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U.S. Treasury Regulations Require Multinational Enterprise’s Provide Country By Country Reporting. What Is CbC?

Country By Country Reporting For Multinational Enterprises

In recent years, tax authorities across the globe have adopted a number of OECD-led initiatives aimed at curbing the ability of multinational enterprises to engage in so-called Base Erosion and Profit Shifting (BEPS) (i.e., the artificial shifting of profits, for tax purposes, to low or no-tax jurisdictions).  The OECD has achieved considerable buy-in from tax authorities, touting the need to update the international tax rules, which have (it maintains) largely failed to keep up with the dual phenomena of globalization and increasingly digital economies.  Country-by-country (CbC) reporting has played a key role in its effort.

U.S. Treasury regulations require that U.S. multinational enterprises (MNEs) provide country-by-country (CbC) reporting.  Annual CbC reporting on Form 8975 largely implements the OECD’ country-by-country reporting requirements aimed at addressing base erosion and profit shifting.

What is Country-by-Country (CbC) reporting?

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Tax Savings In A Multi-Family Market With Cost Segregation

Tax Savings In A Multi-Family Market With Cost Segregation

The multifamily market remains very strong as an investment.  Along with providing the opportunity to earn rental income, multifamily projects offer a number of tax benefits to the thoughtful investor.  In fact, we’re finding that investors view the tax savings associated with cost segregation as a major reason to consider the multifamily sector.  Since 2018, one of the major drivers has been 100% bonus depreciation for both new and used assets having a shorter than 20-year MACRS class depreciation life.  Prior to the TCJA, you could only take bonus on new construction and renovation assets.  Getting bonus on acquisitions has had a huge impact on commercial real estate, especially the multi-family sector.        

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What The Inflation Reduction Act Means For You

What The Inflation Reduction Act Means For You

The Inflation Reduction Act, which includes expanded or extended tax credits and additional funding for the IRS, was signed into law on August 16, 2022.

How could the Inflation Reduction Act impact you when filing your next tax return?

Below is a simplified summary of how the Inflation Reduction Act may affect you.

Health Care

The Inflation Reduction Act includes:

  • Extension of Affordable Care Act (ACA) funding through 2025. This funding, which was due to expire at the end of 2022, will allow consumers to continue to buy insurance with lower premiums through the Health Insurance Marketplace (also referred to as the Marketplace or the Exchange).
  • Extension of the American Rescue Plan Act (ARPA) temporary exception that allows taxpayers with incomes above 400 percent of the Federal Poverty Level to qualify for the Premium Tax Credit.

Energy Efficient Home Improvement Credit

The Nonbusiness Energy Property Credit was extended through 2032 and renamed the Energy Efficient Home Improvement Credit.

Starting in 2023, the credit will be equal to 30 percent of the costs of all eligible home improvements made during the year. Additionally:

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International Tax Concepts: Tax Residency Status

International Tax Concepts: Tax Residency Status

U.S. Tax Residency Status

As a general matter, all U.S. citizens and U.S. residents are treated as U.S. tax residents.  A non-U.S. citizen is generally classified as a nonresident for U.S. tax purposes unless they satisfy one of two tests: the green card test or the substantial presence test.  The U.S. residence tests are generally applied on an annual calendar-year basis.

The Green Card Test

An alien individual satisfies the green card test if, at any time during the calendar year, they are a lawful permanent resident (“LPR”) of the United States under U.S. immigration law. An individual is considered a LPR if the U.S. Citizenship and Immigration Services (“USCIS”) (or its predecessor) has granted them the privilege of residing permanently in the United States.  Generally, an individual has this status if USCIS has issued an alien registration card — also known as a “green card.”  Note that the expiration of a “green card” does not, in and of itself, terminate residence for tax purposes.

The Substantial Presence Test

An alien individual satisfies the substantial presence test if they are physically present in the United States for at least:

  1. 31 days during the current calendar year; and
  2. 183 days during the 3-year period that includes the current calendar year and the 2 immediately preceding calendar years counting:
  • All days of physical presence in the United States during the current calendar year, and
  • 1/3 of the days the individual was present in 1st preceding year; and
  • 1/6 of the days the individual was present in 2nd preceding year.

