Monthly Archives: October 2021

According to Law360, the world of international tax reporting has grown more complicated. In addition to the general globalization in business, the 2017 Tax Cuts and Jobs Act made significant changes to the international tax landscape.

The TCJA introduced the base erosion and anti-abuse tax, global intangible low-taxed income, foreign derived intangible income, and the participation exemption regime. These new international tax rules, coupled with an already complicated U.S. tax system, make tax compliance a daunting task for even the most sophisticated companies and investors.

Navigating this landscape has become particularly complicated for investors in pass-through entities that rely on Schedule K-1, used to report a partner's share of income, deductions credits and other items, to comply with their U.S. income tax reporting requirements. The way international tax items were reported on Schedule K-1 historically lacked structure — often leaving investors to sort through lengthy footnotes that were inconsistent in presentation from one investment to the next.

In response to this problem, the Internal Revenue Service released Schedule K-2, for reporting a partner's international distributive share items, and Schedule K-3, for reporting a partner's share of international income, deductions, credits, etc., on June 3 and June 4, along with corresponding forms related to Form 1120-S.

The schedules are designed to provide greater clarity for pass-through investors on how to compute their U.S. income tax liability with respect to items of international tax relevance — generally foreign activities or foreign partners.

Schedules K-2 and K-3, along with accompanying instructions, will affect taxpayers filing Form 1065, which is used to report partners' share of income and other items; Form 1120-S, which reports U.S. income tax for an S corporation; and Form 8865, which is used to report the income of foreign partnerships for the 2021 tax year.

The recent release of the final forms and instructions provides valuable insight into the future of reporting for international tax matters for pass-through entities. The compliance season for 2021 returns is fast approaching. Taxpayers should take advantage of the availability of the final forms and accompanying instructions — albeit some may be in draft form — as an opportunity to assess their ability to comply with the additional reporting they entail.

Taxpayers should also make any needed changes to their tax compliance processes and systems to best enable themselves to comply with the additional reporting.

Go to Law360 for more on an overview of the new reporting requirements and discusses how to prepare for what is poised to be one of the most significant changes to the partnership compliance function in decades.

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According to Law360, an American living in Switzerland owes the U.S. government more than $300,000 in penalties and interest for his non-willful failure to report 28 foreign bank accounts, the U.S. told a Virginia federal court.

The American, Albert Cambata, did not file the proper notification, known as a Report of Foreign Bank and Financial Accounts, from 2010 to 2012, the U.S. government said in a complaint filed in case is U.S. v. Albert K. Cambata, case number 5:21-cv-00065, in the U.S. District Court for the Western District of Virginia on October 6, 2021.

Cambata had accounts in multiple foreign banks, the government said, including UBS, HSBC and Bank Julius Baer & Co. LTD. 

Read more at: Tax Times blog

According to Law360, Ireland endorsed a plan for landmark international tax reform on October 7, 2021 after successfully lobbying rich nations to alter terms backed by most of the world, constraining ambitions to potentially raise a 15% minimum corporate tax rate in the near future.

Ireland's Assent To The Agreement As A Member The Organization For Economic Cooperation And Development
Means The Country Has Pledged To Raise Its Corporate Income Tax Rate From 12.5% To 15% For Companies
With Annual Revenue Over €750 Million ($866 Million).

"The government has now approved my recommendation that Ireland join the international consensus, which, in turn, will secure certain strategic priorities for Ireland," Paschal Donohoe, the country's finance minister, said Thursday in a news conference.

While some countries wanted a higher minimum tax rate than 15%, Ireland's position "moderated those ambitions and views in the context of the broader agreement," he said.

Donohoe confirmed he had been lobbying the OECD since July for that change. A final draft of the agreement is due on October 8, 2021. 

Do You Have Undeclared Income
from a Tax Haven?

Read more at: Tax Times blog

 

According to Law360, a New Mexico woman isn't liable for tax deficiencies related to her former husband's work in 2010 and 2015 because, among other things, she didn't know about the understatements on their joint returns, the U.S. Tax Court said on October 6, 2021.

April Gonzales didn't have knowledge of understatements on her jointly filed taxes because she wasn't substantially involved in filling them out, the court said. Although she had access to the family's financial information, erroneous deductions on their returns were based on mileage calculations unrelated to that information, the Tax Court said. 

Read more at: Tax Times blog