International Tax Blog

AM 2021-002 – Relevance & Check-the-Box Elections

Yesterday the IRS published AM 2021-002. This AM concludes that a foreign eligible entity is classified pursuant to Treas. Reg. §301.7701-3(b)(2) (“the default classification provision”) during the period in which its classification is not relevant. The AM states that this determination is made when the classification of the entity first becomes relevant, but the classification applies during the non-relevant period. The AM also concludes that the 60-month limitation rule does not apply if the election... Read more →

Flow-Thru Symbols: An Up-Side-Down “Funnel” Theme

For my charts, I typically show flow-thru entities as rectangles with small triangles in the lower right corner. I think of the triangle as an up-side-down funnel. The funnel allows the income to flow from the entity upwards to its owner. For entities that are true partnerships, I typically show them as triangles to reflect their flow-thru nature. S corporations are generally flow-thru entities. To continue the funnel theme, I show S corporations as trapezoids,... Read more →

Multiple new situational charts published

We recently added 12 new situational tax charts to AndrewMitchel.com (charts listed in topical order and charts listed in alpha-numeric order). We have over 1200 charts for FREE on our website. The recently published charts include: Rev. Rul. 70-409 (Liquidating Distribution of Shareholders' Notes Was a Distribution of Money) Reg. 1.881-5(h), Example (US VI Corp Was Not Less Than 25% Owned By Foreign Persons) Reg. 1.904-4(f)(4)(i), Example 1 (Determination of Foreign Branches and Foreign Branch... Read more →

New IRS Practice Unit: 965 Transition Tax

Yesterday the IRS published a new practice unit titled “IRC 965 Transition Tax Overview.” This practice unit discusses the section 965 transition tax that was enacted as part of TCJA. Section 965 deals with the treatment of deferred foreign income upon the transition to the participation exemption system of taxation. You can find links to this practice unit on our Practice Units By Topic page. Read more →

Section 911 Housing Cost Amounts Updated for 2021

Last week the IRS published Notice 2021-18 which provides adjustments to the limitation on housing expenses for specific locations in 2021. Code §911(a) allows a qualified individual to elect to exclude from gross income an “Exclusion Amount” related to foreign earned income and a “Housing Cost Amount.” The Exclusion Amount for 2021 is $108,700. The Housing Cost Amount is generally defined as an amount equal to the excess of (A) the “Housing Expenses” of an... Read more →

Famous Tax Quotes - Death May Escape the Woes of Life . . .

Continuing our series on Famous Tax Quotes (quotes from court opinions and rulings with language that is colorful or that concisely states an important tax principle) today's tax quote is from a case that held an FBAR penalty survived the death of the party on whom the penalty was imposed: Death may be an avenue of escape from many of the woes of life, but it is no escape from taxes. U.S. v. Wolin, 126... Read more →

2020 Sets New Record For Published Expatriates

Today the Treasury Department published the names of individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) during the fourth quarter of 2020. The number of published expatriates for the fourth quarter was 660, bringing the total number of published expatriates in 2020 to 6,707. The number of expatriates for 2020 is a 237% increase from 2019. For our prior coverage of expatriation, see all posts tagged Expatriation. Below are two... Read more →

A Brief History of U.S. Tax Expatriation Rules

The first tax expatriation rules were enacted in 1966. The rules were created because Congress instituted a flat 30% tax on U.S.-sourced investment income for nonresident alien individuals. At the time, the top graduated rate for individuals was 70%. Congress was concerned that high income individuals would move abroad and renounce their U.S. citizenship so that they could be taxed at a flat 30% rate on their U.S. investment income. The special expatriation rules required... Read more →

U.K. Pension Lump-Sum Distributions

Individuals that have lived in the U.K. but then move to the U.S. may have U.K. pensions. One question that arises at times is whether a lump-sum distribution from the U.K. pension is tax-free in the U.S. under the U.K.-U.S. Income Tax Treaty (the “Treaty”). Unfortunately, the distribution is not tax-free. The issue is whether Article 17(1)(b) or Article 17(2) of the Treaty applies to the distribution. If Article 17(1)(b) applies, then U.S. tax should... Read more →

7 New Tax Charts Published

Today we published 7 new situational tax charts to AndrewMitchel.com (charts listed in topical order and charts listed in alpha-numeric order). We have over 1200 charts for FREE on our website. The recently published charts include: Reg. 1.1291-1(b)(8)(iv), Example 1 (Indirect Ownership of a PFIC Partly Thru a U.S. Corp) Prop. Reg. 1.1291-1(b)(8)(iv)(B), Example 2 ("Top-Down" Approach For Ownership of a PFIC Thru Foreign Partnerships) Prop. Reg. 1.1297-1(b)(2), Example (Consolidated Group Dividends Not Excluded From... Read more →

2021 Inflation Adjustments for Individuals in the International Tax Arena

Last week the IRS published Revenue Procedure 2020-45, setting forth inflation adjusted items for 2021. In the international arena, some of the important inflation adjustments include: $172,000 --- Code § 877(a)(2)(A) --- The average annual net income tax that must be imposed for the five taxable years ending before the date of the loss of United States citizenship (or cessation of long-term permanent residency) for an individual to be considered a “covered expatriate” under Code... Read more →

IRS Delinquent International Information Return Submission Procedures Have Been Updated

Yesterday the IRS updated its web page containing the delinquent international information return submission procedures. Under the prior procedures, taxpayers were required to have a reasonable cause statement and taxpayers were required to certify that foreign entities were not engaged in tax evasion. Under the new procedures, taxpayers file through “normal filing procedures”, and taxpayers “may” attach a reasonable cause statement. The updated website says: [P]enalties may be assessed without considering the attached reasonable cause... Read more →

