Published in GGi Insider No. 81, January 2016 (p.35).
Read MoreMembers of Ruchelman P.L.L.C. contribute to publications throughout the world and the Firm’s monthly tax journal, Insights.
Published in GGi Insider No. 81, January 2016 (p.35).
Read MoreU.S.-based companies facing an I.R.S. examination of international operations may secretly wish to obtain an advance look at how I.R.S. examiners plan to carry out the examination. After all, what better way to prepare for a test than to get the questions in advance? Surprise – the Large Business & International (LB&I) Division of the I.R.S. has published its training guides for examiners.
LB&I is responsible for examining tax returns reporting international transactions, and it is in the process of revising the method by which returns are chosen for examination and the the process by which those examinations are conducted. Several aspects of the guidance will be addressed through out this edition of Insights. Stanley C. Ruchelman explains.
Read MorePublished in GGi Insider No. 81, January 2016 (p.18).
Read MoreThis month, Insights discusses recent events including a Beanie Baby billionaire’s light sentence; a tax reform report by the European Parliament addressing tax rulings, a common consolidated corporate tax base, a crackdown on tax havens, whistle-blower protection, public access to country-by-country (CbC) reports, and a lower threshold to approve E.U. tax legislation; a House Ways and Means Committee action in regard to B.E.P.S., E.U. investigations on State Aid, patent box regimes, and inversions; identity theft risk in I.R.S. proposed regulations regarding charitable deductions; and allowance of accounting non-conformity for foreign-based groups that do not adopt L.I.F.O. accounting when that method is adopted by a U.S. member.
Read MoreThis month, recent developments in F.A.T.C.A. include the D.O.J.’s Swiss bank deferred prosecution program; new instructions for Form 8966, F.A.T.C.A. Report; six new YouTube videos regarding the Online Registration System; extension of time to file F.A.T.C.A. Reports; upgrade to F.F.I. lists, the current I.G.A. partner countries, and more.
Read MoreWe have recently been receiving instructions from a variety of European clients looking to open either an office or retail location in New York. These clients are looking for advice across a range of topics: from location and leases to signage and insurance. In this month’s “Corporate Matters,” Simon H. Prisk addresses typical start-up legal needs of foreign clients expanding retail business to the U.S.
Read MoreIn December, the I.R.S. released Prop. Treas. Reg. §1.60384 -15, which details the country-by-country (CbC) reporting that will be required of large U.S.-based business entities. The proposed regulations define the persons required to file the CbC report, companies that are to included in the report, information that must be reported, acceptable measurement methodologies to be used, and uses to which data may be put.
These regulations closely follow the model recommended by the O.E.C.D. B.E.P.S. report. Sheryl Shah and Stanley C. Ruchelman explain the I.R.S.’s reasons and request for input regarding national security exemptions not otherwise considered by the O.E.C.D.
Read MoreEveryone likes Christmas presents and the P.A.T.H. Act delivers. It provides favorable tax treatment in the form of (i) F.I.R.P.T.A. exemptions for foreign pensions funds, (ii) increased ownership thresholds before F.I.R.P.T.A. tax is imposed on C.I.V. investment in R.E.I.T.’s, (iii) increased ownership thresholds before F.I.R.P.T.A. tax is imposed on foreign investment in domestically-controlled R.E.I.T.’s, (iv) a reduction in the time that must elapse in order to avoid corporate level tax on built-in gain when an S-election is made by a corporation after the close of the year of its formation, and (v) a permanent exemption from Subpart F income for active financing income of C.F.C.’s.
However, not all taxpayers benefitted from the Act. The P.A.T.H. Act increases F.I.R.P.T.A. withholding tax to 15%, adopts new partnership tax examination rules, and tightens rules regarding I.T.I.N.’s. Elizabeth V. Zanet, Christine Long, Rusudan Shervashidze, and Philip R. Hirschfeld explain these and certain other legislative changes.
Read MoreFor those who are considering the acquisition of U.K. real property for personal use, an unhappy surprise awaits. The U.K. government is actively waging a tax campaign against structures commonly used for these acquisitions and referred to derisively as “Enveloped Dwellings.” Increased stamp duty on land transactions, annual tax on Enveloped Dwellings and related capital gains charges, and extended scope of inheritance tax take the sizzle out of high-value purchases. Naomi Lawton of Memery Crystal L.L.P., London ruminates on this puzzling development.