Residency Elections

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Can You Go To Jail For Not Paying Your IRS Taxes?

Can You Go To Jail For Not Paying Your IRS Taxes?

Taxpayers routinely ask me if they can go to jail for not paying their federal income taxes.  Admittedly, the bar is not that high for felony tax evasion—the government must only prove three elements:  (i) willfulness; (ii) the existence of a tax deficiency; and (iii) an affirmative act constituting evasion or attempted evasion of tax.[i]  Because the existence of a tax deficiency is generally not a big issue in non-payment cases, the government is left focusing on the remaining two elements:  the taxpayer’s state of mind and evidence of affirmative acts.

Although the bar for federal tax evasion is low, the government does not have the resources nor the will to go after all evasion non-payment cases.  Instead, the government carefully picks and chooses the cases it believes to have the best chances for obtaining criminal convictions.  Predictably, this is where the types and quantities of affirmative acts come into play.  Because the recent Sixth Circuit decision in Pieron[ii] shows this well, that decision is the topic of this article.

Background

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National Taxpayer Advocate Reimagines The IRS With A Dramatically Improved Experience: Part 1

IRS Wants To Improve Taxpayer Experience

Last month, Congress passed the Inflation Reduction Act (IRA22), which provides the IRS with supplemental funding of nearly $80 billion over the next ten years. More than half the funding has been earmarked for tax law enforcement, and that has attracted a good deal of public attention. But the legislation also provides about $3.2 billion for taxpayer services, including pre-filing assistance and education, filing and account services, and taxpayer advocacy services; $4.8 billion to modernize the IRS’s information technology (IT) systems, including development of callback technology and other technology to provide a more personalized customer service; and $25.3 billion to support its taxpayer service and enforcement operations, including rent payments, facilities services, printing, postage, physical security, research and statistics of income, telecommunications, and information technology operations and maintenance.

This additional funding should be a game changer for taxpayers and practitioners alike. If spent wisely, the funding will give IRS management the resources it needs to bring U.S. tax administration into the 21st century by enabling it to hire and train the workforce of the future, replace its antiquated IT systems, and generally revamp the taxpayer experience based on principles of fair and equitable tax administration. I am excited to be part of this historic effort, and I am optimistic that taxpayer service will significantly improve in the near future.

As most readers of this blog know, the National Taxpayer Advocate is required by law to submit two annual reports to Congress that, among other things, make administrative recommendations to mitigate taxpayer problems. Frequently, IRS leaders tell us they agree with our recommendations in concept, but they lack the resources to implement them. With the supplemental funding it has received, now is the time to act on my recommendations.

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White House Fact Sheet On Student Loan Relief

Student Loan Relief Program

President Biden Announces Student Loan Relief for Borrowers Who Need It Most

A three-part plan delivers on President Biden’s promise to cancel $10,000 of student debt for low- to middle-income borrowers

President Biden believes that a post-high school education should be a ticket to a middle-class life, but for too many, the cost of borrowing for college is a lifelong burden that deprives them of that opportunity. During the campaign, he promised to provide student debt relief. Today, the Biden Administration is following through on that promise and providing families breathing room as they prepare to start re-paying loans after the economic crisis brought on by the pandemic.

Since 1980, the total cost of both four-year public and four-year private college has nearly tripled, even after accounting for inflation. Federal support has not kept up: Pell Grants once covered nearly 80 percent of the cost of a four-year public college degree for students from working families, but now only cover a third. That has left many students from low- and middle-income families with no choice but to borrow if they want to get a degree. According to a Department of Education analysis, the typical undergraduate student with loans now graduates with nearly $25,000 in debt.

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Revoking A Mark-To-Market Election With Respect To A Foreign Company

Revoking A Mark-To-Market Election With Respect To A Foreign Company

A taxpayer with shares in a passive foreign investment company (a “PFIC”) may qualify to make either a qualified electing fund (“QEF”) election or an election to apply mark-to-market treatment with respect to marketable stock.  All things equal, taxpayers will typically prefer QEF treatment.  The code, however, requires that the taxpayer meet certain criteria before they can make a valid QEF election.  If a taxpayer makes a mark-to-market election, the Code generally provides that the MTM election remains in place until the foreign company ceases to be a PFIC or the IRS consents to the revocation of the MTM election in light of a “substantial change in circumstances.”

