2017
REPATRIATION OF FOREIGN-SOURCED ACCUMULATED EARNINGS IN TRANSITIONING TO A PARTICIPATION EXEMPTION SYSTEM FOR REPORTING FOREIGN SOURCED DIVIDENDS UNDER THE TAX CUTS AND JOBS ACT OF 2017
By: Jerald David August
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJA) of 2017, P.L. 115-97, which introduced a wholesale set of tax cuts and other reforms that affect substantially all U.S. taxpayers, both corporate and individual.
One of the highlights of the new law is the repatriation of foreign-sourced accumulated earnings and profits with respect to controlled foreign corporations (CFCs) as defined.[1] Newly enacted section 965 imposes a transition tax on the accumulated (and untaxed) foreign earnings of foreign subsidiaries of US companies by constructive (mandatory) repatriation under section 951(a)(1). Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5% rate and the residual untaxed foreign earnings are taxed a rate of 8%. The “transition tax” may be paid in installments over an 8 year period.
12/21/2017
CONGRESS GETS READY TO PASS HISTORIC “TAX CUTS AND JOBS ACT”: A LOOK AT THE COMPLEX NEW WORLD OF THE QUALIFIED BUSINESS DEDUCTION RULE APPLICABLE TO PARTNERSHIPS, S CORPORATIONS AND SOLE PROPRIETORSHIPS
By: Jerald David August
Adapted from an article to be published in the January, 2018 issue of the CPA Journal which is the official journal of the NY State Society of CPAs
By the time this article is published, we will know whether the new tax law was enacted by Congress and signed into law by President Trump. While the conference committee resolved the differences between the bills, and there indeed were many differences, at this point the conference agreement has selected the provisions going forward for the final vote of Congress. This article will focus on the new reforms to the tax rates applied to owners of unincorporated businesses with respect to qualified business income.
This summary is based on the conference committee report released on December 15 with respect to the versions of the Tax Cuts and Jobs Act passed by the House of Representatives on November 16, 2017 and then by the Senate on December 2, 2017. The mangers of the House and Senate tax-writing committees included a Joint Explanatory Statement of the Committee of Conference on December 16, 2017 along with a version of the tax bill.
11/3/2017
CHAIRMAN BRADY ISSUES OFFICIAL “CHAIRMAN’S MARK” OF THE TAX CUTS AND JOBS ACT; HOUSE WAYS AND MEANS COMMITTEE PASSED THE HISTORIC TAX BILL; AND SENATE GOP TAX PLAN RELEASED
By: Jerald David August
HOUSE GOP BILL, H.R. 1 AND CHAIRMAN’S MARK AMENDMENTS OF NOVEMBER 9, 2017
On November 2, 2017, the Republican GOP released a comprehensive tax reform plan which introduced a set of individual and corporate tax reforms that have received much attention and criticism from both sides of the aisle. Summaries of the proposed legislation were described in this forum in “House Republicans Release Tax Reform Plan: Ways And Means Committee Chair Brady Suggests Flex Rate Package” posted on November 2, 2017, and “Republican GOP Tax Bill Introduces Major Reforms To The Taxation Of U.S. Corporations Engaged In Business Operations Overseas: Introduction Of The Participation Exemption” posted on November 3, 2017.
11/2/2017
HOUSE REPUBLICANS RELEASE TAX REFORM PLAN: WAYS AND MEANS COMMITTEE CHAIR BRADY SUGGESTS FLEX RATE PACKAGE
By: Jerald David August
As reflected in Tax Notes Today for November 2, 2017, Ways and Means Committee Chair, Kevin Brady, R-Texas, stated that it may not be so easy for the House Republicans to get to a permanent 20% corporate tax rate which is a key, if not the centerpiece, provision of President Trump’s tax reform initiative, and that it may take several steps in the process to get there.
