International Tax in 2022: The Year of Disclosure and Investment

International Tax in 2022: The Year of Disclosure and Investment

by | Jan 19, 2022 | 2022, Covid-19, International, Taxes, U.S.

International Tax in 2022: The Year of Disclosure and Investment

Jack Brister s p 500

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

International Tax in 2022:

The Year of Disclosure and Investment

For taxing authorities around the world, monitoring taxpayer disclosures and transparency will be a top line item in 2022, meaning taxpayers — especially high-net-worth individuals and corporate entities — should expect more scrutiny into their affairs. Governments are in a unique position as they navigate multiple demands and pressures. On one hand, the revenue demands of the COVID-19 economic recovery require creative strategizing, and lawmakers around the world are eyeing tax as a main driver. Increased public scrutiny on high-net-worth individuals due to data leaks like the Panama Papers and Pandora Papers is also placing more pressure on lawmakers to hold tax evaders to account. Throw in long simmering concerns about tax fraud, international money laundering and corruption, and it is apparent that taxing authorities will be focusing on how they can obtain more taxpayer information. At the same time, countries are also competing for foreign investment as part of their pandemic recovery strategy, and tax incentives for foreign investors will be a key area to watch in 2022.

New Rules: The U.S. Corporate Transparency Act

In the United States, Democratic and Republican lawmakers alike are concerned that the country’s millions of anonymous shell companies are enabling corruption, tax fraud, and money laundering. Those concerns drove Congress in January 2021 to enact a wide-sweeping beneficial ownership reporting law, the Corporate Transparency Act, which is one of the largest transparency-related laws in recent memory. The CTA was included in the National Defense Authorization Act for Fiscal Year 2021. In 2022, Treasury’s Financial Crimes Enforcement Network (FinCEN) will release three sets of implementing rules for the CTA that will impact millions of U.S. corporations, limited liability companies, and similar entities. Over the next few months, taxpayers will need to keep abreast of the rules as they are released by FinCEN and potentially participate in FinCEN’s regulatory notice and comment process as the office attempts to address several open issues within the law.

The CTA requires domestic and foreign “reporting companies” to send to FinCEN the names, addresses, dates of birth, and driver’s licenses or other identification numbers of their beneficial owners who have substantial control. But what is a reporting company? Or a beneficial owner? What does substantial control mean for purposes of the CTA? The first tranche of proposed FinCEN rules, which were published December 8, 2021, to provide some guidance.

The CTA applies to corporations, LLCs, and “other similar entities” and although the law doesn’t define “other similar entities” the December 8 proposed rules offer some insight.

A foreign reporting company is any entity formed under foreign law that is registered to do business within the United States. A domestic reporting company is any entity created by the filing of a document with a secretary of state or filed with a similar office within a U.S. jurisdiction, like a state.

In the proposed regulations, FinCEN wrote that the proposed definition of domestic reporting company “would likely include limited liability partnerships, limited liability companies, business trusts (aka statutory trusts or Massachusetts trusts) and most limited partnerships, in addition to corporations and limited liability companies,” because they typically are created by a filing with a secretary of state or similar office.

That definition will capture a lot of entities – there are about 30 million in the U.S. according to FinCEN’s estimation. Another 3 million are created annually. FinCEN said it does not plan to include any other legal forms other than corporations and LLCs within the definition, noting that U.S. state and tribal laws differ on whether other types of trusts and business forms like general partnerships are created by a filing.

There also are several exemptions, as the CTA exempts 23 different kinds of entities under 31 U.S.C. 5336(a)(11)(B)(i)-(xxiii). For example, FinCEN’s proposed regulations clarify that under the large company exemption, any domestic company or foreign entity that is registered to do business in the U.S. is exempt from the CTA’s reporting requirements if it meets the following hallmarks: (1) Over 20 full-time U.S.-based employees; (2) more than $5 million in gross receipts or sales from sources inside the U.S., as reflected on a U.S. federal income tax or information return; and (3) operates a physical office in the U.S.

The next question is, who is a beneficial owner with substantial control? The CTA defines a beneficial owner as “any individual who meets at least one of two criteria: (1) exercising substantial control over the reporting company; or (2) owning or controlling at least 25 percent of the ownership interest of the reporting company.” Under the CTA, substantial control is defined as: (1) service as a senior officer of a reporting company; (2) authority over the appointment or removal of any senior officer or dominant majority of the board of directors (or similar body) of a reporting company; and (3) direction, determination, or decision of, or substantial influence over, important matters of a reporting company.

Beyond that, the proposed regulations say that determining an ownership interest is a facts and circumstances inquiry that evaluates criteria such as: (1) equity in the reporting company and other types of interests, like capital or profit interests (including partnership interests), or convertible instruments; (2) warrants or rights; or (3) other options or privileges to acquire equity, capital, or other interests in a reporting company.

The stakes – and potential penalties – are high. Taxpayers that willfully fail to share beneficial ownership information with FinCEN face civil penalties of up to $500 per day. Criminal penalties can hit $10,000 per violation. Based on this, and the broad sweeping nature of the CTA, taxpayers who meet the criteria for domestic or foreign reporting companies or want to know if they are exempt, will want to explore their options with an experienced international tax professional.

High Net Worth Individuals: Wealth Tax VS Enforcement

Globally, wealth taxation has commanded quite a bit of attention as governments strategize ways to raise revenue in light of the COVID-19 pandemic. Some countries have been more active than others. For example, Singaporean lawmakers are considering a graduated net wealth tax between 0.5 and 2 percent imposed on individual net worth exceeding SGD 10 million (about $7.4 million). Norway’s Parliament at the end of 2021 passed a bill to increase the country’s wealth tax base rate from 0.85 percent to 0.95 percent. Taxpayers whose assets exceed NOK 20 million will be assessed at a 1.1 percent rate. 

Meanwhile, in the U.S. and much of Europe, wealth taxes have failed to gain much traction. What has proven popular is an increased focus on tax enforcement. President Joe Biden placed tax enforcement as a cornerstone of his Build Back Better economic strategy, and he wants to increase the IRS’ funding by $80 billion. For over a decade significant budget cuts have eroded IRS enforcement capabilities and cost the government billions of dollars in uncollected taxes. The IRS funding plan, which is part of Biden’s now- stalled Build Back Better social spending bill, would give the IRS $80 billion over 10 years to ramp up its enforcement and investigative work, particularly on audits of corporations and wealthy taxpayers. See our recent article on Build Back Better.

In the United Kingdom, HM Revenue & Customs has increased its investigations into criminal and tax offenders, and that work has recovered over £1 billion over the past five years. HMRC plans to continue that work in 2022, and specifically plans to rely more heavily on its powers to freeze and recover unexplained assets. Judging by the department’s prior activity, that could be quite a bit of activity: between 2020 and 2021, HMRC issued 151 account freezing orders, covering over £26 million in assets.

In 2021, Spain decided to investigate high net worth individuals who move their tax domicile abroad to determine whether or not they are doing so fraudulently, and that activity will continue in 2022. The same is true in China. In late 2021, China’s State Tax Administration announced that it would launch investigations into high net worth individuals suspected of engaging in tax evasion. Developments like these suggest that high net worth individuals should prepare for increased scrutiny into their tax affairs and engage the help of a professional to prepare for potential inquiries.

For how this ties-in to the new treatment of GILTI tax rules, see our related articles, The Biden Administration is Homing in on GILTI.

Global Tax Incentives for Investors

On the other hand, governments are keen to attract foreign investors with various tax credits and incentives, and individuals taking stock of these opportunities have a wide menu to peruse.

For example, Canada recently enacted an investment tax credit for capital invested in carbon capture, utilization, and storage projects, which can be claimed starting in 2022. Malaysia’s National Economic Recovery Plan contains a host of tax incentives for foreign businesses, including reduced corporate tax rates for companies that want to create a principal hub in Malaysia. China decided to offer an important tax exemption to foreign investors investing in China’s mainland bond market. Effective November 7, 2021 through December 31, 2025, foreign institutional investors are exempted from paying corporate income tax and value-added tax on bond interest gains generated by investments in the Chinese mainland bond market, according to the country’s Ministry of Finance and State Administration of Taxation. Poland’s Ministry of Finance is also assessing the country’s suite of tax incentives and whether they need an overhaul, in order to attract more investors to Poland. Accordingly, the Ministry has commissioned a study and results should be released in the next few months.

Prepare Now

In summary, foreign and domestic business entities, high net worth individuals and cross-border taxpayers will have to navigate an increasingly sophisticated terrain in the coming year and should be prepared to defend their current tax activity or take advantage of new taxing incentives as they appear. Legislative uncertainty only adds to the urgency. Given the breadth and depth of these new and anticipated changes, taxpayers are strongly advised to enlist the help of an experienced international tax practitioner to develop a game plan, mitigate loss, and stay ahead of global tax changes.

 

Three Key Tax Implications of the Biden Administration’s New Infrastructure Bill

Three Key Tax Implications of the Biden Administration’s New Infrastructure Bill

by | Nov 16, 2021 | Taxes, 2021, U.S.

Three Key Tax Implications of the Biden Administration’s New Infrastructure Bill

Jack Brister s p 500

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Tax Implications of the Biden Administration’s New  Infrastructure Bill

Part One

The long-awaited infrastructure proposal was approved by Congress late last week and has been signed into law by President Joe Biden. As part of the President’s mission to “build back better,” the proposal is a considerable investment in the country’s infrastructure. 

 

And while not as large as once envisioned — originally, it was $3.5 trillion — it is still a substantial amount at $1.2 trillion. Funding for the Infrastructure Bill will come from a few sources.

 

Following are some of the tax changes that will impact businesses and investors.

