International Tax Blog

New Videos - February 2016

Over the last month we have published videos discussing several of our situational charts, linked to below. B Reorganization Rev. Rul. 56-613 - Failed B Reorg - Indirect Control Rev. Rul. 70-253 - Unreimbursed Partnership Expenses Rev. Rul. 70-305 - Subsidiary Purch. & Sale of Parent Stock Rev. Rul. 59-296 - Upstream Merger of Insolvent Subsidiary Rev. Rul. 69-93 - Real Estate Deposit Taxable at Closing Rev. Rul. 71-141 - Sec. 902 Deemed Paid Credit... Read more →

Charts of Examples in Rev. Proc. 91-55: Form 5472 & Direct and Ultimate Indirect 25% Shareholders

Form 5472 is used to provide information required under Code §§6038A and 6038C when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic related party. A reporting corporation is either a U.S. corporation that is 25% foreign owned or a foreign corporation that is engaged in a U.S. trade or business. The reportable transactions are essentially related party transactions. Consequently, Form 5472 is an important tool in IRS... Read more →

Chart of Rev. Rul. 84-125 - Accrual of Foreign Tax Credit on Contested Liability & 10 Year Limitations Period

Code §6511(d)(3)(A) provides that if the claim for credit or refund relates to an overpayment attributable to any taxes paid or accrued to any foreign country for which credit is allowed under Code §901, in lieu of the 3-year period of limitation prescribed in Code §6511(a), the period is 10 years “from the date prescribed by law for filing the return for the year in which such taxes were actually paid or accrued.” (the language... Read more →

Charts of 704(c) Traditional Method & Trad. Meth. With Curative Allocations

The I.R.S. recently published Notice 2015-54, which announced that it intends to issue regulations under Code §721(c) to ensure that, when a U.S. person transfers certain property to a partnership that has foreign partners related to the transferor, income or gain attributable to the property will be taken into account by the transferor either immediately or periodically. Treas. Reg. §1.704-3(a)(1) provides that the purpose of Code §704(c) is to prevent the shifting of tax consequences... Read more →

Charts of Examples in Code §6038A Regulations: Form 5472 Reporting Requirements

Form 5472 is used to provide information required under Code §§6038A and 6038C when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic related party. The reportable transactions are essentially related party transactions. Consequently, Form 5472 is an important tool in IRS audits relating to transfer pricing and Code §482. See IRM §4.61.3.4.1. Treas. Reg. §1.6038A-1(m) provides 7 examples that apply the Form 5472 reporting requirement rules. We... Read more →

Application of PFIC Look-Through Rules to Foreign Corporation with U.S. Subsidiaries

A passive foreign investment company (“PFIC”) is generally defined as any foreign corporation if 75 percent or more of its gross income for the taxable year consists of passive income, or 50 percent or more of its assets consists of assets that produce, or are held for the production of, passive income. Code §1297(c) contains a look-through rule that provides that if a foreign corporation owns, directly or indirectly, at least 25 percent of the... Read more →

Charts of Rev. Rul. 2015-09 & Rev. Rul. 2015-10

Last week the IRS released Rev. Rul. 2015-09 and Rev. Rul. 2015-10. In Rev. Rul. 2015-09, (1) a domestic corporation transferred all of the stock of its foreign operating subsidiary to its foreign holding company subsidiary in exchange for additional stock, (2) the foreign operating subsidiary and three foreign subsidiaries of the foreign holding company transferred substantially all of their assets to a newly-formed foreign subsidiary of the foreign holding company in exchange for stock... Read more →

Charts of Examples in Notice 2014-52

UPDATE - 11/1/16: Notice 2014-52 was made obsolete by T.D. 9761. See our blog post Over 50 New Situational Charts – Code §7874 Regulation Examples. On September 22, 2014, the IRS released Notice 2014-52. The notice announced that regulations will be issued under Code §§304(b)(5)(B), 367, 956(e), 7701(l), and 7874 to target corporate inversions. In summary, the notice aims to: Prevent inverted companies from accessing a foreign subsidiary’s earnings while deferring U.S. tax through the... Read more →

McLaulin – Failed Spin-Off (Situational Chart)