10/24/2017
GOVERNMENT FIRES BACK ITS DEFENSE TO LARGE TAX REFUND SUIT RECENTLY FILED BY PERRIGO CO. (USA) ALLEGING ELABORATE ASSIGNMENT OF PHARMA LICENSES FROM U.S. SUBSIDIARY TO ISRAELI CONTROLLED FOREIGN CORPORATION AND RELATED TRANSACTIONS WERE SHAMS
By: Jerald David August
Perrigo Company and Subsidiaries (“Perrigo”) on August 15, 2017, filed a tax refund suit against the United States in the United States District Court for the Western District of Michigan, Southern Division, No. 1:17-cv-00737. [1] Perrigo alleged it overpaid Federal income taxes, penalties and interest, for its 52-53 week tax years ending in the last week in June for the years 2009 through 2012 by over $163 million.
10/10/2017
U.S. TREASURY DEPARTMENT ISSUES SECOND REPORT ON IDENTIFYING AND REDUCING TAX REGULATORY BURDENS: REPEAL OF SECTION 2704 REGULATIONS AND REVISIONS PENDING TO THE REGULATIONS ISSUED ON PARTNERSHIP DEBT
By: Jerald David August
As recently set forth in a post to K&F, LLP Business and International Tax Developments, in Executive Order 13789, President Trump directed the Treasury Department to undertake a detailed review of certain tax regulations projects that were either in proposed or final form on or after January 1, 2016 that imposed financial burdens on U.S. taxpayers, overly complicate the Federal tax laws, or exceed the statutory authority of the IRS in issuing regulations and report back to the President on its recommendations.
9/27/2017
REPUBLICAN GOP TAX BILL INTRODUCES MAJOR REFORMS TO THE TAXATION OF U.S. CORPORATIONS ENGAGED IN BUSINESS OPERATIONS OVERSEAS: INTRODUCTION OF THE PARTICIPATION EXEMPTION
By: Jerald David August
OVERVIEW OF NEED FOR REFORM OF INCOME TAXATION OF U.S. CORPORATIONS WITH RESPECT TO FOREIGN SUBSIDIARIES
As promised from various talks and presentations leading up to the introduction of H.R. 1, 115TH Cong., 1st Sess., the Tax Cuts and Jobs Act, as well as the recent Republican Unified Framework for Tax Reform, released September 27, 2017, the GOP Bill introduces major reforms to the international taxation of U.S. businesses, particularly U.S. corporations owning 10% or more of the stock of a foreign corporation. The changes are wide-sweeping and perhaps controversial and marks a paradigm shift in moving the taxation of U.S. corporations from a worldwide income system, with allowance for claiming deemed foreign tax credits on dividends received from such foreign corporations, to a territorial based, participation exemption system which is utilized by many foreign countries.
9/21/2017
ACTION EXPECTED SHORTLY BY U.S. TREASURY ON OUTBOUND TRANSFERS AS WELL AS OTHER IMPORTANT ISSUES, INCLUDING THE BRANCH CURRENCY RULES
By: Jerald David August
Shortly after President Trump took the oath of office as President, on April 21, 2017, President Trump issued Executive Order 13789, a directive intended to reduce tax regulatory burdens on the IRS and Treasury.[1] The order instructed the Secretary of the Treasury to review all “significant tax regulations” issued on or after January 1, 2016 by the predecessor administration, and submit two reports, followed promptly by taking concrete action to alleviate the burdens of regulations that meet criteria outlined in the order.
7/21/2017
BUY SELL AGREEMENTS IN CANADA AND THEIR IMPACT ON PRESERVING THE TAX FAVORED STATUS OF CANADIAN RESIDENT CONTROLLED PRIVATE CORPORATIONS
By: Jerald David August
Canadian Controlled Private Corporations
In a recent article written by lawyers in the Aird & Berlis LLP law firm in Toronto, which was just published in Tax Notes International, U.S. international tax practitioners and business lawyers can obtain valuable insights on drafting issues and problems with Canadian controlled private corporation (CCPC) shareholder agreements. The idea is to preserve favorable tax attributes of a Canadian private corporation by ensuring that de jure and de facto control of the CCPC is maintained by Canadian persons throughout.