 

Early Expiration of the Employee Retention Tax Credit 

Established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, the Employee Retention Tax Credit, or ERC, provided relief to business owners. The intention was to help businesses retain their workforces and avoid layoffs. While the ERC was supposed to end at the end of 2021, once President Biden signs the Infrastructure Bill, the provision will end on September 30, 2021. 

 

The ERC allowed a per-employee refundable quarterly tax credit to eligible businesses based on a percentage of qualified wages and health insurance benefits. Not every business was eligible for the ERC — employers had to have shown a significant decline in gross receipts.

 

The ERC will be considered terminated effective October 1, 2021, except for recovery startup businesses. It remains unknown whether employers who would have qualified for the fourth quarter credit and reduced their payroll tax deposits prior to the passage of the bill, will face late deposit penalties for the short-fall of the payroll taxes deposited.

 

Targeting the Cryptocurrency Industry  

While the ERC amendment simply moved back an already expiring provision by three months, rules for reporting on cryptocurrency transactions are more substantial — including treating failure to report as a felony.

 

The provisions state that any person who regularly executes transfers of digital assets — including bitcoin, ether and NFTs — needs to report those transactions to the IRS, as well as reporting any digital asset transaction over $10,000. The rule is similar to the mandates that exist for stock and bond trades today.

 

Crypto fans fear the new rules will require everyday users, developers, and cryptocurrency miners to report information they may be unaware of, thus finding themselves positioned for potential felony convictions and five-year prison terms. 

 

Under the new law, the definition of a broker will be expanded to include those who operate trading platforms for cryptocurrency and other digital assets. In addition, brokers will be subject to new reporting requirements for purchases, sales, transfers and transactions involving cryptocurrency. Transfers between self-custody wallets and crypto exchanges would need to be reported by the exchange, and could lead to an incorrect cost base.

 

The bill will require the IRS to define a “broker” of digital assets and what are “digital assets,” and both have yet to be defined. This part of the bill is expected to be fought in Congress and the Courts before it takes effect in January 2024.

 

Pension Smoothing

Pension smoothing provides flexibility in funding pension obligations to sponsor defined benefit plans. The infrastructure bill adjusts the funding stabilization percentages that were included in the American Rescue Plan Act enacted in March, and extends the interest rate stabilization period from 2029 to 2034.

 

International and domestic tax are in a period of dynamic change, as how and where we conduct  business and what we define as currency is evolving at a rapid pace.

 

We look forward to keeping our readers and clients up-to-date with timely information for strategic planning.

Third Quarter 2021 U.S. Economic Outlook: Vaxed, Taxed, and Roaring Back

Third Quarter 2021 U.S. Economic Outlook: Vaxed, Taxed, and Roaring Back

by | Aug 18, 2021 | U.S. Economic System, 2021, Covid-19

Third Quarter 2021 U.S. Economic Outlook: Vaxed, Taxed, and Roaring Back

Jack Brister s p 500

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Third Quarter 2021 U.S. Economic Outlook: Vaxed, Taxed, and Roaring Back

It’s been a year and a half since the onset of COVID-19, and there’s encouraging news for clients. The U.S. economy is bouncing back to life thanks in part to government aid and relatively high vaccination rates. The national economy grew at a seasonally adjusted, 6.5% annual rate in the second quarter, a sign that the nation has achieved a sustained recovery from the pandemic-induced recession. In fact, the economy has now surpassed its pre-pandemic levels.

Most importantly, profit margins are strong despite rising inflation and reports of higher costs which many economists view as short-term. Net profit margin for the S&P 500’s second quarter is expected to be 12.4%, according to a FactSet Research Systems’ senior earnings analyst.  If that turns out to be the actual net profit margin for the quarter, it will be the second-highest for the index since FactSet began tracking the metric in 2008, trailing only last quarter’s net profit margin of 12.8%.

The economy expanded at its fastest pace since last fall, but at a slower rate than the 8.5% growth rate that analysts had expected. That was mainly because supply chain bottlenecks and labor challenges exerted a stronger-than-predicted drag on many businesses as they sought to restock their shelves and hire staff. The drag on inventory rebuilding, in fact, was responsible for subtracting 1.1 percentage points from last quarter’s growth.

Corporate Earnings On-Track to Soar

In terms of corporate earnings, the S&P 500 is on track for its best quarterly earnings growth since 2009. So far S&P 500 companies have posted revenues well above end-of-quarter estimates; beating those estimates by a wider than average margin. Technology, energy, and industrials, posted some of the best performances. Analysts also expect double-digit earnings growth for the second half of 2021.

Those reporting robust second quarter earnings include American Express Co. (AXP.N), which posted second quarter net income of $2.3 billion, or $2.80 a share, up from $257 million, or $0.29 cents a share a year ago. Social media firm Twitter (TWTR.N) stunned Wall Street with earnings that blew past estimates, posting revenue growth of 74% over last year; the fastest since 2014.

All three major U.S. stock indices—the Dow Jones Industrial Average, S&P 500 and Nasdaq—rallied to record highs.  DJIA closed with a gain of 238.20 points or 0.68% at 35,061.50 to finish above 35,000 for the first time ever. The S&P 500 (.SPX) gained 44.31 points, or 1.01%, to 4,411.79. The Nasdaq Composite (.IXIC) added 152.39 points, or 1.04% to close at 14, 836.99. 

The economy is also receiving substantial support from the Federal Reserve. The Fed reaffirmed that it will keep its interest rates anchored near zero in the short term to encourage borrowing and spending. In a statement after its last policy meeting, it also reported that it will continue buying $120 million in government-backed bonds each month to keep longer-term borrowing rates low. However, given the magnitude of the economic rebound, the Fed signaled that rate hikes could begin in 2023.

Outlook is Rosy Despite Fears    

Although investors are concerned about the possible impact of the COVID-19 Delta variant on the global economy, the general expectation is that economic reopening will continue across major developed economies well into the second half of 2021.

Even with uncertainty about the path of the pandemic, the IMF  recently raised its projection for economic growth in 2021, the second time it has done so this year. The international organization expects the U.S. economy to expand 7% in 2021 and 4.9% in 2022, up from the 3.5% it projected a few months ago.

But the quickening growth—spurred by large spending packages proposed by President Joe Biden—have some analysts worried that inflation could rise too fast. Already, raw materials and parts, including semiconductors and copper, have spiked in price as demand has outstripped the ability of suppliers and shippers to keep pace.

As a result, some companies such as consumer products giant Procter & Gamble and Honeywell, maker of industrial and consumer goods, have said they plan to raise prices to offset rising costs. However Fed Chair Jerome Powell has said he expects such supply bottlenecks to lead to temporary price increases only, rather than a prolonged bout of accelerated inflation.

GILTI: Changes Ahead

President Biden has proposed to make substantial changes to the tax burden on foreign income through GILTI (global intangible low-taxed Income). The GILTI tax rate has been 21 percent, but the 2017 Tax Cuts and Jobs Act (TCJA) also allowed corporate taxpayers to deduct 50 percent of their GILTI income, which brought the effective tax rate down to 10.5 percent.

The Administration’s crackdown keeps the GILTI rate at 21% but eliminates the 50% deduction, meaning that multinational corporations would pay a higher minimum tax rate. This rate to be determined on a country-to-country basis, would eliminate the ability of corporations to offset losses incurred in one country against income earned in another. Under current law, income in a low-tax rate country can be blended with higher-taxed income and be either reduced or eliminated entirely. Once implemented, the changes will have significant ramifications for multinational corporate taxpayers in 2022, resulting in a higher effective tax rate on foreign income.  

Be Prepared for the New Tax Paradigm

With a global corporate tax policy on the near horizon, revisions to the TCJA and the Fed’s new policies on squashing well-established tax loopholes and challenging tax havens, international tax clients need to prepare now for the imminent changes ahead.

Mitigate your tax debt and build wealth with strategic moves and planning. Contact our office for a consultation with Jack Brister.

Get Ready for New Rules: The Biden Administration is Homing in on GILTI

Get Ready for New Rules: The Biden Administration is Homing in on GILTI

by | Apr 12, 2021 | 2021

Get Ready for New Rules: The Biden Administration is Homing in on GILTI

Jack Brister s p 500

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Get Ready for New Rules: The Biden Administration is Homing in on GILTI

The treatment of foreign trust distributions received by U.S. beneficiaries is an incredibly  complex area of U.S. tax law. Changes proposed to GILTI tax rules (Global Intangible Low-Taxed Income) by President Biden will come with new regulations and laws  that will undoubtedly result in thorny new issues for U.S. shareholders of CFCs (Controlled Foreign Corporations) and U.S. beneficiaries of foreign trusts. 

As many new clients have learned when they come to see us at the 11th hour of a cross-border tax problem, failure to comply with the tax rules can have dire – and very expensive – consequences.

The Current State of GILTI

The United States has adopted a series of laws designed to prevent U.S. taxpayers from enjoying the advantages of foreign trusts as U.S. income deferral mechanisms. The obvious application of these laws is to U.S.income taxpayers (citizens, green card holders and persons meeting the substantial presence test) attempting to transfer cash or income-producing assets to or from an offshore trust.

It is clear by the size of the penalties imposed on taxpayers who fail to file the information Forms 3520 and 3520-A, that the U.S. government is very intent on compliance with foreign trust reporting activities.

For example, the IRS views certain types of transfers as taxable income to the recipient, even if the intention was to make a gift. In those cases, transfers received by a U.S. beneficiary from a foreign trust/foreign corporation would generally be treated as taxable distributions. They would then be subject to the normal income tax rules that apply to distributions from foreign corporations or partnerships (depending on how the company is classified for U.S. tax purposes). 