In McLaulin v. Commr., 276 F.3d 1269 (11th Cir. 2001), a parent corporation acquired control of a subsidiary corporation within the 5 year window specified in Code §355(b)(2)(D), by virtue of the subsidiary corporation's redemption of the stock of another shareholder. The other shareholder’s interest in the subsidiary before the redemption exceeded 20%. Gain was recognized on the redemption and the active business requirement of Code §355(a)(1)(C) was not met. Below is a chart of... Read more →

Chart of PLR With Outbound 332 Liquidation

Last year we blogged about PLR 201348011, where a U.S. corporation was not required to recognize gain on the distribution of its assets in liquidation to its foreign parent, except with respect to gain attributable to intangibles described in Code §936(h)(3)(B). The distributed property will continue to be used in a U.S. trade or business for ten years after the liquidation. Code §367(e)(2) and Treas. Reg. §1.367(e)-2(b)(2)(i). We have created a situational chart of PLR... Read more →

Chart of PLR 201432002: No Inversion as a Result of an F Reorganization & an IPO

Last week the IRS released PLR 201432002, where it applied the anti-inversion rules of Code §7874. The IRS ruled that a newly formed foreign corporation was not a surrogate foreign corporation (i.e., there was no inversion) under Code §7874 where it acquired a U.S. corporation from a foreign corporation in a Code §368(a)(1)(F) reorganization that was followed by a private placement and an IPO. The shares of the new foreign corporation were excluded from the... Read more →

Charts of Examples in Notice 2014-44

Last week the IRS released Notice 2014-44, announcing that regulations will be issued under Code §901(m). Code §901(m)(1) provides that, in the case of a covered asset acquisition ("CAA"), the disqualified portion of any foreign income tax determined with respect to the income or gain attributable to relevant foreign assets ("RFAs") will not be taken into account in determining the foreign tax credit allowed under Code §901(a), and in the case of foreign income tax... Read more →

Chart of CCA 201420017: Code §956: Funneling of Loan through One CFC Partner is Disregarded

Last week the IRS released Chief Counsel Advice 201420017. The IRS addressed the issue of a foreign partnership loaning money to one of its partners, a controlled foreign coporation ("CFC"), and the CFC partner loaning the amount to its U.S. Parent. U.S. Parent indirectly wholly owned CFC Partner 1 and CFC Partners. DE 1, a disregarded entity of FPS, a foreign partnership, made a loan of cash to CFC Partner 1. CFC Partner 1 then... Read more →

Chart of PLR 201411006 - Combination of Two Consolidated Groups Owned by Foreign Parent

Last week the IRS published PLR 201411006, where a foreign parent operated two different consolidated groups in the U.S. and proposed a series of transactions which would combine the two consolidated groups into one. The IRS applied the allocation of basis rules under Code §358 to the transaction. One of the first transactions involved making entity classification ("check-the-box") elections for the foreign holding corporations to treat them as disregarded entities, which would trigger a deemed... Read more →

Chart of Central de Gas de Chihuahua

Below is a chart of Central de Gas de Chihuahua v. Commissioner, 102 T.C. 515 (1994). The Tax Court held that the Code §482 adjustment made by the IRS was appropriate where one Mexican corporation, Central Gas, allowed a related Mexican corporation the rent-free use of tractors which were used in the U.S. The Code §482 adjustment created deemed rental payments to Central Gas which were U.S. source income. The chart can be viewed as... Read more →

Charts of Examples in §1361 Regulations: Termination of QSub Elections

Below are five new situational charts of examples found in Treas. Reg. §1.1361-5(a)(4). The examples apply the QSub requirements to five different situations and illustrate when a QSub election may be terminated. Images of the charts are shown below and links to PDFs of the charts are also available: Treas. Reg. §1.1361-5(a)(4) Example 1, Treas. Reg. §1.1361-5(a)(4) Example 2, Treas. Reg. §1.1361-5(a)(4) Example 3, Treas. Reg. §1.1361-5(a)(4) Example 4, Treas. Reg. §1.1361-5(a)(4) Example 5. We... Read more →

