Yearly Archives: 2022

I am pleased to announce that I will be speaking in an upcoming Strafford live video webinar, "Estate Planning Issues for Foreign Investors in U.S. Real Estate and Businesses: Tax Treaties, Corporate Structures" scheduled for Tuesday, August 16, 1:00pm-2:30pm EDT.

Foreign investors must consider special U.S. estate tax rules applicable to nonresident aliens to minimize potential adverse tax implications stemming from their investments in U.S. real estate and businesses. Estate planners and advisers must understand complex U.S. estate and gift tax rules impacting foreign investors and implement effective planning techniques.

Under U.S. law, transfers by gift, bequest, or inheritance are subject to an estate tax. For those classified as nonresident aliens, property situated in the U.S. at their time of death is also subject to the estate tax. Estate planners and tax advisers must identify tax opportunities and risks for these clients, implement strategies to mitigate estate tax exposure, and anticipate other estate planning issues that arise when non-U.S. citizens invest in U.S. real estate and businesses.

Our panel will provide estate planners with a helpful guide to estate planning challenges and opportunities for foreign investors holding U.S. real estate and business interests. The panel will discuss the tax rules and treaty provisions impacting estate planning associated with nonresident investors. The panel will focus on strategies to minimize gift and estate tax taxation of real estate and business interests--whether held individually or through an entity--for counsel and advisers working with nonresident investors.

We will review these and other key issues:

• What are the various tax consequences of a foreign person owning U.S. real estate or business interests?
• What estate and gift transfer tax rules apply to those classified as nonresident aliens who invest in U.S. real estate and businesses?
• What planning options are available under U.S. estate tax treaties?
• What are the residence and domicile challenges for estate tax treaty purposes?

After our presentations, we will engage in a live question and answer session with participants so we can answer your questions about these important issues directly.

I hope you'll join us!

For more information or to register >

Or call 1-800-926-7926
Ask for Estate Planning Issues for Foreign Investors on 8/16/2022
Mention code: ZDFCA

Sincerely,

Ronald A. Marini, Esq., Attorney
Marini & Associates PA
Miami

Need Help Investing in US Real Estate?

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

Read more at: Tax Times blog

According to Law360, the Internal Revenue Service's Large Business and International Division announced two campaigns aimed at tax compliance by nonresident aliens in connection with U.S. real property interests.

In 2017, the division announced a new audit strategy known as campaigns that focused on issue-based rather than entity-based examinations, and focusing on those issues that present a significant risk of noncompliance. The objective is to improve return selection through identifying issues representing a risk of noncompliance and making the greatest use of the IRS' limited resources. Currently, there are nearly 60 IRS campaigns, several of which relate to the cross-border issues of high net worth individuals.

The October campaign is a rerelease of a campaign initially announced in March, which was withdrawn shortly after it was posted on the IRS website. It focuses on nonresident aliens, receiving rental income from U.S. property and the requirement to comply with the Internal Revenue Code's reporting and filing requirements related thereto.

The September campaign targets nonresident alien compliance with the withholding and reporting obligations of the Foreign Investment in Real Property Tax Act, or FIRPTA, on transfers of U.S. real estate.

The Purchase Of U.S. Real Estate By Foreign Nationals Is A Major Source Of Investment In The U.S. Property Sales To Foreign Buyers In 2019 Totaled $78 Billion.

In recent years, the largest share of foreign residential buyers originated from China and Canada, followed by Mexico. So, it is not surprising that the IRS might want to target tax compliance in this area.

Tax levied under FIRPTA initially is collected through withholding, and the obligation to withhold is placed on the purchaser, rather than the seller, of the U.S. real property interests. 

The withholding tax requirement simply ensures that U.S. tax will be collected and incentivizes nonresident aliens to file appropriate tax returns that report income from the sale, and claim a credit for the withheld funds, particularly if the withheld tax exceeds the actual U.S. tax due.