Read MoreThe Common Reporting Standard ("C.R.S.") for the automatic exchange of information by financial institutions is now in effect for the 56 jurisdictions that are Early Adopters. How will the C.R.S. work and who will be affected? How does it interact with F.A.T.C.A. I.G.A.’s? Richard Addlestone of Solomon Harris, Grand Cayman answers these and other questions.
Read MorePublished in Lawyer Monthly, Issue 69-16: January 2016.
Read MoreIn October, Sheryl Shah had the privilege of representing GGi North America at Global Village on the Move, an annual leadership development program organized by the Iacocca Institute at Lehigh University. This year’s program took place in Mumbai and Virar, India and was hosted by VIVA College. The experience was unique for a lawyer just beginning a career.
Read MoreThis month, "Updates & Tidbits" looks at two recent developments in the E.U. The first relates to findings of illegal State Aid in the form of private rulings given by Luxembourg and the Netherlands – Starbucks and Fiat plan to appeal. The second relates to double dipping of tax benefits when establishing I.P. box companies.
Read MoreRecent developments in the F.A.T.C.A. practice include upgrades to the online registration system, a flurry of competent authority arrangements signed with other countries, F.A.T.C.A. guidance issued by the Turks and Caicos Islands, new authorizing statutes in Russia and Georgia, an implementing memorandum in Germany, an I.G.A. with Angola, updated F.A.Q.’s, and a list of Model 1 and Model 2 I.G.A. partner countries.
Read MoreMany of our clients instruct us from outside the United States to establish companies through which an acquisition or some other transaction will be conducted. After completing our “know your client” obligations for a matter involving a new client, the home country advisors instruct us to form the entity and open a bank account. This month, Simon Prisk looks at directors and officers insurance policies designed to protect incumbents from liability claims based on a failure to supervise the actions of a company. He cautions management to be wary of coverage gaps when comparing policies and costs.
Read MoreThe latest step in inversion controversy involving U.S. publicly traded corporations is the upcoming merger between pharmaceutical giants, Pfizer and Allergan, in a stock transaction estimated to be worth $160 billion. Kenneth Lobo and Stanley C. Ruchelman look at recent I.R.S. countermeasures attacking cross-border mergers that the I.R.S. views as inversions. Among other measures, rules are announced to limit planning alternatives using check-the-box entities to stuff assets into an acquirer without exposing those assets to tax in the jurisdiction of residence of the acquirer and use of parent-company stock as the consideration for the acquisition.
Read MoreLast month, Christine Long analyzed the basis of the I.R.S. motion for summary judgment in Mylan Inc. v. Commr., a case addressing whether a license that relinquishes all substantial rights in a patent is the equivalent of a sale, so that basis can be recovered and capital losses can reduce the resulting capital gain. This month, she analyzes the taxpayer’s opposition to the motion. In addition to the existence of material questions of fact that were ignored by the I.R.S., the taxpayer argues economic substance in support of its position and evaluates the rights that were transferred and those that were retained.
Read MoreWith all the brouhaha over the announced Alibaba spinoff by Yahoo!, Elizabeth V. Zanet explains the circumstances in which a corporate division – known as a demerger in many countries – can be achieved in a tax-free manner under U.S. tax law. The path is not easy as these divisions are the lone vestiges allowing tax-free corporate distributions of appreciated assets under U.S. tax law.
Read MorePartnerships owning real estate or other assets sometimes take aggressive tax positions that may invite I.R.S. scrutiny. Philip R. Hirschfeld and Nina Krauthamer explain the new partnership audit rules enacted by Congress in November as part of the Bipartisan Budget Act of 2015. With limited exception, partnerships will become liable for tax increases arising from audit adjustments. This treatment raises the importance of tax indemnities when partnership interests are acquired.
Read MoreAs part of our series addressing favorable tax rules for non-domiciled resident individuals in various countries, Alexandra Courela and Susana A. Duarte of Abreu Advogados in Lisbon explain the Portuguese approach in extending tax benefits to new arrivals holding “Golden Visas” or who otherwise qualify for work-related visas for the performance of designated high value activities. Employment income from services performed in Portugal is taxed at a low rate and foreign source service income may be exempt from tax if certain conditions apply. Foreign-source plain vanilla investment income and gains may be exempt, too.
