Category Archives: criminal tax law

According to Law360, the new federal tax law's broader tax base for international income could magnify foreign commerce discrimination concerns that are already present in states that conformed to prior iterations of the federal tax code.

The budget reconciliation bill's replacement of global intangible low-taxed income with "net CFC tested income" will expand the amount of foreign income that can be subject to state tax without offering the higher amount of foreign tax credits that will be available at the federal level. Tax practitioners suggested that states that follow the new NCTI rules will risk running into more constitutional hurdles than they did when conforming to GILTI.

Since states don't take into consideration foreign tax credits, their provisions for taxing foreign-sourced income are different from computing federal taxable income.

The GILTI regime was one of a handful of international provisions in the 2017 Tax Cuts and Jobs Act that were intended to prevent companies from taking advantage of a new exemption on most foreign profits and migrating their intangible income offshore. But despite its name, the measure doesn't actually target intangible income. Rather, the law uses a proxy based on the percentage of income over tangible, depreciable assets.

According to the GILTI statute's mechanics, if the earnings of a controlled foreign corporation, or CFC, exceed 10% of its depreciable tangible assets, technically, its qualified business asset investment, that income, is pulled into the U.S. for taxation. But it also receives a 50% deduction under Internal Revenue Code Section 250, resulting in a 10.5% rate, compared with the 21% overall corporate tax rate.

Tax practitioners and business groups have been concerned about state taxation of GILTI and how state apportionment formulas don't properly account for the activities of CFCs that generated the income. States that don't provide any sales factor representation for GILTI can distort the amount of income that's subject to tax at the state level.

The NCTI rules, which take effect in 2026, broaden the tax base of the CFC-generated income and reduce some deductions, such as cutting the Section 250 deduction from 50% to 40%, while also loosening restrictions on foreign tax credits. But because states don't typically recognize foreign tax credits, states that conform to the new NCTI regime will expand the amount of international income they are taxing without the offsetting reductions that businesses can take at the federal level.

Currently, 21 states tax some portion of GILTI, according to a July 9 report from the Tax Foundation authored by Jared Walczak, the foundation's vice president of state projects. Fifteen states, including Colorado, New Jersey and New York, plus the District of Columbia, will automatically couple with the federal NCTI system based on their rolling conformity with the federal code, according to the report.

Absent changes to their conformity laws, 11 states and D.C. will tax 60% of NCTI because of the lower Section 250 deduction, according to the report. Nine other states currently tax 5% to 30% of GILTI, the report said.

Bruce Fort, senior counsel at the Multistate Tax Commission, said during a presentation at the intergovernmental agency's annual meeting in July that he expects debates about state taxation of NCTI to percolate among state lawmakers, given how different the system looks from GILTI.

Tax practitioners have argued that the states' taxation of GILTI poses constitutional concerns given the U.S. Supreme Court's 1992 decision in Kraft General Foods Inc. v. Iowa Department of Revenue. In that case, the high court ruled that Iowa had discriminated against companies' foreign subsidiaries by declining to give their dividends the same deduction granted to domestic subsidiaries.

Need International Tax Planning Advice?

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

If you're a cross-border corporate tax advisor or even remotely involved in international structures, you’ve probably been watching with equal parts frustration and relief as Congress rewrote the rules on “Deemed CFCs” and attribution. Let’s break down what just changed, why it matters, and what the world looks like for closely-held and multinational businesses heading into 2026.

The Downward Attribution Mess: How It Started

First, a bit of background for the non-tax nerds among us—though, trust me, if you made it this far, you probably are one.

A controlled foreign corporation (CFC) is a foreign company that meets certain U.S. ownership thresholds. If enough (at least 50%) of its shares are owned, directly, indirectly, or constructively (through complex family and group rules), by U.S. persons who each own at least 10%, that corporation becomes a CFC. Why does this matter? U.S. “U.S. shareholders” (those crossing the 10% bar) must pick up a share of that CFC’s income on their U.S. returns. Painful reporting and, sometimes, real tax dollars follow.

For decades, the rules prohibited “downward attribution.” This meant you couldn’t treat shares owned by a foreign corporation as if a U.S. corporation below it in the structure owned those shares. Minority U.S. shareholders weren’t at risk if a foreign parent held the rest.

Enter the Tax Cuts and Jobs Act (TCJA) of 2017, which quietly repealed that prohibition. Suddenly, a U.S. subsidiary could be treated as owning stock in its foreign “siblings” just because their common parent was foreign. Suddenly, way more foreign corporations got swept into CFC status (“Deemed CFCs”), and random U.S. persons were tagged as U.S. shareholders required to report and sometimes pay tax—even if they didn’t really have control or access to the info.

Imagine you’re a U.S. minority shareholder in your family’s foreign company, living blissfully unaware in Miami: overnight, you’re taxed and forced into reporting on a company you don’t even control, purely because of family ties and convoluted rules.

