March 30, 2022

New Subpart F and P.F.I.C. Regulations – Ex Uno Plures

March 30, 2022/ Ruchelman P.L.L.C.

Is a partnership an entity for certain tax purposes or is it an aggregate of the partners? U.S. tax law was never consistent on this point. In 2017, a foreign taxpayer won a major victory when the U.S. Tax Court held that a partnership is an entity when determining the tax exposure of a foreign partner selling its partnership interest or having its interest redeemed. Almost immediately, Congress changed the law. From that moment, the I.R.S. reviewed the way partnerships and their partners are treated for purposes of the Subpart F, G.I.L.T.I., and P.F.I.C. provisions of U.S. tax law. Regulations were revised, the Schedule K-1 reporting form was modified with the addition of Schedule K-2 and Schedule K-3, and elections once made by domestic partnerships and binding on all members were now to be made by individual partners. Stanley C. Ruchelman and Wooyoung Lee explain these and other changes in the treatment of partnerships for the international provisions of U.S. tax law.

March 30, 2022

The Price is Right: Former I.R.S. Attorney Discusses Information Return and F.B.A.R. Penalties

March 30, 2022/ Ruchelman P.L.L.C.

Ever wonder what happens to well-crafted reasonable cause statements attached to late-filed I.R.S. information returns, such as Forms 5471, 5472, and 3520? In a presentation before the San Francisco Tax Club, a retired long-term I.R.S. attorney named Daniel Price provided the answer: nothing happens to them. Over the years, the I.R.S. has increased the number of information returns that must be filed by taxpayers. To keep up the pace, I.R.S. delegates many tasks to lower-level employees who may not have been trained sufficiently to make discretionary judgments. Moreover, they are managed by relatively inexperienced supervisors. Stanley C. Ruchelman and Wooyoung Lee explain the problem and several suggestions offered by Mr. Price. Recent experience with F.B.A.R. penalty inconsistencies are also discussed.

January 30, 2022

Goodwill and Mister Donut – A Going Concern?

January 30, 2022/ Ruchelman P.L.L.C.

· A sale of a business often involves an element of goodwill, a term that can have different meanings in different contexts, depending on whether the term relates to (i) purchase price allocations for financial statement purposes or income tax purposes or (ii) attempting to compute the source of income for foreign tax credit purposes. Compounding the definitional inconsistency, the meaning of the term has changed over time. In a 25-year old case, the overseas Mister Donut franchising business was sold to a foreign buyer in an asset-sale transaction. Although only intimated in the case, the taxpayer likely had significant amounts of deferred assets on its balance sheet arising from unused foreign tax credits. Because the seller was a U.S. company, gain from the sale of business generally results in the generation of domestic source income. Under the law in effect at the time, goodwill was sourced where business was carried on. Was that provision the key to access deferred foreign tax credits? The U.S. Tax Court said no. Sometimes, goodwill is not goodwill for foreign tax credit planning purposes. Michael Peggs and Wooyoung Lee look at the court’s reasoning and comment on certain contemporary aspects of the decision in light of provisions in the Tax Cuts and Jobs Act and several I.R.S. pronouncements on goodwill.

January 30, 2022

A C.T.A. of the C.T.A. – A Closer Targeted Analysis of the Corporate Transparency Act

January 30, 2022/ Ruchelman P.L.L.C.

The C.T.A. was enacted on Jan. 1, 2021, ad to shed light on the beneficial owners of certain entities by requiring those entities to report information on their beneficial owners and other individuals known as company applicants. Many think of it as “Son of F.B.A.R.,” but its application is much wider and is focused on small companies. FinCEN published proposed regulations on December 27, 2021, which are intended to answer questions left open in the legislation. What companies must report? What companies are exempt? Who is a control person? What are the penalties for noncompliance? Andreas Apostolides, Nina Krauthamer, and Wooyoung Lee explain all. Those who ignore the obligations to report do so at their peril.

November 29, 2021

Trusts Under Attack – The Legislative Landscape

November 29, 2021/ Ruchelman P.L.L.C.

Bad ideas travel globally, especially if the source of information is a progressive crusader. Reducing perceived wealth disparity in the U.S. has become a major political goal of the Biden Administration and the Democratic Party. That goal, together with the goal of increased transparency concerning ownership, have resulted in a number of legislative proposals, which, if enacted will fundamentally alter tax planning regimes for the wealthy. In her article, Nina Krauthamer explores some of these recommendations and their effect.

November 29, 2021

Toulouse or Not Toulouse? N.I.I.T.-Picking the Reach of the U.S. Foreign Tax Credit

November 29, 2021/ Ruchelman P.L.L.C.

When is a tax that is based on income not an income tax? When are treaty provisions that provide for relief from double taxation properly ignored? The answer in the U.S. is when the tax is the Net Investment Income Tax, generally referred to as N.I.I.T. In the Toulouse case, the U.S. Tax Court refused to allow a U.S. citizen resident abroad to claim a foreign tax credit when it came to the N.I.I.T. In addition to the technical issue, the case is interesting because it illustrates the choice of procedures to be followed when challenging an I.R.S. increase in tax for reasons unrelated to the computation of income or the availability of a credit. One is the Collection Appeals Program (“C.A.P.”) and the other is the Collection Due Process program (“C.D.P.”). Here, the taxpayer chose the C.D.P., as it allowed the taxpayer an opportunity to challenge an adverse position of the I.R.S. by filing a petition in the U.S. Tax Court. Andreas Apostolides and Wooyoung Lee explain the rationale of the court in denying double tax relief. In particular, it points out that taxpayers who seek treaty relief in matters other than withholding tax rates do so at their peril.