Sometimes, the information necessary to make a QEF election is not available at the time that the taxpayer files their tax return.  Indeed, investments in PFICs can present notorious challenges in terms of obtaining the necessary documentation to support a QEF election.

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Foreign Accounts Penalty Case Heads To Supreme Court

Foreign Accounts Penalty Case Heads To Supreme Court

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Tax filing – and penalties – for foreign accounts may soon be the subject of a major legal decision.

The U.S. Supreme Court plans this fall to hear Bittner v. U.SThis case presents a conflict over statutes under the Bank Secrecy Act (BSA). The question is whether a “violation” under the BSA is the failure to file an annual FBAR no matter the number of foreign accounts or whether there is a separate violation for each account that isn’t properly reported.

The 1970 BSA initially charged the U.S. Treasury Department with collecting information from U.S. persons who have financial interests in or signature authority over financial accounts maintained with financial institutions outside the U.S. In 2003, the Treasury delegated enforcement to the Internal Revenue Service. Although only willful violations were initially subject to penalty, Congress amended the act in 2004 to include penalties for non-willful violations.

Regulations require filing a single annual FBAR for anyone with an aggregate balance over $10,000 in foreign accounts. The penalty for non-willful violation is up to $10,000.

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Inflation Reduction Act Signed Into Law, Extends And Expands Energy-Efficient Tax Incentives

Inflation Reduction Act Signed Into Law, Extends And Expands Energy-Efficient Tax Incentives

EPAct 179D and 45L have been part of the tax code since 2006.  The Inflation Reduction Act of 2022 (IRA) was signed into law August 16, 2022.  The Act includes several major updates to federal energy-efficiency tax incentives that may be of interest to Capstan clients.  The following provisions take effect 1/1/2023, unless otherwise indicated.   

EPAct 179D Tax Deduction

Created as part of the Energy Policy Act of 2005, the EPAct 179D tax deduction was made permanent by the Consolidated Appropriations Act of 2021 (CAA).  The federal deduction may be applied to ground-up energy-efficient construction projects as well as to energy-efficient retrofits.  179D applies to all types of energy-efficient commercial buildings (EECB) and to residential rental buildings that are a minimum of four stories high.  

Clauses in the IRA will increase and expand the utility of 179D as follows:  

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That’s Not Income! | REIT’s Section 481(a) Adjustments Not Considered Gross Income

That’s Not Income! | REIT’s Section 481(a) Adjustments Not Considered Gross Income

Gross Income

Mark Twain once said, “Buy land, they’re not making it anymore.” Perhaps it is this sentiment (along with returns on investments) that has led to the popularity of real estate investment trusts. However, taxpayers should be mindful of the various requirements and restrictions related to real estate investment trusts, such as income and asset thresholds. Based on a recent Private Letter Ruling, the Internal Revenue Service (“IRS”) noted that certain income (Section 481 adjustments) related to a real estate investment trust would not constitute gross income and, therefore run afoul of the income limitations of Section 856(c)(2) and (3) of the Internal Revenue Code.

Real Estate Investment Trusts, Generally

Generally, real estate investment trusts (“REITs”) are companies that own, finance, and/or operate income-producing real estate. REITs offer investment opportunities to shareholders to earn income from real estate without personally purchasing and/or operating properties. However, to qualify as a REIT, a company must meet several requirements. Section 856(a) of the Internal Revenue Code defines a REIT as a corporation, trust, or association:

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Register For Freeman Law International Tax Symposium – Complimentary Virtual Conference

Freeman International Tax Symposium

TaxConnections highly recommends attendance to a first class virtual tax conference on international tax law. It is complimentary and you will benefit from attending! If you are a frequent reader of TaxConnections Blogs, you will know this boutique tax firm has a team of high performing tax lawyers. Take this opportunity to learn from outstanding tax and business lawyers who are sharing their valuable knowledge with you.

Title Of Conference: Freeman Law International Tax Symposium

Date: October 20th and 21st, 2021

Location: Online Virtual Conference

Attendees Qualify For: CLE, CPE, CE

Cost: Complimentary Conference

View Featured Speakers: https://internationaltaxsymposium.freemanlaw.com/

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