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I.R.S. Adds New Issues of Focus for Cross-Border Audits

I.R.S. Adds New Issues of Focus for Cross-Border Audits

In late 2018, LB&I announced five additional campaigns aimed at determining whether taxpayers are complying with tax rules in the following areas of the law: (i) foreign tax credits claimed by U.S. individuals, (ii) offshore service providers that assist taxpayers in creating foreign entities and tiered structures to conceal the U.S. beneficial ownership of foreign financial accounts, (iii) F.A.T.C.A. compliance by F.F.I.’s and N.F.F.E.’s, (iv) tax return compliance by foreign corporations that ignore the fact that they are engaged in a U.S. trade or business under the rules of U.S. tax law, and (v) late issuance of Work Opportunity Tax Credit (“W.O.T.C.”) certifications that result in the need to file amended tax returns and result in a misuse of I.R.S. resources when returns are filed without the W.O.T.C certifications. The move follows more than two years, of I.R.S. publications that alert the public to certain issue-based approaches being followed by examiners. Galia Antebi and Elizabeth V. Zanet summarize the new releases.

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

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

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.

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I.R.S. Announces Six Compliance Campaign

I.R.S. Announces Six Compliance Campaign

The I.R.S. Large Business and International division ("LB&I") recently announced compliance campaigns that are principally directed at compliance in cross-border fact patterns.  Included are campaigns to address (i) non-compliance with respect to Form 3520, (ii) compliance issues related to Form 1042, (iii) nonresident, non-citizen individuals inappropriately claiming tax treaty exemptions, (iv) nonresident, non-citizen individuals inappropriately claiming itemized deductions on tax returns, and (v) inappropriate credits claimed by nonresident, non-citizen individuals. Elizabeth V. Zanet looks into the various campaigns and places into context the effect on individuals.

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

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

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. 

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Foreign Tax Credits: General Principles and Audit Risks

Foreign Tax Credits: General Principles and Audit Risks

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.

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