For a typical disposition of U.S. real property interest subject to the FIRPTA regime, the purchaser is required to file a U.S. withholding tax return for dispositions by foreign persons of U.S. real property interests, Form 8288 and a statement of withholding on dispositions by foreign persons of U.S. real property interests, Form 8288-A together with payment of the withheld tax by the 20th day following the sale.

After receiving the submitted forms, the IRS will stamp Form 8288-A to acknowledge receipt of the withheld tax and send a copy to the seller for inclusion in filing a tax return. When there is more than one foreign seller, the purchaser is required to prepare separate Forms 8288-A for each transferor and withhold tax from each based on the full amount realized, as allocated among the transferors.

In addition to the Form 8288 and 8288-A filing requirements, the nonresident alien seller also must file a U.S. federal income tax return on Form 1040NR - US Nonresident Alien Income Tax Return reporting the sale and paying the actual tax due on the gain, calculated using the applicable graduated tax rates, or requesting a tax refund to the extent that the withheld amount is more than the tax due.

The U.S. taxation applicable to a nonresident alien acquiring U.S. real estate is exceedingly complex. It implicates inquiry by the nonresident alien purchaser of the U.S. real estate to ascertain whether withholding is required. It requires consideration of how to structure the acquisition, either to hold the real estate directly, through an LLC, through a partnership, trust or corporation, and the potential tax consequences of each of such structures.

If the nonresident alien anticipates renting the property, it requires consideration of whether that activity will result in a trade or business, or, if not, the benefits of making a net election under the code or a treaty.

It requires consideration of the U.S. gift and estate tax implications of the acquisition and holding of the real estate to avoid potential imposition of a U.S. transfer tax. It requires consideration of the state taxation consequences. It requires consideration of whether the tax structure in the U.S. is efficient with the tax system of the nonresident alien's country of citizenship. The two IRS campaigns should be viewed as a wake-up call to potential and current nonresident alien investors as to the necessity of undertaking a detailed U.S. tax analysis.

 Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

Read more at: Tax Times blog

On July 27, 2021 we posted U.S. Government Argued Repatriation Tax Is Constitutional! Where we discussed that the U.S. government urged the Ninth Circuit to not revive a couple's challenge against the 2017 federal tax overhaul's repatriation provision, arguing the pair has mischaracterized the levy on foreign income as an unconstitutional direct tax on property. (Charles G. Moore et al. v. U.S., case number 20-36122, in the U.S. Court of Appeals for the Ninth Circuit).

Now according to Law360, the Ninth Circuit tossed a constitutional challenge to the 2017 federal tax overhaul's corporate repatriation tax, affirming a lower court's decision that the one-time levy passes muster under a clause limiting the federal government's authority to tax.

The Tax Cuts and Jobs Act's repatriation tax is a permissible tax on income that does not exceed limits on the government's taxation power laid out in the U.S. Constitution, the appeals court said in a published opinion Tuesday. The provision under Internal Revenue Code Section 965 was passed as part of the TCJA's shift to a more territorial tax system, and it imposes a one-time mandatory transition tax on deferred earnings held abroad.

Congress authorized the tax with the legitimate intent to tax offshore, undistributed earnings held by U.S. people that could otherwise avoid taxation, according to the opinion. And courts have consistently affirmed the validity of other taxes similar to the transition tax, the Ninth Circuit said, rejecting a California couple's challenge to the tax under the apportionment clause as well as the Fifth Amendment's due process clause.

David A. Hubbert, deputy assistant attorney general of the U.S. Department of Justice, lauded the decision in a statement. "We are gratified that the court of appeals reaffirmed Congress' broad authority under the Constitution to solve unique tax problems, such as taxing more than $2 trillion in earnings being held offshore by U.S. taxpayers," Hubbert said.

But Sam Kazman of the Competitive Enterprise Institute, who is representing the couple, told Law360 that the Ninth Circuit advanced too expansive a view of income in finding it "does not need to be realized in order to be taxed." The holding risks opening the door to taxes such as a wealth tax, according to Kazman, who said his legal team will likely challenge the decision.

