Category Archives: criminal tax law

Starting in tax year 2020, the new separate Schedule Q (Form 5471), CFC Income by CFC Income Groups, is used to report the CFC's income in each CFC income group to the U.S. shareholders of the CFC so that the U.S. shareholders can use it to properly complete Form 1118 (to compute the high-tax exception, high-tax kickout, and section 960 deemed paid taxes).

On its webpage, the IRS has clarified its instructions for 2020 Schedule Q (CFC Income by CFC Income Groups) of Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations). 

This update clarifies that:

• Separate Schedule(s) Q (Form 5471) are required to be filed only by Category 4, 5a, and 5b filers. It is not required to be filed by Category 1a or 1b filers. and
• On page 5 of the Instructions for Form 5471, footnote 1 in the table entitled "Filing Requirements for Categories of Filers" does not apply to category 5b filers who are required to complete separate Schedule(s) Q (Form 5471).

IRC Sec. 960(a) provides that, for purposes of computing the foreign tax credit, domestic corporations owning stock in controlled foreign corporations (CFCs) are deemed to have paid a portion of the foreign taxes paid by the CFC. 

Under Reg § 1.954-1(d)(1), as part of the calculation of a CFC's subpart F income, there is an exclusion from foreign base company income for items that meet the "high-tax exception."

IRC §904(d)(2)(F)'s “high-tax kickout” rule, for purposes of the separate FTC limitation on passive income, certain high-taxed income that would otherwise be passive income will be treated as general category income.

IRC §6038(a)(1) requires U.S. persons to furnish information with respect to any foreign business entity that that person controls on Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. Form 5471 lists several categories of persons who must file Form 5471. It also sets out different filing requirements for the different categories of persons.

1. Category 1 includes a U.S. shareholder of a foreign corporation that is a IRC §965 specified foreign corporation (SFC) at any time during any tax year of the foreign corporation, and who owned that stock on the last day in that year on which it was an SFC, taking into account the regs under IRC §965. Category 1 is comprised of Categories 1a, 1b and 1c.
2. Category 4 includes a U.S. person who had control of a foreign corporation during the annual accounting period of the foreign corporation.
3. Category 5 includes a U.S. shareholder who owns stock in a foreign corporation that is a CFC at any time during any tax year of the foreign corporation, and who owned that stock on the last day in that year on which it was a CFC. Category 5 is comprised of Categories 5a, 5b and 5c.

Schedule Q (Form 5471), CFC Income by CFC Income Groups, is used to report the CFC's income in each CFC income group to the U.S. shareholders of the CFC so that the U.S. shareholders can use it to properly complete Form 1118 (Foreign Tax Credit - Corporations) to compute the high-tax exception, high-tax kickout, and Code Sec. 960 deemed paid taxes. 

From my discussion with various colleagues, unfortunately tax software four 2020 does not currently provide for the required grouping of income and associated expenses and tax return preparers need to prepare their own spreadsheets to gather this information.

Need Help Filing Form 5471

 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 (888-882-92

Read more at: Tax Times blog

It is becoming easier for people and money to move across international borders. Most of the time, this movement will not have an impact on a person’s tax situation, and a nonresident of the United States would have few, if any, interactions with the Internal Revenue Service (“IRS”). But upon becoming a “resident” of the U.S. for tax purposes, the rules change dramatically, and if not planned for, the tax consequences can be severe. 

In our Pre-Immigration Tax Planning Guide we discussed two tax systems that an individual considering spending more time in the United States should plan for: The Federal Income Tax and the federal “Wealth Transfer” taxes, comprised of the Estate & Gift taxes and the Generation-Skipping Transfer tax. 

We also discuss Pre-Immigration Planning including:

Residency Starting Date. Pre-immigration tax planning and restructuring is usually done with the understanding that the individual is not yet subject to U.S. federal income tax in connection with such planning and restructuring. Accordingly, a clear understanding of the residency starting date of an individual that qualifies as a U.S. person in a particular year is crucial. If an alien is classified as a resident alien for the year and was not a resident alien at any time in the previous year, Code § 7701(b)(2)(A) provides “residency starting date” rules to determine on which day in the year the alien’s residency begins. 

Gift and Estate Tax Purposes. Pre-immigration tax planning also requires an understanding of whether (and if so, when) the individual who is seeking to immigrate into the United States will become a resident of the United States for U.S. estate and gift tax purposes. 

Residence/Domicile. For U.S. estate and gift tax purposes, the term “residency” means “domicile.” Although the U.S. income tax concept of residency relates only to physical presence in a place for more than a transitory period of time, domicile relates to a permanent place of abode. For U.S. estate and gift tax purposes a person can have (and must have) only one place of domicile, while for U.S. income tax purposes a person may have more than one place of residence, or none. 