Distributions of a foreign nongrantor trust received by a U.S. person, regardless of whether they are a named beneficiary or not, are taxable to the extent of their proportion of the trust’s distributable net income (taxable income) as computed under U.S. tax law. A U.S. person who received a distribution should also receive a foreign nongrantor trust beneficiary statement from the trustee to inform them of the distribution and the amount taxable. 

The complex nature of these foreign trust rules can have extremely severe financial impact. Noncompliance can trigger negligence penalties as well as interest charges on the accumulated tax owed to the IRS.

Note: Not sure what kind of a Foreign Trust you have or are beneficiary of? Read our Foreign Trust FAQ page, answer a few questions and our calculator will tell you what the entity is. https://iwtas.com/iwta-answers-faq-on-foreign-trust/

The Potential Bad News: A Heftier Tax Bill and Rules on a Country-by-Country Basis

The interest of the trust is attributed to the US beneficiaries under current law, which causes the beneficiaries to be subject to GILTI tax under the Controlled Foreign Corporation rules. The Biden tax proposal would double the effective tax rate to 21 percent by amending the 50 percent deduction provided by Section 250. The proposal would also remove the tax-free return on 10 percent of the CFC’s Qualified Business Assets Income (“QBAI”) and require that GILTI be calculated on a country-by-country basis. 

Clearly, if you are a U.S. beneficiary dealing directly or indirectly with a foreign trust, CFC or overseas retirement plan, be certain to deal only with professionals whose business it is to know the intricacies of cross-border tax rules; and with in-depth experience in the U.S. income taxation of foreign trusts. That, of course, is where we come in. Do not hesitate to call on us to book a consultation. It is our job to inform clients in the U.S. and abroad of potential changes to the U.S tax laws and prepare them in advance to maintain as much of their wealth and earnings as possible. 

If you, a colleague or client need help with any of the above issues, do not hesitate to reach out.

Contact us here.

 

 

In 2020 Cryptocurrency is No Longer a “Bit” Player

In 2020 Cryptocurrency is No Longer a “Bit” Player

by | Oct 27, 2020 | Cryptocurrency, 2020, Finance, U.S. Economic System

In 2020 Cryptocurrency is No Longer a “Bit” Player

Jack Brister s p 500

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

The inevitability of Cryptocurrency in Mainstream Finance 

The Financial Crimes Enforcement Network, aka FinCEN, a unit within the United States Treasury Department, has seen no downtime during the pandemic. Tasked with investigating and combatting a whole host of financial crimes, including money laundering and the funding of terrorism, the “suspicious reports” roll in. “Dirty money” flows into the nation’s and the world’s largest banks, and despite employee whistleblowers, the majority of it goes through the legitimizing rinse cycle and gets washed squeaky clean.  Given the current set of U.S. laws, as long as the bank-in-question files a suspicious activity alert, they have effectively inoculated themselves against prosecution

So, what does international financial crime have to do with cryptocurrency?  

Cryptocurrency is built on the blockchain. Skipping the complexities for a moment, here are two key takeaways for an instrument created by blockchain technology: 1) It is impenetrable to hackers and fraudsters and 2) It is 100% traceable. For a thorough education on blockchain read Investopedia’s Guide to Blockchain.

While Bitcoin got a bad rap in its early days as being associated with dark web activities, the truth is it is much easier to track activities on public block chains, while private banking activities remain largely hidden from scrutiny. According to the United Nations, 90% of money laundering goes undetected.

Forbes’ recent interview with Chanpeng Zhao, Founder & CEO of Binance, largest cryptocurrency exchange in the world by volume, is highly informative in explaining the business of Bitcoin and the blockchain.

Is Crypto the New Gold?

Financial analysts have been reporting a gold buying frenzy as the result of current global economic uncertainty. This is no surprise and has plenty of historic precedence, but what is surprising is that the current run on cryptocurrency mirrors the 2020 gold trading chart to an eerie degree.

In a Bloomberg article dated May 7, 2020 and entitled “Paul Tudor Jones Buys Bitcoin as a Hedge Against Inflation”, Bloomberg reports Jones telling client that Bitcoin today is playing the role that gold played in the 1970’s. Says Jones: “I am not a hard-money nor a crypto nut. The most compelling argument for owning Bitcoin is the coming digitization of currency everywhere, accelerated by Covid-19.”

The Fed Plays Chess: The First Move to Reframe Cryptocurrency from Commodity to Real Currency

In an announcement devoid of fanfare, on July 22, 2020, the Office of the Comptroller of the Currency, officially announced that “banks and thrifts may provide custody services for crypto assets.” The OCC’s opinion applies to banks and federal savings associations of all sizes. How long before banks go from asset guardians to transactional accounts?

The OCC states, “…as the financial markets are increasingly digitized, the need will increase for banks and other service providers to leverage new technology and innovative ways to serve their customers’ needs. By doing so, banks can continue to fulfill the financial intermediation function they have historically played in providing payment, lending, and deposit services.”

DeFi VS CeFi: Moving to a Fiat Hybrid?

Facebook is still planning to roll out Libra, its cryptocurrency offering, the European Central Bank and China’s Central Bank are discussing digital currencies and J.P. Morgan Chase is planning on using stablecoin, which means the coin is tied to an actual asset. In fact, the asset could be money itself.

Here are just a few news items and announcements in September 2020:

  1. The government of the Bahamas Central Bank has announced the October 2020 launch of its CBDC, Central Bank of Digital Currency, the world’s first.

“The intended outcome of Project Sand Dollar is that all residents in The Bahamas would have use of a central bank digital currency, on a modernized technology platform, with an experience and convenience – legally and otherwise – that resembles cash. It is expected that this will allow for reduced service delivery costs, increased transactional efficiency, and an improved overall level of financial inclusion.”

  1. On September 22, 2020, Israeli lawmakers presented the Income Tax Ordinance (Taxation of the Sale of Digital Currencies) bill to the Knesset. The bill exempts digital currencies from capital gains tax. Israeli lawmakers see the free flow and flourishment of cryptocurrencies as key to their economy, which is largely technology-driven.
  1.  Although as recent as May 2020, Goldman Sachs declared on an investment call that “cryptocurrencies are not an asset class”, by August 2020 the new global head of digital assets advised, “We are exploring the commercial viability of creating our own fiat digital token.”

Even if you Gained or Lost a Few Coins, the IRS Wants to Know

  1. As originally reported on September 25th by the Wall Street Journal, the U.S. Treasury has decided in what some call a “tricky move”, to add a simple did-you-or-did-you-not-use-crypto checkbox to Form 1040. The article is behind a paywall, but you can read Fortune’s account here.

Says industry journal be(in)crypto:

“Does the IRS treat interest made form DeFi the same as interest made from CeFi or a traditional bank account? Are utility tokens “virtual currencies?” Are PoS block rewards treated the same as Bitcoin, or should they be treated like dividend re-investments?

 The answers are not entirely clear, but one thing is for sure: Traders and investors should think about what they are doing now when planning for how they will pay taxes next year.

Slapping questions related to virtual currencies on page one of the form shows just how important the issue is becoming to regulators.”

  1. Last October, the IRS issued updated guidelines on virtual currency including a downloadable FAQ. Despite the fact that 98% of dirty money crimes involve regular-old-money, the IRS is hard-at-work finding the crypto bandits, as a simple search on their website reveals.
  1. In August 2020, users of Reddit and other forums reported receiving cryptocurrency “warning” letters from the IRS. The letters were soon confirmed by mainstream media and discussed at length on tax law blogs. Some argue that these “soft letters” are of “disputable legality”, and violate taxpayers’ rights, but nevertheless, the warning shots are being fired.

This is an Evolving Story

As we “go to press”, more breaking news: Bitcoin prices surge to their highest since 2018 on the announcement that Paypal will accept the use of cryptocurrency for merchant payments. Read the Marketwatch article here.

It is evident that the Covid economy has only intensified the thirst of investors, entrepreneurs and increasingly, average citizens, for an economic model that more seamlessly marries with life-in-the-digital-lane. We promise to keep you updated on the shifting landscape of cryptocurrency, banking and finance and taxes. The future is here and it’s a wild ride!

Any questions or comments on this article? We’d love to hear them! Email us

IRS Cuts FDII and GILTI Some Slack

by | Aug 21, 2020 | Taxes, 2020, International, U.S.

IRS Cuts FDII and GILTI Some Slack

Jack Brister s p 500

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

A new “flexible approach” addresses concerns about documentation and unnatural adjustments to accepted business practices.

 Last month, on July 9, to be exact, the U.S. Treasury Department and the IRS officially rolled out final regulations under IRS tax code Section 250, providing updated guidance on the deduction for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI).

The final regulations (T.D. 9901, 85 Fed. Reg. 43042) were published in the Federal Register on July 15, 2020. Generally speaking, the revised regulations reduce certain documentation requirements and provide greater flexibility and further clarifications in areas such as the taxable income limitation.

Because the final regulations do not apply until 2021, clients and their tax preparation providers have additional time to implement new policies and procedures.  That being said, the new regulations come with new rules — to advertising services and electronically supplied services, for example, these new rules will undoubtedly result in new issues and questions for those businesses and individuals impacted by GILTI and FDII.

The IRS’ new and more flexible stance is a result of concerns raised that documentation requirements of the previously proposed regulations could mandate major and unreasonable changes to already-established business processes, potentially damaging customer relationships, and thus, business in general.

Despite the relaxation of some rules, transactional categories such as: general property sales to resellers and manufacturers, sales of intangible property, and the performance of general services to business recipients are still subject to specific substantiation requirements which may require a business to make contractual changes and/or elicit additional information from customers in order to do busines

Further Information on GILTI, FDII and the Tax Code Section 250

“Elevator Explanation” of FDII

IRS Section 250(a)(1)(A) permits a domestic corporation to take a deduction equal to 37.5 percent of its FDII.  In broad terms, a domestic corporation’s FDII is considered to be the amount of its intangible income from sales, lease, or licensing of property to persons located outside of the U.S., OR from services provided to persons located outside of the U.S. Export sales would be one example.