The couple in the dispute, Charles and Kathleen Moore, filed a complaint in 2019 in California federal court saying they paid about $15,000 in taxes under Section 965 based on their small stake in a controlled foreign corporation, KisanKraft Ltd., that provides affordable equipment to India's small-scale farmers. In seeking a refund, the Moores said the tax bill was based on earnings retained and invested by KisanKraft, earnings they never received, and that the levy is a direct tax that violates the Constitution's apportionment clause.

That clause requires that such taxes be apportioned among the states in proportion to their population. The 16th Amendment, though, carves out an exception for income taxes.

The California federal court tossed the suit, finding that the tax is a tax on income that consequently doesn't violate the apportionment clause. It also rejected the Moores' arguments that the tax is imposed retroactively in violation of the Fifth Amendment's due process clause, given that it "is a rational means of affecting a legitimate legislative purpose."

The Ninth Circuit agreed with those holdings, finding Tuesday that Congress authorized the tax to address the $2.6 trillion in offshore earnings that the U.S. previously couldn't tax until they were distributed. And it has reached this result by "rational means," by using a date following the passage of the TCJA as the effective date of distribution in order to tax the earnings, according to the opinion.

Kazman of the Competitive Enterprise Institute, a libertarian think tank, told Law360 that the opinion is a "relatively extreme ruling" that can allow the government to pursue different taxes, such as a wealth tax proposed by Sen. Elizabeth Warren, D-Mass., or federal property taxes.

Have IRS Tax Problems?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243) 

Read more at: Tax Times blog

According to Law360, U.S. Treasury Secretary Janet Yellen told the House Ways and Means Committee on Wednesday that the OECD's global tax deal would reduce some of the tax burden on the country's workers and place it on corporations.

The OECD's tax overhaul is in the country's best interest, Yellen told lawmakers during a committee hearing, adding that the share of the U.S. tax burden borne by corporations has diminished significantly over time considering the size of the economy.

"I'm very encouraged that most major economies are moving forward and adopting it," Yellen said, adding she thinks that Poland will soon decide that it's in its interest and that the European Union will adopt it soon. Poland is the lone holdout in the EU.

All but a handful of countries in the OECD's inclusive framework of 141 jurisdictions agreed to the global tax overhaul in October, which included the 15% minimum tax rules under Pillar Two for large multinational corporations and a reallocation of taxing rights on highly profitable companies under Pillar One.

"For the United States, this will level the playing field," Yellen said, noting that the U.S. is the only country in the world to currently impose a minimum tax on the foreign income of multinational corporations. 

Rep. Lloyd Doggett, D-Texas, said the global minimum tax would end some of the distortion in the current tax system that favors those who dodge their taxes versus domestic businesses that are paying their fair share, and would remove the incentive to export American jobs. A global minimum tax would additionally help multinational companies because of the way their international competitors would be taxed, Doggett said.

Under Pillar One, taxing rights would be reallocated to jurisdictions where highly profitable multinationals have customers but lack the physical presence required to be taxed under current nexus rules.

Rep. Kevin Brady of Texas, the Ways and Means Committee's top Republican, said that under the agreement, companies such as Boeing and Caterpillar would bear the brunt of the revenue redistribution because 60% of the revenues for redistribution would come from U.S-based companies. Meanwhile, foreign competitors such as Europe-based Airbus and Volvo would bear less of the deal's financial burden, Brady said.  

Yellen Also Defended President Joe Biden's Internal Revenue Service Funding Request During The Hearing,
Telling Lawmakers The IRS Needs The $80 Billion
To Expand Its Enforcement Activities. 

(Lots of Luck with that, as there does not appear to be
any realistic possibility of that happening with this Senate)

"Tax compliance, in effect, is voluntary and this proposal will address that," Yellen said. The proposal would improve the experience of all taxpayers by ensuring customer service representatives are available to answer calls and taxpayers have access to tax credits, refunds and other benefits they're entitled to, she said.

The proposal would additionally provide resources to hire more employees, Yellen said.

"That's critical to addressing this issue,'' she said, "ensuring that the IRS has the workforce and the technologies it needs to best serve taxpayers." 

Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

 

Read more at: Tax Times blog