7/21/2017
FORMER CREDIT SUISSE BANKER PLEADS GUILTY TO CONSPIRING WITH U.S. TAXPAYERS AND OTHER SWISS BANKERS TO DEFRAUD THE UNITED STATES
By: Jerald David August
Department of Justice Press Release of July 19, 2017.
In its press release of July 19, the Department of Justice announced that a citizen and resident of Switzerland pleaded guilty to conspiring to defraud the United States in connection with her work as the head of a team of bankers for Credit Suisse AG, announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and U.S. Attorney Dana J. Boente for the Eastern District of Virginia. Ms. Meier was indicted in 2011 that was part of a number of cases filed by the United States on offshore tax evasion.
7/21/2017
DRAFTING PARTNERSHIP AGREEMENT PROVISIONS WITH RESPECT TO PARTNERSHIP AUDITS BOTH UNDER TEFRA AND THE NEW BIPARTISAN BUDGET ACT OF 2015
Focusing On The Controversial New Partnership Representative Rule
By: Jerald David August
This is the second part of a series of posts pertaining to drafting and revising partnership, limited liability and limited liability partnership (“partnership”) agreements into account the new consolidated audit rules. The first part of the series appeared on this website, “Business and International Tax Developments” on Friday, June 14, 2014. .
6/14/2017
THE NEW PARTNERSHIP CENTRALIZED AUDIT RULES ARE COMING SOON; ARE YOUR CLIENTS’ PARTNERSHIP AND OPERATING AGREEMENTS READY? LOOKING IN PARTICULAR AT THE PARTNERSHIP AUDIT PROVISIONS
By: Jerald David August
Partnership Centralized Audit Rules Enacted in 2015 Having a General Start Date For Taxable Years Beginning January 1, 2018
The Bipartisan Budget Act of 2015 (the “Budget Act”) which the President signed into law on November 2, 2015 (as modified by the Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”), fundamentally changes how the Service will conduct audits of partnerships. The Budget Act repeals the partnership audit provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”) and electing large partnership regimes and replaces them with a new set of rules for partnership audits and judicial review of partnership audit adjustments under a centralized or consolidated partnership audit regime. While the new rules may have had a specific purpose in mind, i.e., of streamlining partnership audits and raising revenues from incorrect tax positions taken by large partnerships, the statutory language and principles in the new legislation suffer from several structural defects, some of which are fundamentally inconsistent with the long-standing principles of partnership taxation under Subchapter K.
5/10/2017
MONSTER.COM FOUNDER’S ESTATE WINS TAX COURT DECISION ON DECEDENT’S VARIABLE PREPAID FORWARD CONTRACTS
By: Jerald David August
Estate of Andrew J. McKelvey, Deceased, et al v. Commissioner,
148 T.C. No. 13, April 19, 2017
The decedent, Andrew J. McKelvey, was the founder and CEO of Monster Worldwide, Inc. (Monster.com), a company known for its job placement website. Mr. Mc Kelvey died on November 27, 2008. The IRS issued a statutory notice of deficiency of approximately $41,257,00 in income tax for 2008. The only issue for the Court was whether modifications made in 2008 to the decedent’s variable prepaid forward contracts (VPFCs) resulted in taxable dispositions under §1001 or under §1259. The case was tried on joint motion (fully stipulated statements of facts) without trial pursuant to T.C. Rules 50(a) and 122(a). The Tax Court found for the Petitioner-estate.