“Elevator Explanation” of GILTI

GILTI is a new category of income specifically designated for U.S. taxpayers that own a controlled foreign corporation (CFC). In general terms, all income of a CFC amounting to more than 10 percent return on a CFC’s basis in tangible depreciable property, with a few exceptions, is GILTI. The GILTI provisions commenced for CFC’s tax years after Dec. 31, 2017. The proposed regulations on computation of GILTI income were published on Oct. 10, 2018 in the Federal Register.

Need help navigating the new FIIDI and GILTI regulations and how they apply to your tax responsibilities? Contact us to set up a Zoom meeting or a phone call, or email us for more information.

 

Other Publications with Information and Summaries on IRS Tax Code 250

IRS

Federal Register

Accounting Today

JD Supra

National Law Review

 

Further  resources from the International Wealth Tax Advisors Web Site

https://iwtas.com/gilti-tax-and-foreign-trust-corps/

https://iwtas.com/services/real-estate-and-foreign-investment/

https://iwtas.com/services/nra-tax-planning/

 

 

 

 

Breaking Covid-19 Tax News Update: IRS’ “Substantial Presence 60-Day Covid-19 Waiver is Set to Expire

Breaking Covid-19 Tax News Update: IRS’ “Substantial Presence 60-Day Covid-19 Waiver is Set to Expire

by | Jun 30, 2020 | Covid-19, 2020, Taxes, U.S.

Breaking Covid-19 Tax News Update: IRS’ “Substantial Presence 60-Day Covid-19 Waiver is Set to Expire

Jack Brister s p 500

Jack Brister

Founder, International Wealth Tax Advisors

Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

Contact IWTA

To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

Breaking: June 30, 2020

Our previous blog posts, in particular April 20, 2020,  (posted at the height of the tragic intersection of Covid-19 and stranded foreign visitors and business people) outlined unexpected tax issues created by the global pandemic. It looks like the IRS is ending their tax grace period, the 60-day “Covid-19 Emergency Period” for eligible non-resident alien individuals.  In U.S. Treasury Department terms, IRS Rev. Proc. 2020-20  and Rev Proc 2020-27 are coming to an end.

The IRS released relief measures (Rev. Proc 2020-20, Rev. Proc. 2020-27) in April 2020. In brief, the measures allowed non-resident individuals, foreign corporations, and partnerships to choose a 60-day period between Feb. 1 and April 1 in which the IRS would not consider their extended U.S. activity a tax liability. The agency updated its relief information earlier in June 2020.

According to Bloomberg News, an IRS spokesperson declared at a recent Washington DC industry panel, “We are not considering extending that relief, but we are continuing to monitor the situation.”

The spokesperson further commented: “It’s important to note that all that relief is premised on a certain state of the world with certain kinds of travel disruptions,” he said. “We see that travel disruptions are beginning to get better, although of course they still exist.”

As of this writing, the 14-day change in new Coronavirus cases in the U.S.A. is at an astounding 80%. Today the European Union announced it will officially open its borders to visitors tomorrow, July 1, 2020. The EU also announced that U.S. travelers are barred from entry. Will the Treasury Department reverse its stance that travel disruptions are “getting better”?  Check our blog and Twitter feed for updates!

Review our previous blog posts covering Covid-19 and and cross-border tax issues:

IWTA Blog Post March 20, 2020

IWTA Blog Post April 1, 2020

IWTA Blog Post April 20, 2020

IWTA Blog Post April 28, 2020

IWTA Blog Post May 1, 2020

IWTA Blog Post, June 11, 2020

IWTA Blog Post June 12, 2020

As a service to our clients, colleagues and all those with an interest in cross-border tax issues, we post updates to breaking  and critical tax news stories. Check the IWTA Tax News Blog Page and sign up for our email newsletter (bottom of blog page) to stay current.

     

     

     

    Breaking Tax News Week of June 8, 2020

    by | Jun 12, 2020 | Taxes, 2020, U.S.

    Breaking Tax News Week of June 8, 2020

    Jack Brister s p 500

    Jack Brister

    Founder, International Wealth Tax Advisors

    Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

    Contact IWTA

    To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

    Breaking: June 10, 2020

    The IRS announced it is extending the deadline on estimated tax payments for tax year 2020 to July 15. 2020, due to the Cocid-19 pandemic. 

    However, here is where it gets tricky: Not all U.S. States have changed their 2019 filing deadlines to the federal Jul 15, 2020 date, and the same is true for estimated 2020 tax due dates. Life is complicated.

    Forbes has compiled a comprehensive list of State-by-State 2019 income tax and 2020 estimated tax filing deadlines. Get in the know before you inadvertently find yourself out of compliance.

    Click here for your guide to state tax deadlines for filing returns and making estimated payments. 

    Breaking: June 11, 2020

    What is the State of the Coronavirus Stimulus?

    Will congress come through with more dough? You’ll have to wait until the Senate returns from summer recess to find out.

    Although the May Jobs Report showed the U.S. unemployment numbers at a dismal 13.3%, the fact that the unemployment numbers fell from April, and 2.5 million jobs were added was enough good news to buoy the U.S. Senate into rethinking whether another round of stimulus was justified.  Add to this that a lot of business stimulus money has remained unspent, and you have a recipe for a summer showdown in congress.

    There are numbers to support opinions on both sides of the aisle, with the average American business and individual still picking up the pieces of their upended lives and livelihoods.

    Will Summer 2020 usher in the long, hot road to recovery, a lazy, hazy stall or set the stage for a (down) Fall? Watch these pages for updates as the data swims in.

    This recent Forbes article will give you the numbers that are simultaneously fueling the conclusions of the stimulus cutters and the stimulus believers.

    If you have questions or concerns in regards to any cross-border tax and investment management issues. Contact IWTA. We’re here to help.

       

       

       

      A Taxing Pandemic: Covid-19 and Cross-Border Tax Issues

      A Taxing Pandemic: Covid-19 and Cross-Border Tax Issues

      by | Jun 11, 2020 | Taxes, 2020, International, U.S.

      A Taxing Pandemic: Covid-19 and Cross-Border Tax Issues

      Jack Brister s p 500

      Jack Brister

      Founder, International Wealth Tax Advisors

      Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

      Contact IWTA

      To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

       Tax Laws are Bending, Flexing and Breaking to Deal with an Ever-Evolving Situation

       

      As they say in the news business, Covid-19 is a “developing story,” and the adjustments being made by the U.S. Treasury department to address the unique tax issues arising as a result of the pandemic are historic. At this halfway mark of the year, with summer on the near horizon, I have compiled what I consider to be this point in time, the most critical cross-border tax stories. I have summarized three issues, along with the IRS reference documents. If you or your clients have a compelling and unique tax circumstance that has arisen due to the Coronavirus pandemic, we would appreciate your sharing the story with us. And, please feel free to share your comments in an email, and we will publish them.

       

      Issue #1: The Land of Lost Deductions: U.S. Citizens and Permanent Residents Living or Working Abroad in the Time of Covid

      Summary:

      Under normal circumstances, U.S. citizens or residents living abroad can qualify to exclude a maximum dollar amount from reported income made overseas. The amount is adjusted upward annually to account for inflation. In 2019 the maximum deduction was $105,900. In 2020 it is $107,600. This is called the foreign earned income exclusion. In addition, those who qualify can also claim an exclusion or deduction from gross income for foreign housing.

      Question: What happens when the U.S. individual has to leave their foreign place of business and/or residence because of the Covid-19 pandemic? Qualified individuals must normally prove uninterrupted foreign residence for a minimum of 330 days.

      Answer: The IRS has provided relief under these extenuating circumstances. If living/working in China, the individual would have to prove presence in the country on or before December 1, 2019. For qualifying individuals living in other locales, they must prove their foreign presence commenced on or before February 1, 2020.  Therefore, individuals who under normal circumstance would have expected to meet the IRS’ 330-day continuous presence requirement while also meeting the other requirements for qualification, are permitted to use any 12-month period to satisfy the “qualified individual” requirement.

      Reference:

      https://www.irs.gov/pub/irs-drop/rp-20-27.pdf

       

      Issue #2: Non-Resident Aliens and UTSBs Caught in the U.S. Government’s “Substantial Presence” Trap Due to the Covid-19 Outbreak

      Summary:

      Here we find a situation occurring on U.S. territory. To wit: a foreign visitor or business person has overstayed their allowance of tax-exempt visitor time, due to complications arising from the Coronavirus pandemic. The situations that ensued for those caught up in the quarantine were varied and often tragic. See my previous blog posts on the subject:

      https://iwtas.com/the-perfect-storm-of-timing-tragedy-and-tax-law-nras-and-covid-19/

      https://iwtas.com/breaking-news-update-u-s-department-of-treasury-offers-tax-relief-to-nras-remaining-in-usa-during-covid-19-pandemic/

      A “Covid-19 Emergency Period” was established by the IRS. It begins on or after February 1, 2020 and ends on or before April 1, 2020.

      The IRS has an FAQ page covering the myriad issues. (Link below.) Note that in some cases, filing preemptive individual or business taxes even if not required may actually result in gains, as treaty-based relief and statute of limitation issues could be claimed.

      Reference:

      https://www.irs.gov/newsroom/information-for-nonresident-aliens-and-foreign-businesses-impacted-by-covid-19-travel-disruptions

      Issue #3: Transfer Tax Extensions

      Summary:

      Many categories of Estate, Gift, and Trust tax returns were granted filing extensions of July 15. 2020 due to the Covid-19 pandemic. The extension affects many required forms. For a full list see the IRS publication below. For a summary, click here.