Charts of Examples in §355 Regulations: Continuity of Interest

Below are four new situational charts of examples found in Treas. Reg. §1.355-2(c)(2). The examples apply the continuity of interest requirement of Code §355 to four different situations. Images of the charts are shown below and links to PDFs of the charts are also available: Treas. Reg. §1.355-2(c)(2) Example 1, Treas. Reg. §1.355-2(c)(2) Example 2, Treas. Reg. §1.355-2(c)(2) Example 3, Treas. Reg. §1.355-2(c)(2) Example 4. We will shortly add these charts to andrewmitchel.com, where you... Read more →

Charts of Examples in New PFIC Annual Filing Requirement Regulations (Form 8621)

As discussed in a post last week, the IRS has released Treas. Reg. §1.1298-1T, temporary regulations regarding the annual filing requirement (Form 8621) for Passive Foreign Investment Companies (“PFICs”). The regulations include four examples which apply the filing requirement rules and exceptions. We have created charts for each of the examples. Images of the charts are shown below and links to PDFs of the charts are also shown: Treas. Reg. §1.1298-1T(g) Example 1, Treas. Reg.... Read more →

Chart of Rev. Rul. 63-252 - Deductibility of Contributions to "Foreign Feeder" Charities

Below is a chart of Rev. Rul. 63-252, which was cited in an I.R.S. determination letter that was released recently. In the revenue ruling, the I.R.S. provided five different examples where contributions were made to a U.S. charity and ultimately sent to a foreign charity. The I.R.S. held that in three of the scenarios, the donor was not allowed to deduct the contribution. In two of the scenarios, the donor was allowed to deduct the... Read more →

Chart of Rev. Rul. 71-336 - Corporation as Conduit for Exchange of Stock a Taxable Transaction

Below is a chart of Rev. Rul. 71-336 in which the I.R.S. held that a corporation was merely a conduit in a prearranged plan of exchange of stock between shareholders. As a result, the transaction was taxable. The chart can be viewed as a PDF file here: Rev. Rul. 71-336 Read more →

Chart of Rev. Rul. 67-192 - Section 367 Triggers Gain, but not Loss, in Outbound 351 Transaction

Below is a chart of Rev. Rul. 67-192 in which the I.R.S. held that section 367 applied to a transaction where a U.S. corporation contributed assets with built-in gains and losses to a foreign corporation. As a result, the built-in gains were recognized and the built-in losses were not. The chart can be viewed as a PDF file here: Rev. Rul. 67-192 Read more →

Chart of Chief Counsel Advice AM2013-006: §302 Redemption Reduces CFC's Pool of Foreign Income Taxes

Below is a chart of Chief Counsel Advice AM2013-006 in which the I.R.S. addressed the effect of a Code §302 redemption on a controlled foreign corporation's ("CFC") pool of foreign taxes. In Year 1, the CFC redeemed all of its stock owned by one of its shareholders in a transaction that qualified as a Code §302 distribution. The distribution reduced its pool of undistributed earnings and profits. In Year 2, the CFC paid a dividend... Read more →

Chart of Rev. Rul. 70-253 - Payment of Compensation to Partnership Employee Deductible by Partner under §162(a)

Below is a chart of Rev. Rul. 70-365 in which the I.R.S. held that payment of compensation to a partnership employee by a partner is deductible under Code §162(a) when such employee performs duties previously delegated to the partner. The chart can be viewed as a PDF file here: Rev. Rul. 70-253 Read more →

Chart of Rev. Rul. 66-365 - Solely for Voting Stock: Cash in Lieu of Fractional Shares

Below is a chart of Rev. Rul. 66-365 in which the I.R.S. held that the receipt of cash in lieu of the issuance of fractional shares in a reorganization can be treated as a Code §302 redemption. The chart can be viewed as a PDF file here: Rev. Rul. 66-365 Read more →

Chart of PLR 201340010 - Manufacturing Exception to FBCSI - Growing Activities can be Production Activities

Last week the I.R.S. published PLR 201340010 which concluded that production activities included growing activities for purposes of determining whether a CFC "produced" products for purposes of Treas. Reg. §1.954-3(a)(4)(i) - (iv) and Code §954(d), dealing with foreign base company sales income ("FBCSI"). The income was not FBCSI because the CFC (and its disregarded entities) satisfied the "manufacturing exception." A chart of the structure is shown below (click on the image to enlarge), and the... Read more →