Jason Freeman | TaxConnections

20 Apr 2022

What Is A Section 962 Election?

For years, section 962 was a relatively obscure tax-planning mechanism. The Tax Cuts & Jobs Act, however, changed that, pushing the so-called section 962 election into vogue. Section 962 allows an individual shareholder of a controlled foreign corporation to elect to be taxed as a domestic C corporation. As a result, a taxpayer making a section 962 election would be taxed at a 21% rate on a controlled foreign corporation’s undistributed subpart F income and at favorable GILTI rates on GILTI inclusions from a CFC (inclusions related to global intangible low-taxed income). The election may also entitle the individual to take advantage of a deemed-paid foreign tax credit under section 960.

In effect, section 962 creates an alternative tax regime applicable to individual U.S. shareholders investing abroad through CFCs. The election is intended to put individuals who directly own foreign investments on even footing with individuals whose foreign investments are held through a domestic corporation.

What is a Section 962 Election?

Written by Jason Freeman | Posted in Freeman Law • Section 962 Election

18 Jan 2022

The Foreign Tax Credit Basics

Foreign Tax Credit Basics - Lawyer Jason Freeman

U.S. taxpayers are generally taxed on their worldwide income. But what happens when that income is also taxed by another country? The Internal Revenue Code’s primary mechanism to alleviate this double taxation of income is the foreign tax credit. The foreign tax credit provides U.S. taxpayers who owe taxes to a foreign country with a credit against their U.S. tax equal to the amount of qualifying foreign taxes paid or accrued.

Generally, U.S. taxpayers are entitled to a credit for income, war profits, and excess profits taxes paid or accrued during a tax year to any foreign country or U.S. possession, or any political subdivision of the country or possession. U.S. taxpayers living in certain treaty countries may be able to take an additional foreign tax credit for the foreign tax imposed on certain items of income. In addition, note that taxpayers making an election under section 962—to be taxed at corporate rates on certain income from a controlled foreign corporation (CFC)—are required to include that income in gross income under sections 951(a) and 951A(a) and may be entitled to claim the credit based on their share of foreign taxes paid or accrued by the CFC.

Foreign Tax Credit Basics

Written by Jason Freeman | Posted in Foreign Tax Credit Basics

16 Dec 2020

A Primer On The Tax Implications of Settlements And Judgments

Your client just settled—or better yet, won a judgment. What are the tax consequences? Admittedly, the tax impact of resolving a dispute is often little more than an afterthought. But a client’s net after-tax recovery can vary drastically depending on the applicable tax rules. An attorney armed with an understanding of the relevant tax issues has an advantage over opposing counsel who lacks such insight.

Basic Tax Principles

Judgments and settlements are, in theory, taxed in the same manner. It is, therefore, generally irrelevant—from a tax perspective, at least—whether a dispute is resolved by a judgment or settlement.

Written by Jason Freeman | Posted in Freeman Law • Settlements And Judgements Taxability • Texas

15 Dec 2020

When An IRS Tax Lien Arises

The Internal Revenue Code (IRC) governs when and how a federal tax lien arises. The federal tax lien—sometimes referred to as a “statutory lien” or “silent lien”—is often confused with the notice of the lien’s existence, which is generally filed by the IRS at a later date (i.e. a Notice of Federal Tax Lien or NFTL).

A Notice of Federal Tax Lien is a document that is publicly filed with state and local jurisdictions in order to put other creditors on notice of the IRS’s lien interest. As a result, the NFTL itself does not actually create the lien—it merely informs others of a lien that already exists by statute. However, the date of the NFTL filing is important for determining the IRS’s priority against other creditors.

Tax liens are one of the primary tools that the IRS uses to collect outstanding taxes. The IRS also uses the levy process or seizures to collect taxes where available. See our separate post on IRS Seizures: The Good, the Bad, and The Ugly for more on topics related to levies and seizures.