      Reference:

      https://www.irs.gov/pub/irs-drop/n-20-23.pdf

      Also see our previous blog post: https://iwtas.com/top-tips-for-international-tax-clients-during-the-covid-19-crisis/

      If you, a colleague or client need help with any of the above issues, do not hesitate to reach out.

      Contact us here.

       

       

      Breaking News Update: U.S. Department of Treasury Offers Tax Relief to NRAs Remaining in USA During Covid-19 Pandemic

      Breaking News Update: U.S. Department of Treasury Offers Tax Relief to NRAs Remaining in USA During Covid-19 Pandemic

      by | May 1, 2020 | Compliance, 2020, Taxes, U.S.

      Breaking News Update: U.S. Department of Treasury Offers Tax Relief to NRAs Remaining in USA During Covid-19 Pandemic

      Jack Brister s p 500

      Jack Brister

      Founder, International Wealth Tax Advisors

      Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

      Contact IWTA

      To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

       

      The following is an addendum to our original blog post of April 20, 2020 entitled:

      “The Perfect Storm of Timing, Tragedy and Tax Law: NRAs and Covid-19”

      Recognizing the unusual circumstances non-resident aliens have faced while sick, trapped or morally obligated to remain in the USA during the Covid-19 pandemic, the U.S. Department of Treasury has relaxed rules regarding what is commonly referred to as “the substantial presence test.”

      Under Revenue Procedure 2020-27, as issued on April 21, 2020, a non-resident alien who had to remain in the USA due to personal circumstances or government policies can now pick a starting date from a 60-day date range beginning on February 1, 2020 and ending April 1, 2020, in which they will not be considered to have violated the substantial presence test. Aliens violating the substantial presence test are subject to U.S. tax obligations and possible penalties.

      From the IRS Revenue Procedure 2020-27 FAQ Page:

      “A nonresident alien, foreign corporation, or a partnership in which either is a partner (Affected Person) may choose an uninterrupted period of up to 60 calendar days, beginning on or after February 1, 2020, and on or before April 1, 2020 (the COVID-19 Emergency Period), during which services or other activities conducted in the United States will not be taken into account in determining whether the nonresident alien or foreign corporation is engaged in a USTB, provided that such activities were performed by one or more individuals temporarily present in the United States and would not have been performed in the United States but for COVID-19 Emergency Travel Disruptions.”

      “UTSB” is an acronym for “U.S. Trade or Business”, which means the NRA is on U.S. soil principally for the purpose of conducting business. Normally an individual engaged in a UTSB during the pandemic period would not be exempt from U.S. tax obligations. However, the U.S. Treasury is cutting those engaged in UTSB some slack during the Covid-10 period. If the individual had no recourse than to perform business activities because they could not return to their home country, they are exempt from tax collection. The above applies to nonresident or foreign corporations if they have been conducting business activities that under normal circumstances, would not have been performed on U.S. soil.

      The IRS further states: “In all events, the Affected Person should retain contemporaneous documentation to establish the period chosen as the COVID-19 Emergency Period and that the relevant business activities conducted by individuals temporarily present in the United States during the COVID-19 Emergency Period would not have been undertaken in the United States but for COVID-19 Emergency Travel Disruptions. The Affected Person should be prepared to provide that documentation upon request by the IRS.”

      “Nonresident aliens and foreign corporations (including those that are partners in partnerships) may make protective filings of their annual U.S. tax returns, even if they believe they are not required to file for the 2020 taxable year because they were not engaged in a USTB, to avail themselves of the benefits and protections that arise from such filings (such as those relating to deductions, statutes of limitations, and claiming tax treaty-based relief.”

      International Wealth Tax Advisors echoes the IRS in advising all foreign national clients that currently meet NRA or UTSB status to:

      • Keep records of all their business and personal activities within their chosen 60-day Covod-19 emergency period
      • Check in with us periodically to ascertain whether Revenue Procedure 2020-27 has been further updated; or whether new guidelines relating to NRAs and UTSBs have been issued.

      If you have NRA or UTSB status and would like a consultation with international tax expert Jack Brister, https://iwtas.com/booking-page/

      Contact IWTA in regards to any cross-border tax and investment management. We welcome your inquiries.

       

       

       

      Top Tips for International Tax Clients During the Covid-19 Crisis

      Top Tips for International Tax Clients During the Covid-19 Crisis

      by | Apr 28, 2020 | FAQ, 2020, International, Taxes, U.S.

      Top Tips for International Tax Clients During the Covid-19 Crisis

      Jack Brister s p 500

      Jack Brister

      Founder, International Wealth Tax Advisors

      Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

      Contact IWTA

      To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

      At International Wealth Tax Advisors, we’re suggesting cross-border tax clients, both U.S. citizens and foreign nationals, consider the following tips to help mitigate any unexpected tax and financial consequences as a result of the Covid-19 pandemic.

      Foreign Trusts

      • Tax returns and international information returns including Forms 3520 for foreign trusts have been extended to July 15 from April 15.  This includes any tax payments that may be due as of April 15.
      • Many foreign trusts have underlying companies which hold the assets of the trust and these underlying entities require additional filings such as Forms 5471 (Controlled Foreign Corporation), Form 5472 (US entity 25{105615a82985984cf1704e8776ec685e1345b73ddec43811fd3f038097961455} or more owned by Foreign Persons)
      • Consider the utilization of foreign trust losses due to the crisis as a tax benefits

      Real Estate Holdings

      • Consider disposing U.S. real property investments by foreigners with minimal or no FIRPTA (Foreign Investment in Real Property Tax Act) implications (withholding taxes) and / or little U.S. tax.
      • Disposal could also reduce foreigners’ exposure to U.S. estate tax.

      Other U.S. Investments

      • Consider reducing U.S. portfolio assets or restructuring to minimize U.S. estate and gift tax exposure.
      • Foreign national executives currently working inside the U.S. should consider a U.S. trust structure or other structure before being assigned to the U.S. on a more permanent basis.

      Foreign Companies Doing Business in the U.S.

      For help in navigating your multinational business and personal tax obligations as applied to the U.S tax system in this confusing time, don’t hesitate to contact us.

      For a private consultation with me on Zoom, click here to book a timeslot.

      The Perfect Storm of Timing, Tragedy and Tax Law: NRAs and Covid-19

      by | Apr 20, 2020 | Taxes, 2020, Compliance, U.S.

      The Perfect Storm of Timing, Tragedy and Tax Law: NRAs and Covid-19

      Jack Brister s p 500

      Jack Brister

      Founder, International Wealth Tax Advisors

      Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

      Contact IWTA

      To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

       

      Update: The day after we broke this story, The U.S. Department of Treasury recognized the potentially serious hardships the “substantial presence test” was imposing on non-resident aliens and UTSBs stuck in the U.S.A. in the midst of the Coronavirus pandemic. CLICK HERE TO READ OUR UPDATED POST on this developing change to U.S. tax law.

      The outbreak of COVID-19 (the coronavirus) has significantly disrupted and impacted the world. The global nature and dramatic lock down /stay at home orders undertaken by governments around the world have left many individuals and families dislocated. Among the victims:  non-United States persons (NRAs) stricken with the disease while visiting the U.S. and unable or unwilling to return to their country of residence.

      The results of this for non-U.S. persons (NRA) could have severe U.S. tax implications. Though many were not able to return home due to travel restrictions by the U.S. and their countries of origin, they were unaware that by exceeding their length of stay they could be subject to U.S. income taxes on their worldwide income and assets and severe tax penalties related to non-compliance.

      For foreign visitors temporarily remaining in the U.S. due to coronavirus, the unintended-yet-significant consequences may be able to be avoided. U.S. tax liability may be avoided if a swift review of U.S. tax residency is conducted and appropriate planning is undertaken, if needed.

      Why would any NRA affected while in the U.S. be concerned? They are not a citizen or resident of the U.S. so how could this possibly have any impact on their lives?

      If an NRA is deemed a U.S. tax resident they will be treated as a U.S. citizen for U.S. tax purposes and will be subject to the same rules as a U.S. citizen such as:

      1. Taxation of income from wherever sourced (worldwide income)
      2. Reporting of worldwide assets and international business activities / and investment transactions
      3. Potential taxation by a U.S. State. New York and California have some of the highest tax rates in the U.S.
      4. State tax rates can be as high as 13{105615a82985984cf1704e8776ec685e1345b73ddec43811fd3f038097961455}, and would be imposed in addition to the federal income tax liability.
      5. Potential issues of U.S. gift and estate tax could occur as a result of a status change from NRA to U.S. tax resident.

      Take note:  the U.S. imposes severe penalties on all taxpayers for non-reporting of worldwide financial and business activities that meet certain criteria and thresholds regardless of any income generated.  The penalties start at $10,000 per transaction, activity or account per year and can be as high as $50,000 per transaction, activity, or account per year.

      Estate and gift taxes can be as high as 40{105615a82985984cf1704e8776ec685e1345b73ddec43811fd3f038097961455} of the value of the asset which is transferred during life or at death.

      As you can see, the severity of financial loss should be of concern to NRAs should they be deemed to be a U.S. tax resident, even if that wasn’t their intention!

      Will the Current Tax Law Allow for Covid-19 Exceptions?

      At this point you are probably wondering: How could such a situation put a person at risk for U.S. tax residency? This does not seem possible!

      NRAs who are stuck in the U.S. due to an illness or quarantine of themselves or loved ones or due to legal or practical restrictions could unintentionally stumble over the U.S. tax residency rules and find themselves entangled in the U.S. tax system.