Read MoreForming a Delaware corporation or limited liability company (“L.L.C.”) is remarkably easy. Remembering what to do with its internal records afterwards can be another matter. Corporate attorneys are frequently asked to form corporations and limited liability companies for use as blockers, holding companies, or acquisition vehicles in connection with a transaction. The entity itself may be only a small part of a much larger transaction, with most of the attention being paid to the purchase agreement, financing documents, or other agreements that is entered into by the newly formed entity. Once the transaction is completed, however, the internal corporate records of the newly formed entity can easily become an afterthought. The issue often resurfaces months or years later when a lender, purchaser, investor, or foreign counsel asks to see them. In his article, Simon Prisk looks at the various ancillary documents that are executed and then frequently ignored by clients that do not have an internal legal department. Examples include (i) certificates of formation, (ii) bylaws, (iii) subscription agreements, (iv) amendments to reflect changes to formal ownership records, and (v) a physical or digital minute book.
Over the past several years, the I.R.S. has targeted tax-free partnership transactions designed to shift tax basis to property in a way that will yield tax savings for the partner, the partnership, or both. The goal of these transactions is to use the interplay of rules governing inside basis and outside basis to shift tax basis from assets where it is less beneficial for income tax purposes to assets where a higher basis provides greater benefits, i.e., because the asset offers greater cost-recovery deductions or smaller taxable gains when sold. Regulations were adopted in final form during the last days of the Biden Administration, but were withdrawn in Notice 2025-23, with effect as of the date of their issuance. In his article, Wooyoung Lee (i) observes that, while the regulations were withdrawn, the I.R.S. has not withdrawn Rev. Rul. 2024-14, which accompanied the proposed regulations when issued in 2024 and explains the three types of basis-shifting transactions that, in the view of the I.R.S., fail the economic substance doctrine that is codified in Code §7701(o).
Foreign owners of single member U.S. limited liability companies (“L.L.C.’s”) are often told that an L.L.C. with one member is a disregarded entity for U.S. tax purposes. They assume that it means exactly that: disregarded. The assumption is understandable. It was true in almost every relevant respect for many years. It is still true for U.S. income tax purposes. A single-member L.L.C. generally files no income tax return of its own. Its income, deductions, and assets belong to its owner. But the assumption is wrong in one important respect. Since 2017, a foreign-owned single-member L.L.C. has been treated as a domestic corporation for purposes of the reporting and record-maintenance obligations under Code §6038A, involving transactions between the L.L.C. and its foreign related parties. The reporting mechanism is Form 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.) The I.R.S. instructions confirm that a reporting corporation includes a ≥25% foreign-owned U.S. corporation, including a foreign-owned U.S. disregarded entity. On April 24, 2026, the I.R.S. released Chief Counsel Advice 202617012 (“C.C.A.”). The C.C.A. addresses when the reasonable cause exception to the Code §6038A penalty applies and, in particular, what it means for the I.R.S. to apply that exception “liberally” for certain small corporations. In her article, Galia Antebi explains (i) Code §6038, (ii) the reasonable cause standard in Treas. Reg. §1.6038A-4(b), and (c) how that standard was applied in the C.C.A. While the C.C.A. may not be used or cited as precedent, it serves to illustrate how the I.R.S. evaluates reasonable cause at the time of the C.C.A.’s issuance.
For many non-U.S. individuals, obtaining a U.S. Individual Taxpayer Identification Number ("I.T.I.N.") represents their first substantive interaction with the U.S. tax system. At first glance, the process may appear relatively straightforward: complete Form W-7, provide the required supporting documentation, submit the application to the I.R.S., and await issuance of the I.T.I.N. In practice, however, the process is considerably more nuanced. All of these steps must be coordinated through an I.R.S. Certifying Acceptance Agent ("C.A.A."), assuming the individual does not wish include his or her passport in the packet of documents sent to the I.R.S. In his article, David te Boekhorst, the Founder and the Director of Angularis Global Services Inc., offers practical observations drawn from true life experience working in coordination with legal and tax advisors to assist international clients in navigating the administrative and compliance-related dimensions of the I.T.I.N. application process. He addresses (i) the purpose of the I.T.I.N. program, (ii) the role and responsibilities of the C.A.A., (iii) common misconceptions surrounding I.T.I.N.’s, and (iv) practical lessons learned from guiding foreign individuals through the application process.
