Monthly Archives: April 2012

But there is a problem. The IRS denies the foreign tax credit and a deduction of a business loss to the privately owned businesses. Without the foreign tax credit, you will pay tax twice on the same profit. First in the foreign country and again in the USA.

England, Scotland, most of Europe, China and Mexico are restrictive in letting a foreign business into their country. America is not this way because states’ rights. These countries require you to incorporate in their country.

Back in 1996, the IRS issued the “check the box’ regulations which allow some foreign entities to elect to be treated like a domestic LLC. If the election is made, then the entities are disregarded if there is only one owner. With more than one owner they are partnerships. If elected before business begins, this is a good tax structure, but not the best legal structure for asset protection (in the United States).

However, most foreign corporation used in Europe, Asia and Latin America are often not eligible of the check the box election. These are known as “Per Se” corporations. Here is the cause of the double taxation, loss of tax losses and loss of the foreign tax credit.

The American business must file the complex Form 5471 reporting the controlled foreign corporation subpart F income. Few CPA’s are experts in this field. So, you may need a consultant, like me. The solution is to find a method to allow the foreign corporation to elect Sub Chapter S and file a simple Form 1120S and not the Form 5471.

These foreign corporations cannot elect Sub Chapter S. Thus, the foreign tax credit is trapped inside the corporate shell.

The Department of the Treasury now allows a dual resident corporation. Your foreign corporation can also be a domestic sub chapter S corporation. The complex Form 5471 is replaced by the simplifier Form 1120-S (the return for a subchapter S corporation).

Tax deficiencies include tax, penalties, and interest, according to the memorandum (SBSE-04-0412-021). The time frame to pay under a streamlined installment agreement was previously 60 months.

Examiners must continue to refer to Collection any taxpayer seeking an installment agreement who has a deficiency exceeding the $25,000 limit, IRS said. The dollar limit has been raised to $50,000 for Collection to secure a streamlined installment agreement, the memorandum said.

Judge Thomas Ambro held the appellants/petitioners stated no cause of action against the Virgin Islands in the district court and in the alternative the Virgin Islands had taken no administrative action against the appellants/petitioners regarding the 2006 tax year and so a claim was not ripe.

The appellants/petitioners, Harvey and Diane Birdman and Herbert and Bonita Hirsch, formed Virgin Island corporations that were among the limited partners in a Virgin Islands limited liability partnership. Both couples asserted they were not bona fide residents of the Virgin Islands in 2006 but claimed part of their income was derived from sources within the Virgin Islands under Internal Revenue Code Section 932. Both couples filed two tax returns: one with the United States and one with the Virgin Islands. But the couples each only made one payment.

The lawsuit asked the Virgin Islands to declare whether the income in question was derived from sources within the Virgin Islands. Against the U.S., the couples requested refunds of the amounts they claimed should be paid to the Virgin Islands.

OPINION OF THE COURT

These consolidated cases stem from a single lawsuit by two married couples and their affiliated entities. They sued the Virgin Islands and its tax agency seeking a determination of the source of certain income, and the United States seeking tax refunds. The United States District Court of the Virgin Islands (the “V. I. District Court” or simply the “District Court”) dismissed their claim against the Virgin Islands and transferred their claims against the United States to the United States District Court for the Southern District of Florida. The plaintiffs have directly appealed the District Court's dismissal of their claim against the Virgin Islands, and they have filed a petition for a writ of mandamus concerning their claims against the United States.¹ For the reasons that follow, we affirm the holding of the District Court and deny the mandamus petition.