      The tests for U.S. tax residency are in the U.S. tax code. (Title 26 of the United States Code aka the Internal Revenue Code, (“IRC)), specifically IRC §7701(b) which was enacted by the U.S. Congress in 1984.) When these rules were enacted they did not contemplate such a situation as a pandemic like the current coronavirus. This means there is no guidance except the Code itself and related regulations in relation to this current situation.

      The above-mentioned law provides two tests to determine a non-U.S. citizen’s U.S. tax residency status. 

      1. The Green Card Test

      The first test is generally referred to as the “green card” test which basically states that if a non-U.S. citizen has obtained permanent U.S. residency status they are treated as U.S. income tax residents. The tax rules are the same as a U.S. citizen, absent any determination of foreign residency pursuant to a tax treaty between their home country and the U.S.

      1. The Substantial Presence Test

      The second test is generally referred to as the “substantial presence test” (SPT). This test is the more relevant one in regards to the COVID-19 situation. The SPT is relevant only to NRAs who do not have lawful permanent resident status (a U.S. Green Card). It is the SPT test that must be carefully reviewed to avoid U.S. tax residency status. Under this test an NRA will be treated as a U.S. tax resident for a calendar year if the individual is present in the U.S. for at least 183 days in the current year or more during the calendar year. OR, if the NRA is present at least 31 days during the calendar year and the sum of the number of days for the current calendar year and the preceding two calendar years averages more than 121 days per year.

      There is an exception to the above rule. If the person who meets the SPT is not in the U.S. for at least 183 days in the first year and they have what is defined as a “tax-home” in a foreign country they may be able to claim what is known as a “closer connection” exception to the SPT rules.  However, this exception is not available if the individual has taken intentional measures to apply for a Green Card (i.e., U.S. permanent resident status). However, if the closer connection exception is not available due to the fact the person was present in the U.S. for 183 days or more, they may still avoid U.S. tax residency.  If the NRA’s home country has a tax treaty with the U.S., and if under the residency rules of that treaty they can meet tests similar to that of the closer connection exception tests, they are exempted.  Generally, the closer connection exception tests and tax treaties consider: the number of days spent in each of the countries where a person’s tax home (generally place of work / business) is located, where items of significance are primarily located, and their citizenship status with each country.

      Exceptions to the SPT Rules

      U.S. tax law also provides additional exceptions to the strict SPT rules. Such as, an NRA is not treated as being in the U.S. on any day the individual is considered a so called “exempt individual”. This includes an NRA who is a full-time student on a student visa and has not been in the U.S. more than 5 years. There are also exceptions for teachers, certain diplomats and other foreign-government related persons, professional athletes performing for charitable purposes, an NRA who is in transit to another foreign country, or is a regular commuter to and from Mexico or Canada for employment purposes. An individual can also gain exemption if they meet a medical condition exception.

      It is this exception that may be most useful for some NRAs in the U.S. who have been affected by the Covid-19 situation. The rule states that if a person was struck down by the virus while in the U.S., they will generally not have to be concerned with the amount of days spent in the U.S. due to their inability to return to their home country.  But unfortunately, in the absence of additional U.S. government guidance, this does not apply to individual family members who were not infected with the virus.

      Hence, a family member who was not infected or diagnosed with Covid-19 but may have for practical reasons, legal matters or other practical matters had difficulty leaving the U.S., will, without further guidance, have a tough time claiming a medical exception to the U.S. tax residency rules.

      It should be noted that there are separate residency rules for U.S. estate and gift taxes, and as mentioned there could also be U.S. State income tax issues resulting from being in the U.S. as a result of the Covid-19 pandemic. The States are not required to abide by any tax treaty rules established by the U.S. federal government and a foreign country.

      IWTA Can Assist Non-Resident Aliens with Urgent Tax Matters

      International Wealth Tax Advisors can provide assistance by calculating the number of days spent in the U.S. for purposes of the SPT, including evaluating your prospects for successfully relying on either the medical condition exception, a treaty, or the “closer connection” test provided under U.S. tax law.  We can also assist in preparing any tax return required to take advantage of tax law exceptions.

      For assistance or more information. please contact Jack Brister. You can book a virtual appointment here.

       

      About Rev. Proc. 2020-17 and How it May Favorably Affect Your Foreign Trust

      About Rev. Proc. 2020-17 and How it May Favorably Affect Your Foreign Trust

      by | Apr 1, 2020 | Taxes, 2020, International

      About Rev. Proc. 2020-17 and How it May Favorably Affect Your Foreign Trust

      Jack Brister s p 500

      Jack Brister

      Founder, International Wealth Tax Advisors

      Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

      Contact IWTA

      To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

      Breaking Tax News on Foreign Trusts:  IRS Announcement March 2, 2020

      As of March 2, 2020, U.S. taxpayers, expats or permanent residents with ownership or interests in a “U.S. Favored” Foreign Trust are exempt from reporting these interests and may be eligible for refunds on past reporting.

      The new guidelines issued by the Internal Revenue Service exempt current and former U.S. citizens and residents from obligations to report ownership and money transfers to their foreign retirement, medical, disability and educational plans that are foreign trusts.

      As of tax year 2019, qualifying individuals are exempt from disclosing their interests under the foreign trust reporting rules.  In addition, the IRS will give taxpayers the right to request a refund  or abatement of penalties paid for omissions made in previous years.

      An accountant with international tax expertise can determine with certainty if your particular trust will qualify under the new rules and make a determination as to an individual’s eligibility for redress of previous penalties.

      The IRS makes clear that these new guidelines do not “affect any reporting obligations under section 6038D or under any other provision of U.S. law, including the requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), imposed by 31 U.S.C. section 5314 and the regulations thereunder.”

      To download the entire IRS-issued white paper on the new U.S. Favored Foreign Trust provisions, click here.

      This is potentially good news for those that hold certain retirement, education and medical foreign trust interests. A skilled global tax advisor will look at your entire investment portfolio, and can help you determine if you qualify for an exemption and refunds under the revised tax law.

      Click here to book a consultation to discuss your tax situation as it relates to your foreign trust holdings.

       

       

      Update: IRS Moves Tax Filing Deadline to July 15, 2020 in Light of Coronavirus Pandemic

      Update: IRS Moves Tax Filing Deadline to July 15, 2020 in Light of Coronavirus Pandemic

      by | Mar 20, 2020 | Taxes, 2020, U.S.

      Update: IRS Moves Tax Filing Deadline to July 15, 2020 in Light of Coronavirus Pandemic

      Jack Brister s p 500

      Jack Brister

      Founder, International Wealth Tax Advisors

      Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

      Contact IWTA

      To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

       Breaking: March 20, 2020

      In today’s White House Covid-19 press briefing, it was announced that American taxpayers now have until July 15th to file their taxes without risking late filing penalties.  Taxpayers are still encouraged to file ASAP if they are expecting a refund.

      March 17, 2020 Announcement

      Treasury Secretary Steve Mnuchin announced today that Americans who owe up to $1 million in taxes can have penalty and interest charges waived by the IRS for up to 90 days, Mnuchin encouraged Americans file their taxes by April 15. There is not yet a clear indication as to whether the IRS will officially extend the April 15th 2020 filing deadline as well.

      “If you owe a payment to the IRS, you can defer up to $1 million as an individual — and the reason we are doing $1 million is because that covers pass-throughs and small businesses — and $10 million for corporations, interest-free and penalty-free for 90 days. All you have to do is file your taxes,” said Mnuchin.

      Mnuchin went on to say, “We encourage those Americans who can file later taxes to continue to file their taxes because you will get tax refunds and we don’t want you to lose out. Many people do this electronically which is easy for them and the IRS.”

      Time for a Consultation

      With the recent Stock Market panic and sell off, investors may be prone to making decisions that can have serious consequences to their financial well being and to their tax bill. We’re here to help you wade through the information and disinformation to make informed and careful decisions. Click here to book a consultation online.

      Topics we have been discussing with clients include:

      • Tax Loss Harvesting
      • The Wash Sale Rule
      • Dollar Cost Averaging
      • Financial Plan Review
      • Cash Position Review
      • Real Estate Investment Review
      • Preparing your personal finances for a possible recession

      Watch this space for breaking tax information as it develops!

       

       

      What is a Withholding Agent and Why are They Important?

      What is a Withholding Agent and Why are They Important?

      by | Feb 26, 2020 | Taxes, 2020, Compliance, International

      What is a Withholding Agent and Why are They Important?

      Jack Brister s p 500

      Jack Brister

      Founder, International Wealth Tax Advisors

      Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

      Contact IWTA

      To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

      The following will describe in detail how the United States (U.S.) tax law also known as the IRC (Internal Revenue Code) or Code defines a withholding agent. I’ll provide information on the definition of a withholding agent, and what role and responsibilities are assigned to them.

      How the IRS Defines a Withholding Agent

      IRC 1473(4) and 1.1473-1(d), define a withholding agent as any person in whatever capacity having control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. In the eyes of the U.S. federal tax authorities, a person is considered to have custody of, or control over a distribution of funds or income, if a person is the one who ultimately has the authority to release the funds or income.  If such person does not properly withhold the correct amount of tax they will be subject to pay the tax not withheld.

      How the IRS Defines a Non-Resident Alien

      A non-resident alien (NRA) is a person who is not a U.S. citizen.

      A NRA is not a person who has the legal right to permanently reside within the U.S. (a green card holder), and not a person who has resided or been in the U.S. for more than 183 days or an average of 121 days a year for the prior three years. 

      These persons are foreigners for U.S. income tax purposes and therefore they are not subject to U.S. income tax unless they derive income from sources within the U.S. such as dividends, rents, royalties, business income or income and gains from real property located within the U.S.  If this is the case, then the person who is deemed to be the withholding agent must ensure that the appropriate tax is withheld and submitted to the U.S. tax authorities.  

