attractive Combination for Potential Investors

June 27, 2017/ Ruchelman P.L.L.C.

Ever heard of qualified small business stock (“Q.S.B.S.”) as a means of investing in start-up companies? Although it is not typically thought of as a tax planning tool for foreign investors, when the foreign person is an applicant for an EB-5 visa, the tax results can be surprisingly good. Fanny Karaman and Beate Erwin explain.

May 23, 2017

Foreign Tax Credits: General Principles and Audit Risks

May 23, 2017/ Ruchelman P.L.L.C.

In April, the Large Business & International Division (“LB&I”) of the I.R.S. published an International Practice Unit directed to the foreign tax credit claimed by individuals. Tax advisers to Americans living abroad or having global investment portfolios may find that the Practice Unit indicates topics of interest for the I.R.S. Fanny Karaman and Galia Antebi explain the concepts covered, including persons eligible to claim the credit, foreign taxes that qualify for credit, whether to deduct or credit a foreign income taxes, foreign tax credit limitations, and means of ameliorating the effect of unused credits in a particular year.

April 28, 2017

Value-Added Tax 101 – A Far Cry from a Border Tax

April 28, 2017/ Ruchelman P.L.L.C.

Although the U.S. is the world’s largest economy, it is the only world economy that does not have a national value-added tax (“V.A.T.”). Until the border adjustment tax (“B.A.T.”) proposals were floated, most cross-border tax advisers in the U.S. only had vague concepts of the workings of a national V.A.T. Fanny Karaman and Stanley C. Ruchelman explain the mechanics of the V.A.T. as enacted in the E.U., cautioning that the B.A.T. is not a V.A.T.