4/10/2017
IRS AND TREASURY ISSUE PROPOSED REGULATIONS ON CENTRALIZED PARTNERSHIP AUDITS
By: Jerald David August
This post is the third of a Three Part Series of K&F Business and International Tax Developments Posts on the Proposed Regulations to the New Partnership Audit Regime which legislation is due to go into effect for all unincorporated entities treated as partnerships, in general, for taxable years beginning after December 31, 2017. Part One, which was posted on February 17, 2017, summarized the legislation which enacted the new partnership audit rules as part of The Bipartisan Budget Act of 2015, Pub. L. No. 114-74, Act §1101 (the “Budget Act”) which was signed into law on November 2, 2015, (as modified by Protecting Americans from Tax Hikes Act of 2015, Pub. L. No. 114-113 (the “PATH Act”)). The Proposed Regulations were issued on January 18, 2017 (REG-136118-15).
In a Memorandum from Reince Priebus, Assistant to the President and Chief of Staff, issued on January 20, 2017 to all Heads of Executive Departments and Agencies on behalf of President Trump, a regulatory freeze on the issuance of new regulations was announced to take effect immediately. In particular, proposed regulations that had neither been published in the federal register or had been waiting for their effective date, were immediately withdrawn for review and approval of the department or agency head appointed or designated by the President. Therefore, the Proposed Regulations to the partnership audit rules issued just two days earlier, were technically withdrawn on January, 20, 2017. See “White House Memo Puts Freeze on All New and Pending Regs”, Tax Notes, Jan. 20, 2017. In a recent announcement made on March 3 by Ms. Hodes, attorney-adviser, Treasury Office of Tax Legislative Counsel, in addressing the Federal Bar Association Section on Taxation, practitioners were urged not to assume the IRS will be unprepared for January 1, 2018, the deadline for the commencement of the new partnership audit regime.
3/29/2017
IRS AND TREASURY ISSUES NEEDED GUIDANCE ON CENTRALIZED PARTNERSHIP AUDITS: PROPOSED REGULATIONS ISSUED
By: Jerald David August
This post is part of a Three Part Series of K&F Business and International Tax Developments Posts on the New Proposed Regulations to the New Partnership Audit Regime which is due to go into effect for all unincorporated entities treated as partnerships for taxable years beginning after December 31, 2017. Part One, which was posted on February 17, 2017, summarized the legislation which enacted the new partnership audit rules as part of The Bipartisan Budget Act of 2015, Pub. L. No. 114-74, Act §1101 (the “Budget Act”) which was signed into law on November 2, 2015, (as modified by Protecting Americans from Tax Hikes Act of 2015, Pub. L. No. 114-113 (the “PATH Act”)). The Proposed Regulations were issued on January 18, 2017 (REG-136118-15).
In a Memorandum from Reince Priebus, Assistant to the President and Chief of Staff, issued on January 20, 2017 to all Heads of Executive Departments and Agencies on behalf of President Trump, a regulatory freeze on the issuance of new regulations was announced to take effect immediately. In particular, proposed regulations that had neither been published in the federal register or had been waiting for their effective date, were immediately withdrawn for review and approval of the department or agency head appointed or designated by the President. Therefore, the Proposed Regulations to the partnership audit rules issued just two days earlier, were technically withdrawn on January, 20, 2017. See “White House Memo Puts Freeze on All New and Pending Regs”, Tax Notes, Jan. 20, 2017. In a recent announcement made on March 3 by Ms. Hodes, attorney-adviser, Treasury Office of Tax Legislative Counsel, in addressing the Federal Bar Association Section on Taxation, practitioners were urged not to assume the IRS will be unprepared for January 1, 2018, the deadline for the commencement of the new partnership audit regime.
3/21/2017
SERVICE ISSUES FAVORABLE PRIVATE LETTER RULING ON THE DIVERSIFICATION OF STOCK PORTFOLIO UNDER SECTION 721(B) AND POTENTIAL FOR APPLYING THE NETTING RULE FOR BOTH CONTRIBUTIONS AND REVERSE SECTION 704(C) ALLOCATIONS
By: Jerald David August
In a recent private letter ruling issued on November 18, 2016, PLR 201710007, the Service ruled that the transfer of a stock portfolio to a surviving partnership from four terminating partnerships will not, under the facts, result in a diversification of portfolios under §721(b) thereby avoiding gain recognition. This provision may pose a trap for the wary for taxpayers who do not give careful consideration in transferring appreciated property to a partnership (or corporation). The Service further ruled on the application of technical rules under §704(c) permitting partial or full netting of built-in gains and losses.
