Income from investments in foreign corporations generally is included in the calculation of net investment income for Section 1411 purposes. More specifically, dividends and gains derived with respect to the stock of a controlled foreign corporation (per Section 957(a)) (CFC) or a passive foreign investment company (within the meaning of Section 1297(a)) (PFIC) are taken into account in NII.
FALLING OVER THE FISCAL TAX CLIFF AVOIDED BY THE AMERICAN TAX RELIEF ACT OF 2012 DESPITE JANUARY 2, 2013 SIGNING INTO LAW BY PRESIDENT OBAMA
Although previously extended by Congress from expiring in 2010 for an additional two years, the 2001 Bush tax rate cuts will expire on December 31, 2012. On January 1, the top individual marginal income tax rate will increase from 35% to 39.6% and the 10% tax bracket will be eliminated. The maximum marginal tax rate on long term capital gains will increase from 15% to 20% (with “qualified 5 year (capital) gain” at a 18%/8% rate structure). There is no scheduled increase from the “cliff” for 25% taxable gains (e.g., recapture of straight line depreciation) and 28% taxable gains (e.g., gain from the sale of collectibles). Another important item is the increase in the rate of tax from 15% to as much as 39.6% for dividend income with respect to “qualified dividend income” received from domestic and qualified foreign corporations.
n this election year, many don’t expect any legislation in this area to make it through Congress. It’s just political speak for some. Still, its out there and who knows, it might just happen since both parties want corporate tax reform
On September 19, 2011 the President submitted to the Joint Select Committee on Deficit Reduction a limited number of international tax reform proposals which the Administration “scored” for budgetary purposes as reducing the deficit by approximately $112 billion over a 10 year period. The changes proposed were essentially the same ones that were part… Continue Reading
Enactment of Section 304(b)(5)(B) in 2010 In The Education Jobs and Medicaid Assistance Act (P.L. 111-226, August 10, 2010), Congress amended §304(b)(5) by adding, in §304(b)(5)(B), to deny dividend reduction from earnings and profits for a purchase of stock by a controlled foreign corporation through a chain of ownership that “hopscotches” over the U.S…. Continue Reading
The tax press has recently informed the professional community that “in an April 29 e-mail briefing to its members, the National Association for Publicly Traded Partnerships cited an unnamed Treasury official who said the Obama administration is interested in a plan that would tax pass through entities with [annual] revenues [gross receipts] of $50… Continue Reading
Section 304 provides provides generally that, for purposes of §§302 and 303, if one or more persons are in control of each of two corporations and one such corporation (the “acquiring corporation”) acquires in exchange for property stock of the other corporation (the “issuing corporation”) from the person (or persons) so in control, then, unless §304(a)(2)… Continue Reading
Transfers of appreciated property to foreign estates and to non-grantor foreign trusts are subject to federal income tax to the transferor as if disposed in a taxable transaction. Gain recognized is the fair market value of the property less its adjusted basis. Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), P.L…. Continue Reading
A U.S. partnership, trustee of a U.S. trust, or executor of a U.S. estate must deduct and withhold income tax on distributions attributable to the disposition of a U.S. real property interest (“USRPI”) to the extent it is includible in the income of a foreign partner, foreign beneficiary, or, in the case of a trust,… Continue Reading
Under the controlled foreign corporation rules, i.e., a foreign corporation defined under §957(a) as owned more than 50% of its combined voting power or value is owned by 10% (or such higher percentage) by U.S. shareholders on any day of the taxable year that is involved. A “U.S. Shareholder” per §951(b) is a U.S person,… Continue Reading
Under the Subpart F rules, §§951-964, 10% or greater U.S. shareholders of a controlled foreign corporation (“CFC”), i.e.,foreign corporations where more than 50% of the stock of the foreign corporation is owned, directly or indirectly, by U.S. shareholders, are required to currently report in taxable income their share of the CFC’s Subpart F income regardless… Continue Reading
This past August, President Obama signed into law several provisions which revised the foreign tax credit provisions. Most noteworthy, of course, is the new rule which requires a "matching" of foreign tax credits with the related foreign source income which is contained in new 909. The Treasury had lobbied for this type of provision… Continue Reading
Importance of Transfer Pricing Rules A critical concern for many multinational corporations, regardless of whether the parent company maintains its tax residence in the United States, Japan, the United Kingdom, or elsewhere, is the manner in which in which it prices goods, services, and intangibles, such as the results of research and capital transferred to… Continue Reading
The bulk of the FATCA provisions go into effect with respect to payments made after 2012. There are two generally categories of payments: (i) those made to non-U.S. financial institutions; and (ii) those made to non-U.S. non-financial institutions. With respect to both payments, contained in §§1471 and 1472 respectively, there is a 30% withholding… Continue Reading
Perhaps one of if not the most controversial pieces of the extenders bill winding its way though Congress is the carried interest provision. Taking on its term from the hedge fund industry, a "carried interest" translated into tax parlance is a profits interest in an entity taxable as a partnership. Under current IRS pronouncements that… Continue Reading
Section 45D provides a new markets tax credit (NMTC) for qualified equity investments made to acquire an equity position in a corporation or partnership that is a "qualified community development entity ("CDE"). This credit was enacted as part of the Community Renewal Tax Relief Act of 2000, P.L. No. 106-554 (2000). A qualified CDE is… Continue Reading
In an effort to provide uniformity to the tax law, Congress enacted section 7701(o) codifying the economic substance doctrine. The Congress adopted the Service’s approach, i.e., a two part conjunctive test which requires both (objective) economic substance and (subjective) substantial business purpose. The legislative history notes that the codification was not intended to replace or surplant existing precedent. The new law imposes a conjunctive test in applying the economic substance doctrine. First the transaction under evaluation must result in a meaningful change in the taxpayer’s nonfederal-income-tax economic position and, second, the transaction must also have a substantial nonfederal-income-tax purpose. Both prongs must be satisfied based on the taxpayer’s generally required burden of proving its position by a preponderance of the evidence. The taxpayer is not required, per se, to establish a pretax profit to establish economic substance but can use this standard to meet the statutory requirement by demonstrating that the present value of the anticipated pretax profit is substantial in relation to the present value of the expected net tax benefits that would be allowed from the transaction.
Many business companies have hit "hard times" the past several years in being able to maintain profit levels. This in turn has led to job layoffs, foreclosures and a sharp increase in bankruptcy proceedings. In many instances, companies, like individuals encumbered with "underwater debt" or "negative equity" debt, attempt to renegotiate or restructure one or more… Continue Reading
The Obama Administration set forth certain changes it will seek to have Congress adopt next year or beginning in 2011 as part of the 2010 budget proposals in the area of international taxation, particularly with respect to U.S. based multinational companies. See U.S. Dept. of Treasury, "General Explanations of the Administration’s Fiscal Year… Continue Reading