Famous Tax Quotes - Memory Dulled by a Penitentiary Term Served

Continuing our series on Famous Tax Quotes (quotes from court opinions and rulings with language that is colorful or that concisely states an important tax principle) today's tax quote is: [A witness’s testimony] was in the main a repetition of “I don’t remember”. * * * The witness’s memory may have been dulled by a penitentiary term served as the result of income tax troubles of his own which were totally unrelated to the case... Read more →

2020 Third Quarter Published Expatriates – 2020 Is Already the Highest Year Ever

Today the Treasury Department published the names of individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) during the third quarter of 2020. The number of published expatriates for the quarter was 732. The total number of names published during the 3 quarters so far this year equals 6,047. Even without including the fourth quarter, 2020 is already a record year for names published. The previous annual record was in 2016,... Read more →

Famous Tax Quotes - Fictional Corporate Camouflage

Continuing our series on Famous Tax Quotes (quotes from court opinions and rulings with language that is colorful or that concisely states an important tax principle) today's tax quote is: We cannot escape the conclusion that Rayben Limited was acting as a mere agency or instrumentality * * *. The whole transaction is not “in fact what it appears to be in form”, and what was actually done “contradicts the apparent transaction.” * * *... Read more →

88% of Expatriates Have a Net Worth of Less than $2 Million

On September 28, 2020, the Treasury Inspector General for Tax Administration (“TIGTA”) issued a report on the IRS’s Enforcement regarding expatriates. In the report, TIGTA provided a graph showing the number of the names of expatriates published in the Federal Register from 2008 to 2018. If you add up the numbers for these 11 years, the total is 30,507. Interestingly, TIGTA then indicates that the IRS has an expatriate database which includes 41,058 records from... Read more →

FBAR Reporting For Indirectly Owned Foreign Bank Accounts

For years I have been unsure how to report a foreign bank account on an individual’s FBAR (FinCEN Form 114) when the account is owned by a foreign entity and the individual owns more than 50% of the foreign entity. For example, if a US citizen individual owns 100% of a controlled foreign corporation (“CFC”), and the CFC has a foreign bank account, the US citizen individual is treated as having a financial interest in... Read more →

A Tax Attorney Uses Python

Two years ago today I started studying the Python programming language. I had heard how Python is supposed to be an easy language to learn, and I thought it might be useful. Here is a sampling of the ways that I have used Python: Checking for errors on my website Scraping IRS and other web pages Automating tasks Searching my client files Searching my database of tax authorities Summarizing information to study/review Checking for Website... Read more →

New IRS Practice Unit: Foreign Earned Income

Yesterday the IRS published a new practice unit titled “Foreign Earned Income for Purposes of IRC 911.” This practice unit discusses "foreign earned income" for purposes of Code §911, and rounds out the 10th practice unit on the foreign earned income exclusion ("FEIE"). The IRS now has the following practice units on the foreign earned income exclusion: Foreign Earned Income (2020) Physical Presence Test (2017) Bona Fide Residence Test (2015) Calculating the FEIE - Employee... Read more →

2020 Second Quarter Published Expatriates – Second Highest Quarterly Number Ever

Last week the Treasury Department published the names of individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) during the second quarter of 2020. The number of published expatriates for the quarter was 2,406, which is the second highest quarterly number ever, with the first quarter of this year being the highest quarter ever. Therefore, 2020 is currently on track to have the highest number of published expatriates ever. See the... Read more →

U.S. Partnerships Owning CFCs

It has been over a year since the final GILTI regulations were published. The GILTI rules for domestic partnerships in the final regulations were dramatically different than in the proposed regulations. In general, a domestic partnership that owns a CFC does not have a GILTI inclusion amount. However, a partner in the domestic partnership may have a GILTI inclusion amount if the partner is a U.S. shareholder of the CFC (typically meaning that the partner... Read more →

Famous Tax Quotes - No Rational Person . . .

Continuing our series on Famous Tax Quotes (quotes from court opinions and rulings with language that is colorful or that concisely states an important tax principle) today's tax quote is: [N]o rational person would incur indebtedness of $41.5 million to acquire stock that he already owned free and clear. [4th Circuit, quoting the Tax Court] Estate of Kechijian v. Commr., 125 AFTR 2d 2020-2579 Read more →

Famous Tax Quotes - Backdating of Documents

Continuing our series on Famous Tax Quotes (quotes from court opinions and rulings with language that is colorful or that concisely states an important tax principle) today's tax quote is: 2. Backdating and “Effective As of” Dating of Documents Petitioners have admitted that one of the critical documents in the record was backdated. Although petitioners explain the backdating as a matter of convenience, the fact that any backdating occurred suggests a willingness to manipulate the... Read more →

New IRS Practice Units: Reasonable Cause and Good Faith & FTC Limitation

The IRS recently published two new practice units related to international tax: Reasonable Cause and Good Faith and FTC Limitation. The first practice unit discusses the reasonable cause exception for penalty relief. The second practice unit discusses the foreign tax credit limitation for individuals. Foreign tax credits are generally limited to the U.S. tax on foreign income. We have added these practice units to our Practice Units By Topic page. Read more →

Average Price of U.S. Real Estate Sold -- By Country

Yesterday the IRS Statistics of Income Division released 2017 data for Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests. When a foreign person disposes of U.S. real property, the buyer is required to file Form 8288-A. The IRS release breaks out the following data by country: The number of forms filed, The total sales, and The Federal income tax withheld. The average sale price per property for each... Read more →