      In other words, a foreign person who is considered a nonresident under the U.S. tax code is subject to thirty percent tax withholding on U.S source income unless a double tax treaty (e.g., income tax treaty) between the U.S. and the country of residence of the foreign person says otherwise.

      Therefore, thee withholding agent is legally liable to withhold tax payments before the distribution. The IRS can demand payment from the agent if the tax was not withheld. 

       When a foreign person tries to open a bank or investment account, and the foreign financial institution (FFI) and U.S. financial institutions see that the foreign person might have a U.S. connection of almost any kind, (even a U.S. care-of address will be sufficient) they will  request the foreign person complete and submit U.S. forms W-8BEN-E, W-8ECI, W-8IMY, W-8EXP. If the financial institution does request or attain the form submissions, the U.S. tax authorities (and sometimes the U.S. Department of Justice) can impose penalties or decline a FFI’s ability to use the U.S. financial markets. They can also choose to prosecute the institution for violation of U.S. law. 

      Depending on the relationship of the investor and investment, the financial institution itself may be considered the withholding agent and therefore subject to ensuring proper U.S. tax withholding.  The aforementioned W8 forms will be an indication for the foreign financial institution what tax, if any should be withheld from the account holder and if the FATCA rules (Foreign Account Tax Compliance Act) may apply to the account holder. (See our FATCA blogpost here.)

      Since the enactment of FATCA, most foreign and U.S. financial institutions follow procedural due diligence and ongoing monitoring when opening accounts for U.S. and foreign persons. The withholding agent monitors income from U.S.-sourced interest, dividends, rents, royalties, services, or wages. They calculate the tax is required to be withheld and ensure and that the appropriate amount is withheld to avoid penalties or more severe action.  

      In addition, to withholding the appropriate tax, withholding agents are required to file a Form 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign Person) and submit the tax to the U.S. taxing authorities. Note: If there is a failure to provide correct statements to recipients and reasonable cause cannot be shown, a penalty of up to $260 may be imposed for each failure to furnish Form 1042-S when due.  A penalty may also be imposed for failure to include all required information or for furnishing incorrect information on Form 1042-S. The maximum penalty is $3,218,500 for all failures to furnish correct recipient statements during a calendar year. 

      Special rules apply for withholding agents in determining whether a flow-through entity (trust estate, or partnership) must treat a payment of U.S. source FDAP income to the to the beneficiaries or partners as taxable. In the case of partnerships, simple trusts, complex trusts, and estates, rules similar to the rules that apply when determining withholding under IRS rules Chapter 3 (income tax withholding) apply. 

      There are many exceptions that apply in the calculation of withholding payments to the IRS. The requirements are very complex and should be discussed with your tax advisers. IWTA is more than happy to assist with your international tax consulting and computation needs. Click here to contact us.

      FACTA Filing: What U.S. Citizens Need to Know About Foreign Asset Reporting

      by | Feb 6, 2020 | Taxes, 2020, Compliance, U.S.

      FACTA Filing: What U.S. Citizens Need to Know About Foreign Asset Reporting

      Jack Brister s p 500

      Jack Brister

      Founder, International Wealth Tax Advisors

      Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

      Contact IWTA

      To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

      The Foreign Account Tax Compliance Tax Act (FATCA) became law in 2010 and is a major development in the taxation of Americans living abroad. FATCA is a tax law that requires U.S. citizens at home and outside of the United States (U.S.) to file annual reports on any foreign account holdings. FATCA is intended to prevent tax evasion by U.S. citizens and residents via the use of offshore accounts. The FATCA rules run parallel to the withholding rules applicable to any fixed, determinable, annual or periodical (FDAP) income of a nonresident alien or foreign corporation received from U.S. sources.

      Certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. In addition to that, the U.S. person is required to report foreign financial accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). 

      FATCA also requires certain foreign financial institutions to report directly to the Internal Revenue Service (IRS).  Banks and other foreign financial institutions must report information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a 10{105615a82985984cf1704e8776ec685e1345b73ddec43811fd3f038097961455} or greater interest (defined as a substantial ownership interest). 

      FFIs and NFFEs

      To comply with FATCA, all entities need to be evaluated to determine whether they fall under the definitions of Foreign Financial Institution (FFI) and Non-Foreign Financial Entity (NFFE). 

      FFIs are financial institutions that are foreign entities which are not defined as a U.S. person pursuant to U.S. tax law (U.S. Code Title 26, aka as the Internal Revenue Code (IRC)).

       NFFEs are foreign entities that are not financial institutions, including territory entities. FATCA mandates that FFIs participate in the information-sharing network or face a 30 percent withholding tax on U.S.-source investment income (theirs or their client’s investment account income).

      Thus, FATCA withholding will be imposed on any withholdable payments made to an FFI, unless they abide by the IRC and related U.S. Treasury Regulations or an Intergovernmental Agreement (IGA) between the U.S. and the FFIs country of residence.  Therefore, if you set up a new account with a foreign financial institution, they will ask you for information regarding your U.S. tax residence and for proof of U.S. tax filing compliance.

      Reporting thresholds vary based on whether you file a joint income tax return or live abroad. If you are single or file separately from your spouse, you must submit a Form 8938 if you have more than $200,000 of specified foreign financial assets at the end of the year and you live abroad; or more than $50,000, if you live in the United States, If you file jointly with your spouse, these thresholds double. 

      Who Needs to File FBAR? 

      Exceptions to the reporting requirement that include: 

      • A financial account maintained by a U.S. payor. A U.S. payor includes a U.S. branch of a foreign financial institution, a foreign branch of a U.S. financial institution, and certain foreign subsidiaries of U.S. corporations. Therefore, financial accounts with such entities do not have to be reported. 
      • At the time of filing the required income tax return, the taxpayer was not aware that he or she had a beneficial interest in a foreign trust or a foreign estate. 

      With some exceptions, if specified foreign financial assets were reported on other forms then they are not required to be reported a  second time on Form 8938. These include  any of the following:

        • Transactions with foreign trusts and foreign gifts reported on Form 3520 or Form 3520-A (filed by the trust). Form 3520 A instructions. 
        • Activity of a Controlled Foreign Corporation reported on Form 5471
        • Transactions with Passive Foreign Investment Companies (PFIC) reported on Form 8621.  With some exceptions, a PFIC is generally a foreign investment / hedge fund. 
        • Activity of a Foreign Controlled Partnership(s) reported on Form 8865
        • Transactions with a Registered Canadian retirement savings plans reported on Form 8891

      Form 8938 Penalty

      Non-compliance or late filing of Form 8938 is subject to a penalty of $10,000  and an additional penalty of up to $50,000 for continued failure to file after IRS notification, and a 40 percent penalty on the amount of any understated tax  attributable to non-disclosed of foreign financial assets.

      The statute of limitations is extended up to six years after the filing of an income tax return .  There is no statute of limitations if the FACTA Form 8938 is not filed.  

      If you make a showing that any failure to disclose is due to reasonable cause and not due to willful neglect, no penalty will be imposed for failure to file Form 8938. Reasonable cause is determined on a case-by-case basis, considering all relevant facts and circumstances.  It should be noted that the IRS will not accept as reasonable cause that the tax professional who prepared the U.S. income tax return for the person had no knowledge or a lack of understanding of the U.S. tax law if such professional is not a U.S. professional.  For example, if it is claimed as reasonable cause that a Canadian tax professional or tax professional from the United Kingdom who prepared a U.S. income tax return was not aware or knowledgeable of  the U.S. international tax rules, such reasonable cause is generally not accepted by the IRS.     

      Please consult your tax advisers. IWTA is more than happy to assist you with any international tax planning and compliance.

      OECD Leads Multinational Coalition to Address Digital Economy Tax Laws

      OECD Leads Multinational Coalition to Address Digital Economy Tax Laws

      by | Jan 29, 2020 | Taxes, 2020, International

      OECD Leads Multinational Coalition to Address Digital Economy Tax Laws

      Jack Brister s p 500

      Jack Brister

      Founder, International Wealth Tax Advisors

      Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

      Contact IWTA

      To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

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      International Tax experts view digital tax as one of the “hotbutton” issues of the new decade.

      The exponential international growth of the digital economy has erased retail and wholesale borders, had carved new roots and frameworks into the supply chain, and not surprisingly, has upended the way the traditional ways and means of tax collection.

      How do countries collect taxes from buyers across continents? Is there a uniform, unilateral method to comply with each country’s tax code, or is it possible to create international tax rules for the collection of sales and use taxes on digital platforms?

      To that end, the Organisation for Economic Co-operation and Development (OECD) has gathered over 134 countries and jurisdictions to tackle this important issue. The OECD is an international policy-building body whose goal is to establish international norms and find evidence-based solutions to a range of social, economic and environmental challenges.

      “We’re making real progress to address the tax challenges arising from digitalisation of the economy, and to continue advancing toward a consensus-based solution to overhaul the rules-based international tax system by 2020,” said OECD Secretary-General Angel Gurría.

      “This plan brings together common elements of existing competing proposals, involving over 130 countries, with input from governments, business, civil society, academia and the general public. It brings us closer to our ultimate goal: ensuring all MNEs pay their fair share.”

      ”Failure to reach agreement by 2020 would greatly increase the risk that countries will act unilaterally, with negative consequences on an already fragile global economy. We must not allow that to happen,” says Gurría.

      IWTA will keep clients apprised of the progress and success of implementation of a unilateral agreement on a digital tax code. Clients with businesses that sell online to customers outside of their own countries will face new cross border tax issues. Even solopreneurs can be affected if they sell goods or services online to international clientele.