Legal systems regarding taxation differ significantly between jurisdictions, and legal vehicles used to attain a specific goal often must be revised when a border is crossed. A clear illustration of this is the discretionary trust, which is a common estate planning tool in the U.S., but is often associated with tax avoidance schemes in the Netherlands. For that reason, assets, liabilities, and income of a discretionary trust are attributed to the contributor under the Afgezonderd Particulier Vermogen (“A.P.V.”) regime. An A.P.V. is defined as a segregated estate that is intended to serve a private interest that is more than incidental. In their article, Stan Stevens, a Partner at HVK Stevens Tax and Legal in Amsterdam, and Sandra Singh, a Director at the same firm, explain the rules and how they are applied in troublesome fact patterns, including unexpectedly harsh treatment if (i) a contributor of a trust moves to the Netherlands, (ii) a nonresident contributor arranges for the trust to have Dutch source income, (iii) a nonresident contributor owns Dutch situs assets at the time of death, or (iv) a Dutch expat individual dies within ten years from the date of expatriation.
No rule is more easily ignored than one no one seems to have heard of, and few provisions of French tax law make the point as neatly as the annual 3% tax on the fair market value of French real estate held by legal entities (taxe annuelle sur la valeur vénale des immeubles). Indeed, while having a very broad scope – the 3% tax is never far away where a French real estate property is not owned directly by an individual – it seems to be often overlooked by international investors, exposing them to significant tax risks. The 3% tax was initially conceived as a tracking device to seek out individuals attempting to avoid wealth tax or registration duty. Assessment of the tax is not time-barred until the end of the sixth year following the year involved, leading in the most egregious case to a 21% tax based on the real estate value. In their article, Xenia Lordkipanidze, a Partner in the Tax Department of OVERSHIELD Avocats, Paris, and Clement Pere, a Senior Associate in the Tax Department at the same firm, take a deep dive into the rules, explaining (i) how the tax is computed when a chain of corporations stands between the individual and the property, (ii) the persons who a deemed to be authorized to receive notices from the French Tax Authority, (iii) the 30-day grace period to file late that is offered to first time offenders, (iv) seven applicable exemptions to the 3% tax, (v) adverse case law for persons and entities that challenge the tax, and (vi) several items of practical guidance for affected individuals.
With a coalition government in office for 19 months, Belgium is making progress on the implementation of the ambitious tax reform that was announced when the new government was about to be sworn in. Although progress is real, it is taking shape piece by piece instead of one massive overhaul. In their article, Werner Heyvaert, Of Counsel at Advisius Tax & Legal in Brussels, and Yannick Vandenplas, an Associate at the same firm, explain the myriad of changes adopted earlier this year, including (i) the introduction of a broad capital gains tax on financial assets for Belgian individual taxpayers, followed up in administrative guidance that was issued in July, (ii) stricter rules for the dividends received deduction for Belgian corporations and for the dividend withholding tax exemption allowed to nonresident corporations, (iii) changes to the company exit tax regime, allowing for taxation of the “Liquidation Bonus” realized by individual shareholders, (iv) the adoption of a special tax regime for “carried interests,” (v) an overhaul of the tax regime for newly arrived expats, (vi) a revision to the Investment Deduction regime, a tax incentive allowing Belgian businesses to deduct a notional portion of the purchase price or investment cost of qualifying fixed assets made during the year, and (vii) the adoption of mandatory digital invoicing.
This month, Nina Krauthamer and Wooyoung Lee look briefly at two recent developments in tax. The first addresses pied-à-terre homes in New York City. Following tax policies adopted by certain cities in Canada, a yearly property tax surcharge will be imposed on New York City homes worth $5 million or more when (i) the home is not used as a primary residence for the owner or for a family member or (ii) is not rented out on full-time basis to an individual who uses the unit as a primary residence. The second development is reported by an anonymous source in contact with an unnamed immigration lawyer. According to the source, the I.R.S. is considering a change to Form 1040 (U.S. Individual Income Tax Return) to add two check boxes to the form. One will be used to indicate (a) whether the resident filer is or is not a U.S. citizen. The second will be used to identify w
In May, the I.R.S. announced a settlement offer for partnerships involved in disputes concerning “syndicated conservation easements.” The dispute involves the value of charitable deductions claimed in regard to the grant of an easement that prevents the owner from developing land. An easement is a legal right that allows one party to use a specific portion of someone else’s property for a specific, limited purpose without actually owning the land. The grant purportedly becomes a tax shelter when (i) multiple unrelated investors (ii) pool their money in a partnership or syndicate (iii) that is formed to acquire various parcels of undeveloped land (iv) for the principal purpose of contributing development rights to a land trust, (v) that allows the investors to claim charitable contribution deductions at purportedly inflated values far in excess of the investment in the land. In their article, Stanley C. Ruchelman and Wooyoung Lee explain the history of this typically U.S. centric tax shelter to readers outside the U.S.
