Andrew Mirisis | TaxConnections

04 Nov 2022

Strategies To Repatriate Untaxed Foreign Earnings

Repatriating Untaxed Foreign Earnings Using Section 311(b) Distributions or Section 964(e) Stock Sales

Introduction: Pairing Section 311(b) Distributions or Section 964(e) Stock Sales with the Section 245A DRD

U.S. multinational corporations may be able to use section 311(b) distributions or section 964(e) stock sales with the section 245A dividends received deduction (“Section 245A DRD”) to repatriate untaxed foreign earnings, tax-free. As explained in detail in our prior post, the Tax Cuts and Jobs Act, Pub. L. 115-97 (2017) (the “TCJA”) enacted section 245A which provides that the foreign-source portion of dividends received by certain domestic corporations are eligible for a dividends received deduction provided that certain requirements are met. The TCJA transitioned the United States from a worldwide tax system to a quasi-territorial tax system.[1]

As part of that transition, the United States enacted the GILTI regime as a backstop to the subpart F anti-deferral regime. Generally, under GILTI, a U.S. shareholder of a controlled foreign corporation (“CFC”) must include in its gross income the U.S. shareholder’s GILTI for a taxable year (generally, income that is not otherwise subject to U.S. tax on a current basis). Despite the subpart F and GILTI regimes, certain foreign income is excluded from GILTI and may remain untaxed, on a current basis, in the United States. These untaxed earnings represent an opportunity for taxpayers as they may be able to execute a section 311(b) distribution or a section 964(e) stock sale that repatriates untaxed foreign earnings using the Section 245A DRD.

Written by Andrew Mirisis | Posted in Repatriate Untaxed Foreign Earnings • Tax Cuts & Jobs Act

26 Oct 2022

Treasury And The IRS Withdraw Proposed 2006 Previously Taxed Earnings And Profits Regulations

Introduction: 2006 Previously Taxed Earnings and Profits Regulations Withdrawn

On October 20, 2022, the Treasury and IRS published in the Federal Register a “withdrawal of notice of proposed rulemaking” regarding the exclusion from gross income of previously taxed earnings and profits (“PTEP”) under section 959 and related basis adjustments under section 961 (the “Withdrawal Notice”).

On August 29, 2006, the Treasury Department and the IRS issued a notice of proposed rulemaking relating to the exclusion from gross income of PTEP under section 959 and related basis adjustments under section 961 (71 FR 51155), to which corrections were published in the Federal Register on December 8, 2006 (71 FR 71116 (together, the “2006 Proposed Regulations”)). On December 14, 2018, the Treasury and the IRS issued Notice 2019-001, which announced the intention to withdraw the 2006 Proposed Regulations and issue a new notice of proposed rulemaking under sections 959 and 961.

The Withdrawal Notice stated that the 2006 Proposed Regulations “were never finalized, never went into effect, and did not indicate that taxpayers could rely on them.” The Withdrawal Notice states that the government is withdrawing the 2006 Proposed Regulations to “help prevent possible abuse or misuse of them–such as inappropriate basis adjustments in certain stock acquisitions to which section 304(a)(1) applies–while the Treasury Department and the IRS continue to develop the new proposed regulations.” The Withdrawal Notice goes on to state that the IRS may, where appropriate, challenge taxpayer positions giving rise to “inappropriate results.”

Written by Andrew Mirisis | Posted in Earning And Profits Regulations • Treasury And IRS

20 Oct 2022

GRAs And Section 367(a)(1) Outbound Stock Transfer Rules Overview

Introduction to Section 367(a)(1), Outbound Stock Transfers, and Gain Recognition Agreements

Section 367(a) of the Internal Revenue Code (the “Code”) governs the outbound transfer of property by a U.S. person to a foreign corporation in certain non-recognition transactions. If section 367(a) is triggered the relevant non-recognition provision is “turned off” and the U.S. person that transferred the property outbound must recognize gain on the transfer. The section 367(a) outbound transfer can be of stock or non-stock assets. If the section 367(a) outbound transfer is a stock transfer (“transferred stock”) the U.S. person may be able to avoid gain recognition if: (i) the U.S. person is a five percent or greater shareholder of the recipient corporation (the “transferee foreign corporation”) and (ii) the U.S. person enters into a five-year gain recognition agreement (“GRA”) with respect to the transferred stock.[1] A gain recognition agreement is, in effect, a contract with the IRS, wherein the taxpayer agrees to report certain events with respect to transferred stock, each year, for five full taxable years after the outbound stock transfer. The ability of a U.S. person to enter into a gain recognition agreement is a valuable tool to avoid (or defer) gain recognition on outbound stock transfers. However, the GRA rules are nuanced and can be difficult to interpret. Additionally, the GRA rules have very specific requirements for what must be included in a gain recognition agreement. If the gain recognition agreement does not comply with the rules, it may be invalid and cause the immediate gain recognition on the outbound stock transfer under section 367(a)(1). This note will briefly discuss an overview of section 367(a), the gain recognition agreement rules, and related compliance filings.

