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.

April 28, 2017

Cross-Border Complexities: What You Need to Know Before Your Non-U.S. Client Invests in the U.S.

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

When foreign tax counsel advises a client on a personal investment in the U.S., it is common for a U.S. tax adviser to comment on the scope of U.S. income, gift, and estate taxes. Sometimes the investment is made through a trust and other times it is made directly. In their article, Kenneth Lobo and Fanny Karaman answer questions raised in the context of fact patterns often used.

March 27, 2017

Basis Planning in the Usufruct and Bare Ownership Context

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

Concepts of usufruct and bare legal ownership are widely used estate planning tools by parents resident in civil law jurisdictions in Europe. However, when the next generation is resident in a common law jurisdiction such as the U.S., the results are not always pretty. Fanny Karaman and Beate Erwin examine the tax consequences for the U.S. children and the steps available to the European parents that may limit adverse tax consequences in the U.S.

March 27, 2017

E.U. Data Protection and the Fight Against Tax Evasion: A Delicate Balance

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

The tax world has seen an important shift in global policies, with an emphasis on tax transparency and exchange of information. The transparency measures are contained in tax-driven and non-tax-driven legislation, and while the goals of the legislation may be lofty, the policies may violate fundamental individual rights, including data protection. Fanny Karaman and Astrid Champion examine the E.U.’s non-fiscally-driven approach to tax transparency and, more precisely, the legal limits of such transparency as evidenced in recent cases.

February 21, 2017

Accumulated Earnings Tax Will Hit Taxpayers, Despite Lack of Liquidity or Control

February 21, 2017/ Ruchelman P.L.L.C.

Even absent a distribution, shareholders of U.S. corporations may, under certain circumstances, be subject to a second layer of tax: the accumulated earnings tax (“A.E.T.”). The tax is imposed on the accumulation of earnings beyond the reasonable needs of the business. Although rarely imposed on well-advised taxpayers, the A.E.T. could become increasingly important if the tax rate disparity between the corporate and individual income taxes increases under proposals put forth by the current administration. Fanny Karaman and Beate Erwin look at a recent Chief Counsel Advice Memorandum where the absence of liquidity within the corporation was found to be an irrelevant factor in determining that earnings were unreasonably accumulated by the corporate taxpayer.

January 26, 2017

Insights Vol. 4 No. 1: Updates & Other Tidbits

January 26, 2017/ Ruchelman P.L.L.C.

This month, we look briefly at several timely issues, including (i) the termination of foreign acceptance agent agreements used to confirm copies of passports outside the U.S. when a non-U.S. individual obtains an I.T.I.N., (ii) a court order in Canada upholding a demand for disclosure of client names and documentation relating to participation in a discredited tax shelter, (iii) E.U. steps that identify potentially blacklisted low-tax or no-tax countries, and (iv) worsening relations between the U.S. and the E.U. stemming from widening differences in tax policies.

January 26, 2017

New Regulations Imminent for Triangular Reorganizations and Inbound Nonrecognition Transactions

January 26, 2017/ Ruchelman P.L.L.C.

In Notice 2016-73, the I.R.S. announced that it intends to issue regulations preventing certain taxpayer abuses incident to triangular reorganizations involving foreign corporations. These are transactions in which a subsidiary is the acquisition vehicle and the shares used to acquire the target are shares of the parent company, hence the reference to a triangle. The Notice is another step in the saga of “Killer B” reorganizations in which U.S. corporations attempt to take cash out of foreign subsidiaries without paying significant U.S. tax. Transactions occurring in the past two years have been found to be abusive because they apply recently issued regulations in a way that was not intended at the time of publication. Fanny Karaman and Stanley C. Ruchelman explain the approach enunciated in the Notice.