“Q.S.B.S.” is a tax related acronym in the U.S. for Qualified Small Business Stock. When a start-up corporation meets certain conditions enumerated in Code §1202, noncorporate investors are offered the opportunity to derive tax-free capital gains by holding the investment for a period of time prior to a liquidity event. The greater of $10 million of gain or 10 times the taxpayer’s basis in the Q.S.B.S. – referred to as “basis loading – may be exempt from tax on exit. The tax benefit can be enhanced by creating multiple irrevocable nongrantor trusts, each formed for the benefit of a specific family member. Each trust is entitled to its own capital gain exemption, so long as the multiple trust rule of Code §643(f) is not triggered. Under that rule, multiple trusts having (i) the same grantor, (ii) substantially the same primary beneficiaries, and (iii) an income tax avoidance purpose are treated as a single trust.. Among savvy investors, the tax plan is known as “stacking.” In her article, Galia Antebi reports that Treasury Assistant Secretary for Tax Policy Kenneth Kies recently signaled that Treasury does not like stacking. The bad news is that forthcoming Q.S.B.S. guidance is expected to limit taxpayers’ ability to multiply the benefit. The good news is that basis loading is not a target – at least for now.
When individuals consider moving their tax residence to Italy, the first conversation almost always begins with a specific question. How will I be taxed in Italy? It is a question that comes most naturally to clients who have read about Italy’s special regimes. But is it the only question that should be considered? In her article, Giada Mazzola, Senior Counsel at Caldara & Associati in Milan, cautions that an adviser who treats the first conversation as a tax-rate conversation will produce an answer that may be technically correct, but may be problematic for practical reasons related to the way the client chooses to live. A more useful approach is one that asks the five questions that all begin with the letter “W” – Who? What? When? Where? and Why? An adviser will be able to fashion a tax plan and a life plan that meets the needs of the client over the long haul only when those five questions are asked by the adviser and answered by the client (i) fully, (ii) completely, and (iii) honestly.
In the past year, the British Virgin Islands (“B.V.I.”) beneficial ownership information (“B.O.I.”) reporting regime moved from consultation and transition to implementation and enforcement in ways that may affect more than companies and their beneficial owners. Areas of the law that are potentially affected, include (i) beneficial and legal ownership and title, (ii) proprietary rights, (iii) shareholder disputes, (iv) creditor rights and secured lending, (v) fiduciary obligations, (vi) registered agent duties, (vii) privacy, (viii) cross-border confidentiality, and (ix) potential public law challenges to administrative decision-making.that may affect more than companies and their beneficial owners. In his article, Joshua Mangeot, a leading advisor on the implementation of the B.V.I. economic substance and beneficial ownership reporting requirements, points out that these are areas of the law that areprovides an update on the B.V.I. position, focusing on points most likely to matter to international tax advisors, family offices, corporate and fiduciary service providers, trustees, private banks, fund managers, litigators, and end-clients using B.V.I. companies or limited partnerships in cross-border structures. It raises potential issues regarding (i) beneficial and legal ownership and title, (ii) proprietary rights, (iii) shareholder disputes, (iv) creditor rights and secured lending, (v) fiduciary obligations, (vi) registered agent duties, (vii) privacy, (viii) cross-border confidentiality, and (ix) potential public law challenges to administrative decision-making. Clearly, the adoption of the B.O.I. reporting regime can be viewed to be the equivalent of the proverbial camel’s nose under the tent.
Ruchelman P.L.L.C. provides a wide range of tax planning and legal services for foreign companies operating in the U.S., foreign financial institutions operating ...