The Fallout: Treasury’s Whack-a-Mole

As the shock set in, both practitioners and the Treasury Department scrambled to patch the leaks. Notice after revenue procedure after notice tried to smooth the hardest edges. Some relief was granted (especially when there was no real U.S. control, or for certain passive shareholders), but the system was a compliance nightmare. Multi-national public corporations found bizarre results. Closely held companies dreaded the letter from their CPA. Even large U.S. public companies, like Altria with its stake in AB InBev, found themselves facing tax bills and reporting chores for subsidiaries they didn’t control in the slightest.

The 2025 Fix: Enter the One Big Beautiful Bill Act (OBBBA)

After years of handwringing and horror stories, Congress finally acted in 2025. The One Big Beautiful Bill Act (OBBBA) restored the old regime: downward attribution from foreign to U.S. shareholders is once again forbidden starting January 1, 2026.

What does this mean in plain English? If you’re a U.S. person, you’re no longer treated as owning shares held by a foreign parent. Deemed CFCs—foreign companies pulled into the U.S. tax net solely by this attribution—won’t exist anymore for most purposes.

But, if you’re a large multinational using complex “sandwich” structures, don’t get too comfortable. OBBBA carves out a new category: “foreign-controlled U.S. shareholders” and “foreign-controlled CFCs.” Here, if a U.S. person is more than 50% controlled by a foreign parent, downward attribution can still apply in limited ways, but only to make sure big players don’t dodge the rules by moving pieces around. This is a sophisticated fix, designed to snare the real tax avoiders but leave private companies and minority shareholders alone.

What’s Next for Taxpayers

For most privately held businesses, family groups, and minority shareholders, the burden lifts as of 2026: less paperwork, less risk of surprise tax bills, fewer stressful conversations with foreign relatives about information-sharing.

But, if you were swept up in the Deemed CFC dragnet since 2018, you’re not off the hook for reporting and tax that accrued during that time. Old rules still apply for those years.

Regulations that were put in place to administer Deemed CFCs will be withdrawn or rewritten. Some loopholes or weird results (like those involving portfolio interest withholding) still linger, so expect more guidance soon.

What to Watch

·         If you’re in a closely held company with international family members: Life should get much simpler, but double-check your structure ahead of the 2026 changeover.

·         If you’re in a multinational group: The compliance headache isn’t over, especially if you might fit the new “foreign-controlled” carve-out.

·         If you claimed a Section 962 election (corporate rates for individuals): Distributions from former Deemed CFCs will follow the special rules, but unpaid earnings and profits may still need careful tracking.

The Bottom Line

The return of section 958(b)(4) marks a big step toward sanity for cross-border business owners. No more Deemed CFCs for most. The maze of corporate and family attribution rules is (mostly) back where it belongs. Large multinationals can expect some continued scrutiny, but for the vast majority of U.S. taxpayers with international ties, the world is simpler, and that’s a good thing.

Need International Tax Planning Advice?

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

Sources:

1.      https://www.taxnotes.com/tax-notes-today-federal/controlled-foreign-corporations-cfcs/faux-cfcs-and-restoration-prohibition-downward-attribution/2025/07/21/7srvwhttps://www.taxnotes.com/tax-notes-today-federal/controlled-foreign-corporations-cfcs/faux-cfcs-and-restoration-prohibition-downward-attribution/2025/07/21/7srvw

2.      https://www.mayerbrown.com/en/insights/publications/2025/07/one-big-beautiful-bill-act-introduces-significant-domestic-and-international-tax-changes    

3.      https://www.grantthornton.com/insights/alerts/tax/2025/flash/favorable-obbba-changes-for-multinationals      

4.      https://news.bloombergtax.com/tax-management-international/repeal-of-the-repeal-cfc-downward-attribution-rules-are-revised       

5.       https://insightplus.bakermckenzie.com/bm/tax/united-states-repeal-of-the-repeal-cfc-downward-attribution-rules-are-revised  

Read more at: Tax Times blog

The recent Tax Court decision in Beleiu v. Commissioner, T.C. Memo. 2025-70, is a powerful warning to taxpayers, especially those in the finance and accounting professions, about the consequences of underreporting income and failing to maintain proper records.

Background
Remus Beleiu ran Remtrix LLC and ITrainX Consulting Group, with his wife, Naomi J. Beleiu, a financial analyst with an accounting degree. While they reported income from Remtrix on their joint tax returns from 2012 through 2015, ITrainX’s income was not included on any return. The couple did not use any modern bookkeeping methods or maintain contemporaneous records, preparing their tax filings from loose paper records.

Audit Findings
The IRS selected their 2012–2014 returns for audit, revealing eye-popping discrepancies:

·         In 2012, they reported just $10,505 in business income, while over $208,000 was deposited into their business accounts.