Section 367(a) Overview

Written by Andrew Mirisis | Posted in GRAs And Section 367(a)(1) • Outbound Stock Transfer Rules

18 Oct 2022

Section 245A Overview And Requirements: Tax Efficient Repatriation Of A Foreign Subsidiary’s Earnings

Section 245A: Tax Efficient Repatriation of a Foreign Subsidiary’s Earnings

United States-based international businesses are subject to complex reporting and compliance and anti-deferral regimes such as subpart F, global intangible low taxed income (“GILTI”), passive foreign investment company (“PFIC”), and the new corporate minimum tax that was enacted as part of the Inflation Reduction Act, Pub. L. 117-169 (2022). These regimes are enforcement mechanisms to ensure that foreign earnings are taxed on a current basis in the United States at a minimum corporate tax rate. As part of Tax Reform, the United States introduced a new dividends received deduction (“DRD”) in section 245A for the foreign-source portion of dividends received by certain domestic corporations (the “Section 245A DRD”). The “participation exemption” in section 245A is the cornerstone of the new quasi-territorial tax system. Section 245A can be a powerful taxpayer favorable provision to exempt dividends and deemed dividends received from certain foreign corporations if the statutory requirements are met. Since Tax Reform the IRS and Treasury Department issued several regulation packages that clarify and limit the scope of these rules. This post is an update to our prior post on the Section 245A DRD, and explains some of the tax planning opportunities where a domestic corporate taxpayer may be able to benefit from the Section 245A DRD.

Overview of the Section 245A DRD

Written by Andrew Mirisis | Posted in Freeman Law • Section 245A

11 Oct 2022

IRS Wins Ex-Parte Petition For Another Crypto John Doe Summons

On September 21, 2022, the U.S. District Court for the Southern District of New York granted the IRS’s ex-parte motion for leave to serve a John Doe summons to M.Y. Safra Bank after the IRS’s investigation into digital asset trading platform SFOX. The court’s order requires M.Y. Safra Bank to produce records on U.S. customers of SFOX who may owe tax on unreported cryptocurrency transactions. This follows similar IRS’s John Doe summonses against Coinbase, Inc., Circle Internet Financial, and Payward Ventures, Inc. d/b/a Kraken.

John Doe summonses are a powerful tool for the government to find unreported and underreported income from digital asset transactions. After the United States District Court for the Northern District of California permitted the IRS to serve a John Doe summons on Coinbase, Inc. the IRS sent notification letters to more than 10,000 taxpayers, advising them to file amended returns and pay back taxes. The IRS said those notifications resulted in nearly $17.6 million in assessments against taxpayers. The M.Y. Safra Bank John Doe summons is the latest attack by the IRS to find taxpayers that have unreported or underreported income from cryptocurrency transactions.

M.Y. Safra Bank John Doe Summons

Written by Andrew Mirisis | Posted in Crypto John Doe Summons • Freeman Law

28 Sep 2022

Extended Tax Filing Deadline | Commonly Overlooked Tax Disclosures

Extended Tax Filing Deadline | Commonly Overlooked Tax Disclosures

This year the extended tax filing deadline for U.S. citizens or residents, sole proprietorships, C corporations, and single-owner LLCs is Monday, October 17, 2022. Through the course of the tax year companies often engage in transactions that require tax return disclosures. These disclosures may not be top of mind until the taxpayer starts its tax return preparation. Depending on the transactions that occurred during the tax year, some disclosures may require significant analysis and consideration prior to drafting the form or disclosure. Additionally, in some cases the reporting obligations and disclosure rules are nuanced and require a careful reading of the Code, Treasury Regulations, or the IRS instructions to the form. Additionally, taxpayers simply may not be aware of a reporting obligation that resulted from a transaction.

Written by Andrew Mirisis | Posted in Overlooked Tax Disclosures • TaxConnections