Although an alien may be classified as a resident alien for U.S. income tax purposes, such classification is not determinative of the alien’s domicile for U.S. estate and gift tax purposes.

The concept of domicile is subjective, focusing on the intentions of the alien as manifested through certain lifestyle-related facts. Treas. Regs. §§ 20.0-1(b)(1) and 25.2501-1(b) offer only limited guidance, stating: “A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later removing therefrom. Residence without the requisite intention to remain indefinitely will not suffice to constitute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal.”

 Accordingly, to be domiciled in the United States physical presence must be coupled with the requisite intent to remain indefinitely.

 Pre-Immigration Planning Strategies. Prior to an alien becoming a U.S. person for U.S. income and/or estate and gift tax purposes, various strategies can be implemented to minimize or even eliminate various U.S. tax consequences. Below is a summary of some techniques to be considered by practitioners in the pre-immigration tax planning context. 

• Step up cost basis in appreciated assets
• Transfer assets to US estate tax exempt trusts
• Make advance, completed lifetime gifts
• Accelerate gain recognition on appreciated assets
• Defer recognition of losses on depreciated assets
• Dispose of PFICs (passive foreign investment companies)
• Plan for future foreign tax credits from foreign activities
• Convert and/or check the box on foreign eligible entities, if recommended.
• Maintaining Non-domiciliary Status.
•  U.S. Estate and Gift Tax Pre-Immigration Planning. 

Even this brief introduction to the U.S. income tax and the wealth transfer taxes shows the varied rules, exceptions, requirements, and exemptions that apply to both U.S. residents and nonresidents. These rules are complicated and present many traps for the unwary. 

Pre-Immigration Tax Planning Is Needed
To Avoid These US Tax Traps For The Unwary!

   Contact the Tax Lawyers at

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-92

Read more at: Tax Times blog

In U.S. v. Vettel, case number 4:21-cv-03099, in the U.S. District Court for the District of Nebraska, a Nebraska resident denied the U.S. government's claims that his failure to report holdings in a Swiss bank account that received money from a sham corporation in Belize constituted willful failure to file, according to filing in Nebraska federal court.

David L. Vettel's attorney admitted his client did not file a report of foreign bank and financial accounts for 2006 through 2011, but he should not be liable for almost $637,000 in penalties, interest and fees resulting from the maximum penalty being assessed, the attorney told the court.

Vettel also denied the allegations that he set up a corporation in Belize for the sole purpose of holding his account at the Swiss bank BSI SA, which U.S. attorneys in their complaint claim received deposits totaling more than $1.6 million from 2006 through 2010.

During the years in question, Vettel employed a certified public accountant to prepare his federal income tax returns but didn't disclose the bank account to the CPA, nor any of the money deposited into the account on his federal returns for those years, according to the government.  LOTS OF LUCK with this defense!!!

Have IRS Tax Problems?

     Contact the Tax Lawyers at

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-92

Read more at: Tax Times blog

The Treasury Inspector General for Tax Administration (TIGTA) has completed its annual review of IRS compliance with requirements of the Code when taxpayers exercise their rights to appeal the filing of a Notice of Federal Tax Lien or the issuance of a Notice of Intent to Levy. (Audit Report No. 2021-10-049)

The IRS Independent Office of Appeals (Appeals) properly provided taxpayers with only one hearing for the tax period(s) related to the unpaid tax and an impartial hearing officer for Collection Due Process and Equivalent Hearings. Appeals hearing officers verified applicable law or administrative procedures were met and allowed taxpayers to raise issues at the hearing related to the unpaid tax. They also made a determination on the proposed levy and/or filing of the Notice of Federal Tax Lien after considering whether the action(s) balanced efficient tax collection against the taxpayer’s concern that the action(s) be no more intrusive than necessary.

Similar To Prior Audits, TIGTA Identified Processing Errors
In 16 (20 Percent) of 81 Sampled Taxpayer Cases.

Processing errors related to proper classification of hearing requests and incorrect Collection Statute Expiration Dates (CSED) on the taxpayer’s accounts. For example, taxpayer accounts had CSED errors due to incorrectly input CSED suspension start and stop dates. 

• In some cases, the IRS incorrectly extended the time period, allowing the IRS additional time to collect delinquent taxes. 
• In other cases, the IRS incorrectly decreased the time to collect delinquent taxes. 

Based on our sample results, TIGTA estimates that Appeals misclassified 302 Collection Due Process or Equivalent Hearing cases, and 3,623 and 1,510 taxpayer accounts had their CSED overstated and understated, respectively, during Fiscal Year 2020. 

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 (888-882-92

Read more at: Tax Times blog