·         In 2013, reported income was about $39,000 versus $334,000 in deposits.

·         By 2014, they claimed $43,000, but bank records showed almost $240,000.

Additionally, Naomi claimed ITrainX was dormant during these years, but bank statements contradicted this, showing tens of thousands of dollars in business receipts. There were also problems such as double-counted deductions—a $6,780 car expense, for example, claimed twice in 2013.

The Court’s Ruling and Reasoning
The IRS imposed a 75% civil fraud penalty under Section 6663(a). For this penalty to stick, the government needs clear and convincing proof of intentional wrongdoing. In reviewing the facts, the Tax Court found overwhelming evidence of fraud, checking nearly every “badge of fraud” in the book:

·         Massive understatement of income: Reporting just a tiny fraction of receipts.

·         No real accounting records: The couple only kept disorganized paper statements, despite Naomi’s accounting background.

·         Implausible excuses: Naomi argued she confused net and gross income, a claim the Court simply didn’t buy.

·         Concealment: She hid information about ITrainX and even excluded accounts from information given to their own advisors.

·         Lack of cooperation: During the audit, the Beleius gave incomplete and misleading records to both the IRS and their own representatives.

·         False or inconsistent testimony: The Court found Naomi’s explanations at trial bizarre and unbelievable.

·         Questionable cash deposits: Significant unexplained cash moved through their accounts each year.

The Court concluded that Naomi, with her accounting training, knew exactly what she was doing. The astonishing income discrepancies and repeated deception clearly indicated a willful attempt to cheat on their taxes. All in all, the only major “badges of fraud” not present were failing to file returns and engaging in illegal activities outside the tax context.

Key Takeaways

·         The IRS and the Tax Court are particularly tough on tax professionals and financial experts who flout the rules.

·         Deliberate understating of income, especially when backed by sketchy records and creative excuses, makes fraud penalties almost inevitable.

·         Proper recordkeeping and honest reporting aren’t suggestions, but legal requirements.

·         Cooperating fully and honestly during an IRS audit is crucial. Stonewalling or providing incomplete information only increases suspicion, and ultimately, liability.

In the end, the civil fraud penalty was upheld against Naomi J. Beleiu for all years at issue. Remus Beleiu was spared the fraud penalty, but liability for unpaid taxes remained. This case stands as a stark lesson: when it comes to taxes, expertise is not a shield, but careless or willful misreporting can be a shovel for digging deeper legal holes.

Have an IRS Tax Problem?

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

Source:

1.       https://www.currentfederaltaxdevelopments.com/blog/2025/7/2/tax-court-scrutiny-upholding-civil-fraud-penalties-in-beleiu-v-commissioner 

Read more at: Tax Times blog

The IRS Whistleblower Office recently released the Whistleblower Report to Congress, which included information showing a 10-year history of awards; the whistleblower claim processing flowchart, and; the average claim processing time by major process.

The IRS Whistleblower Program had a remarkable year in FY 2024, demonstrating significant growth in awards paid and improvements in processing efficiency.

This is a substantial increase from the previous year’s $88.8 million paid out in awards.

Interestingly, even though the total dollar amount of awards grew, the number of awards issued dropped from 121 in FY 2023 to 105 in FY 2024.

The number of claims related to these awards was 700, marking the third highest level since the program’s inception in 2007. Awards paid as a percentage of proceeds collected remained strong at 26.0%, consistent with last year’s 26.3%, and substantially higher than the program’s average of 17.7%. This underscores the program’s continued effectiveness in rewarding whistleblowers proportionally to the funds recovered.

Improvements in efficiency were notable. The average time to issue awards under IRC section 7623(b) dropped by 28%, from 67 days in FY 2023 to just 48 days in FY 2024. Overall claim processing times also improved for both 7623(b) and 7623(a) awards, demonstrating the IRS’s commitment to continually enhance its responsiveness.

The number of new whistleblower submissions declined slightly to 5,660 from 6,455 in FY 2023, and the number of claim numbers established also decreased to nearly 15,000. Despite this, new submissions were processed more quickly than before, averaging 14 days compared to 15 days the prior year.

Another important element of the program is transparency. Under the Taxpayer First Act of 2019, whistleblowers are regularly notified when their claims are referred for examination, when taxpayers make payments relevant to whistleblower information, and about the status of their cases. In FY 2024, the IRS made over 5,600 such authorized disclosures to whistleblowers, maintaining open communication channels.

The achievements in FY 2024 reflect the hard work of the IRS Whistleblower Office and other IRS staff supporting the program. While some metrics like the number of awards and submissions decreased slightly, the program’s overall impact, efficiency, and payout ratios remain impressive. The IRS continues to effectively recognize and reward those who help uncover tax noncompliance, contributing to the integrity of the nation’s tax system.

 

Read more at: Tax Times blog