      Click here to read the full press release from OECD.  

      GILTI Tax and Controlled Foreign Corporations

      GILTI Tax and Controlled Foreign Corporations

      by | Jan 27, 2020 | Business Investments, 2020, International, Taxes

      GILTI Tax and Controlled Foreign Corporations

      Jack Brister s p 500

      Jack Brister

      Founder, International Wealth Tax Advisors

      Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

      Contact IWTA

      To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

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      Lasts Posts

      When making a financial decision, it is important to consider tax consequences and any additional tax filing requirements.

      Previously before the tax reform act of 2017, to maximize earnings, offshore operations could be used to accumulate earnings. The logic at that time was to create a blocker corporation with regard to foreign operating businesses doing business in foreign jurisdictions.  The accumulated earnings would not be subject to U.S. tax until the corporation made distributions  in the form of dividends.

      Internal Revenue Code IRC Section 965 was enacted as part of the new Tax Reform Act (TCJA).  This new law imposes a one-time transition tax (toll charge) on the undistributed, non-previously taxed post-1986 foreign earnings and profits of certain U.S.-owned foreign corporations. IRC Section 965 is seen as part of the transition to what some believe to be a move in the direction of a territorial tax regime.

      In general, U.S. shareholders of foreign corporations may elect to pay the toll charge in installments over eight years. Also, in addition to that, U.S. persons may be subject to an additional category of Controlled Foreign Corporation Income, Global Intangible Low-Taxed Income (GILTI) for tax years 2018 and forward. GILTI tax was enacted under the TCJA (new IRC 951A). Taxpayers subject to GILTI tax should include the Form 8992 in their tax return.

      GILTI Tax- Individuals

      Persons will be subject to GILTI regulations if they are a U.S. shareholder of a Controlled Foreign Corporation. U.S. persons (citizens, residents, substantial presence or green card holders, domestic entities) are treated as a U.S. Shareholder of a Controlled Foreign Corporation (CFC) if such persons own at least 10 percent directly or indirectly of a foreign corporation’s voting stock or value. CFC is any foreign corporation of which more than 50 percent of the vote or value of the stock is owned by U.S. shareholders on any day during a given year.

      Basically, U.S. shareholders of one or more CFCs must take into account its pro-rata share of the tested income or tested loss of the CFC(s) in determining the U.S. shareholder’s GILTI tax calculations. It is important to note that other tax forms reflect information for Form 8992 and Section 965 tax withholding.

      Generally speaking, when taxpayers meet the requirements to file Form 5471, (Information Return of U.S. Persons with Respect to Certain Foreign Corporations) as a category four and five, the filing should include Schedule I-1, Information for Global Intangible Low-Taxed Income. Information from Form 5471 Schedule I-1 and Schedule C will be reflected on Form 8992 to complete the GILTI tax calculation.

      Considering the fact that the GILTI regulations are more favorable to the corporation, the taxpayer could make an  IRC Section 962 election which allows an individual who is a U.S. Shareholder of a Controlled Foreign Corporation to elect to be treated  as a domestic corporation (U.S. corporation) for the purpose of computing their income tax liability on their pro-rata share of the CFC’s subpart F income.

      Significant tax savings opportunities for  U.S. domestic corporations could be achieved by filling Form 8993, section 250 for Foreign- Derived Intangible Income (FDII) and GILTI tax. If the corporation has paid or accrued foreign tax in the country it operates, the taxpayer should include that amount on Form 1118, Foreign Tax Credit under section 951.

      If the taxpayer does not have voting power and never wanted to participate in CFC management, one of the options to avoid the complexity of GILTI tax is to form a foreign trust and place the CFC stock(s) under the ownership of said foreign trust. Doing this  eliminates GILTI tax calculation and reporting.

      The downside is that the taxpayer will need to consider the potential gift tax implications and reporting at the time of the transfer of ownership. What’s more, they may be required to calculate Distributable Net Income (DNI) which gets reported on Form 3520 and potentially Form 3520-A. There will be additional tax filing fees, but this strategy will eliminate the complexity of GILTI tax calculations and reporting.

      The IRS has issued some guidance related to this topic, and there are still uncertainties existing on how to treat certain items. The international tax provisions are highly complex and will likely continue to increase the tax compliance complexity for even the most straightforward corporations with foreign operations and their shareholders.

      A tax professional with international tax expertise should be sought in these matters.  If you need  assistance, please contact IWTA.

      The Four Questions Q3: Why does the U.S. employ a “substance over form” tax system?

      The Four Questions Q3: Why does the U.S. employ a “substance over form” tax system?

      by | Nov 19, 2019 | FAQ, 2019

      The Four Questions Q3: Why does the U.S. employ a “substance over form” tax system?

      Jack Brister s p 500

      Jack Brister

      Founder, International Wealth Tax Advisors

      Jack Brister, Founder of International Wealth Tax Advisors, is a noted international tax expert, with over 25 years of experience. Jack specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset protection structures. Jack is a frequent featured speaker at numerous international financial conferences and has been named a Citywealth Top 100 U.S. Wealth Advisor.

      Contact IWTA

      To schedule an introductory phone conference with IWTA  founder Jack Brister simply click here. Email IWTA at bloginquiries@iwtas.com Or call the IWTA New York City office at 212-256-1142

      The overarching concept of the U.S. tax system is to tax the economic substance of a transaction or series of transactions.

      The principle of substance-over-form is the cornerstone of the U.S. tax system and can be a lethal weapon in the U.S. tax authority’s arsenal.  This doctrine allows the tax authorities to ignore the legal form of an arrangement and to look at the substance of the transaction(s) in order to prevent artificial structures from being used for tax avoidance purposes.

      It is likely the origins of the U.S. tax system employing substance-over-form rather than form-over-substance is derived from the U.S. legal system and its basic principles of taxation.

      The U.S. legal system is a common law system which is one of two primary legal systems in the world: common law and civil law.

      The U.S. common law system has its origins from the English courts of equity for which the primary purpose was to provide appropriate remedies to complaints based on equitable principles taken from various sources.   These principles were then used to employ the concept of judicial precedent.  Hence, substance-based rulings.

      Civil law on the other hand is believed to originate from the code of laws compiled by the Roman Empire under the rule of Emperor Justinian.  These rules are more rigid because judgements are primarily reliant on the written statutes whereas the common law system is heavily based on principles of equity.

      The basic principles of the U.S. federal income tax system encompass the basic principles of taxation: efficiency, certainty and simplicity, flexibility, effectiveness and fairness, neutrality and citizenship which have been further developed through the basic principles of U.S. common law or judicial precedent.

      The principal of efficiency states a system of taxation be organized and cost-effective.

      The principle of certainty and simplicity state the tax laws be easily understood even without a background in law or accounting; and the principle of flexibility provides that the law can change to meet the government’s need for revenue.   Unfortunately, there are many that would say that the U.S. system does not employee the principle of simplicity but certainly applies the principle of flexibility.  The original tax code enacted in 1913 that met the U.S. constitutional standards was 800 pages.  Currently it is over 10,000 pages. This is partly because the Internal Revenue Code (United States Code, Title 26) changes the law as needed by exceptions to the general rule, and exceptions to the exceptions when the law requires changes (i.e., flexibility).

      The principle of effectiveness and fairness requires consequences for not paying the tax due.  In addition, the system is a progressive system and therefore requires those who can pay more will pay the majority of the bill.  In some recent statistics 97{24b144b2367bbb07d5d4fda493087790376b70e35be933d1efb47b5fb6de27b5} of the total U.S. income taxes is paid by the upper 50{24b144b2367bbb07d5d4fda493087790376b70e35be933d1efb47b5fb6de27b5} of the income earners.  Of this group the top 1{24b144b2367bbb07d5d4fda493087790376b70e35be933d1efb47b5fb6de27b5} pay 37{24b144b2367bbb07d5d4fda493087790376b70e35be933d1efb47b5fb6de27b5} of the income tax collected, the next group (2{24b144b2367bbb07d5d4fda493087790376b70e35be933d1efb47b5fb6de27b5} to 5{24b144b2367bbb07d5d4fda493087790376b70e35be933d1efb47b5fb6de27b5}) of the top income earners pay 20{24b144b2367bbb07d5d4fda493087790376b70e35be933d1efb47b5fb6de27b5} of the total income taxes collected.  So, the top 5{24b144b2367bbb07d5d4fda493087790376b70e35be933d1efb47b5fb6de27b5} income earners pay almost 60{24b144b2367bbb07d5d4fda493087790376b70e35be933d1efb47b5fb6de27b5} of the total income taxes collected.  This means the top 5{24b144b2367bbb07d5d4fda493087790376b70e35be933d1efb47b5fb6de27b5} of the income earners pay the majority of the U.S. income taxes.

       The U.S. principle of neutrality entails that the tax laws apply to all individuals and businesses equally and should not affect the person’s spending decisions (i.e., not hinder overall economic flow / decisions).

       The principle of taxation by citizenship provides that a U.S. person (including U.S. entities, trusts and estates) is taxed as a result of being a citizen or having permanent resident status regardless if they live in the U.S. or abroad.  It is a system of taxing a person’s worldwide income, the income from wherever derived.  Of all the industrialized countries, the U.S. system is the only system of income taxation that is based on the citizenship.  Under U.S. tax law a person includes U.S. entities, trusts and estates because they have separate legal and fiscal personalities; and an individual person with permanent resident status is treated as a citizen for U.S. tax purposes.

      Hence, by encompassing the principles of taxation into one simple doctrine, substance-over-form, the U.S. courts have guaranteed the taxation of worldwide economic substance (a common law principle of equity) and minimized tax evasion and avoidance with the use of domestic and international structures by U.S. persons.