March 29, 2019

The I.R.S. Approach to the Dependent Agent Concept

March 29, 2019/ Ruchelman P.L.L.C.

When foreign corporations have certain limited activities in the U.S., a question that arises is whether a taxable presence exists in the U.S. for Federal income tax purposes. A foreign corporate taxpayer with direct activities or operations in the U.S. is subject to U.S. corporate income tax and branch profits tax if it conducts a U.S. trade or business generating effectively connected income. Recently, the I.R.S. Large Business and International division published an international practice unit (“I.P.U.”) addressing the creation of a P.E. through the activities of a “dependent agent.” Fanny Karaman and Beate Erwin lead the reader through the I.P.U. and explain the four-step process that is used by the I.R.S. to evaluate whether a permanent establishment exists.

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.

January 26, 2018

Income Shifting: Common Ownership or Control Under Code §482 in an Inbound Transaction

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

The Large Business and International Division of the I.R.S. (“LB&I”) periodically develops international practice units (“I.P.U.’s”) that serve as training material for international examiners. In November 2017, an I.P.U. entitled “Common Ownership or Control Under IRC 482 – Inbound” was published. On the same date, the I.R.S. issued a sister I.P.U. for outbound transactions, “Common Ownership or Control Under IRC 482 – Outbound.” Together, they serve as a primer for determining whether sufficient control exists between two parties to bring the arm’s length transfer pricing rules of Code §482 into play. Stanley C. Ruchelman explains how the I.R.S. trains its examiners when determining whether a transfer pricing adjustment is appropriate.

August 15, 2017

I.R.S. Explains “Substantially Complete” in Relation to International Information Return

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

Taxpayers having cross-border operations are confronted with numerous tax information forms to be filed as part of the annual tax return. Because the forms are not directly used to compute taxable income, they frequently are completed at the last minute and with less attention to detail. However, the I.R.S. imposes penalties for filing an incomplete form. Taxpayers faced with asserted penalties often argue that the forms are substantially complete. In a recent International Practice Unit (“I.P.U.”) issued by the Large Business & International Division of the I.R.S., the I.R.S. view regarding substantially complete form was explained. Not surprisingly, the I.R.S. view is significantly different from taxpayer expectations. It also differs from holdings in several Tax Court decisions involving other forms. Neha Rastogi and Stanley C. Ruchelman discuss the I.P.U. in detail.

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

LB&I Audit Insights: Using a Code §6038A Summons When a U.S. Corporation is 25% Foreign Owned

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

Code §6038A provides that a U.S. corporation that is 25% or more foreign-owned must provide the I.R.S. with information on certain transactions with its 25% foreign owner and any other foreign related party. The goal is to obtain access to documents that are helpful in determining the correctness of the U.S. tax return. In an I.P.U., LB&I explains how it plans to obtain documents held outside the U.S. This may include a requested exchange under a tax information exchange agreement or a summons served on a domestic agent appointed to receive a summons that is enforceable abroad. Galia Antebi and Stanley C. Ruchelman explain the process that will be followed by the I.R.S.

February 29, 2016

Field Procedures for Handling Foreign-Initiated “Specific” Requests Under E.O.I. Agreements

February 29, 2016/ Ruchelman P.L.L.C.

Once again, Insights looks at the I.R.S.'s International Practice Units, this time focusing on how the I.R.S. deals with information exchanges at its field level. Sheryl Shah and Stanley C. Ruchelman explain the procedures followed by the Large Business & International (LB&I) division.

January 15, 2016

International Practice Unit: I.R.S. Releases Subpart F Sales and Manufacturing Rules