3/15/2017
SIXTH CIRCUIT COURT OF APPEALS REVERSES TAX COURT ON TREATMENT OF COMMISSIONS OF A DOMESTIC INTERNATIONAL SALES CORPORATION PAID TO ROTH IRA
By: Jerald David August
An Instance Where the Business Taxpayer Can Win Despite the Absence of Economic Substance !!!
In Summa Holdings Inc. v. Commissioner, No. 16-1712 (Feb. 16, 2017), the Sixth Circuit Court of Appeals reversed the Tax Court decision below which held that payments a corporation made to a DISC were not DISC commissions but instead were to be characterized as dividends to shareholders followed by excess contributions to their Roth IRAs. Such recharacterization would have eliminated the tax benefits associated with the IC-DISC for the taxpayers.
2/6/2017
HOUSE OF REPRESENTATIVES PASSES BILL TO END JUDICIAL DEFERENCE TO TREASURY’S RULE-MAKING AUTHORITY
By: Jerald David August
A bill, H.R. 5, recently introduced by House Judiciary Committee Chair Bob Goodlatte, R-Va., the Regulatory Accountability Act of 2017, proposes to end the Chevron deference doctrine, passed the House of Representatives by a 50 vote majority (283-183) on January 11. The bill was referred to the Committee on the Judiciary, in addition to the Committee on Oversight and Government Reform and the Committee on Small Business.
2/03/2017
DANISH TAX AUTHORITY (SKAT) ISSUES FAVORABLE RULING FOR FOREIGN INVESTORS IN A DANISH PRIVATE EQUITY FUND AS NOT HAVING A PERMANENT ESTABLISHMENT IN DENMARK BY VIRTUE OF THEIR INVESTMENT
By: Jerald David August
In General: The View From the United States on What Constitutes a Permanent Establishment
A U.S. treaty may exempt from income tax computed on a “net basis” the business profits of an individual or company resident in a treaty country unless such business profits are attributable to a “permanent establishment” (PE) maintained in the United States by such individual or company. tax the business profits of a resident of a treaty country unless those profits are attributable to a “permanent establishment” maintained by that resident in the United States. See U.S. Tax Treaties with Canada, Article 7(1); Japan, Article 8(1); Netherlands, Article 3(1); United Kingdom, Article 7(1). [1]
2/02/2017
EUROPEAN COMMISSION CONTINUES ITS ASSAULT ON HYBRID ENTITIES ENGAGING IN BASE EROSION STRATEGIES AND CHARGES IMPROPER STATE AID BY LUXEMBOURG IN ISSUING A SET OF RULINGS ON A SET OF ZORA OBLIGATIONS
By: Jerald David August
Last January, the European Commission (COM (2016) 26 final)(2016/011 (CNS)) proposed for Council action rules against tax avoidance practices to fight against tax avoidance and aggressive tax planning, both at the global and EU levels. This fight has been ongoing for several years now and is reflected in part by the BEPS project of the OECD which was recently finalized and adopted by the G20. The schemes targeted by this Directive involve situations where taxpayers act against the actual purpose of the law, taking advantage of disparities between national tax systems, to reduce their tax bill.
2/01/2017
IRS AND TREASURY ISSUES NEEDED GUIDANCE ON CENTRALIZED PARTNERSHIP AUDITS: PROPOSED REGULATIONS ISSUED
By: Jerald David August
This will be Part One of a Three Part Series of Posts on the New Proposed Regulations; This Part One Will Focus on the Background to the Proposed Rule-making, Qualifications for Electing-Out, the Designation of the Partnership Representative and Related Items. Part Two Will Focus on the Imputed Underpayment Rules and Modifications while Part Three Will Address the Push-Out Election and Other Procedural Rules.