The Research and Experimentation Tax Credit (hereinafter “RTC”) was added to the Internal Revenue Code (hereinafter “the Code”) in 1981 as a temporary provision of the Code at a time when research and development based jobs were significantly declining in the United States due to these jobs being moved overseas where labor rates and overall operating costs were considerably less. For this very reason, the RTC was introduced into the Code in 1981 to motivate business entity taxpayers to incur significant and qualifying research and development expenditures with the high expectations that such an advantageous tax incentive would facilitate in stimulating job growth and investment in the United States and Read More

TaxConnections Blog Post
Determine the Closure Date

A CLOSURE DATE for the tax risk management process is important. Setting open-ended goals will defocus the participants. The closure date may, however, change, depending upon the outcomes of some of the tax risk issues.

Set the Parameters of the Future Maintenance Process

THIS WILL BE driven by the nature of the tax risk issues dealt with in the tax risk management process. The Tax Risk Management communication system will also be implemented to ensure effective communication. This is dealt with in greater detail under chapter 7 of this special report. Read More

TaxConnections Blog Post
Plan the Factual Gathering Process

TAKE EACH ON-the-radar screen and off-the-radar screen tax risk identified and create a unique file number, file (hard copy and electronic [pdf] copy), and start assembling all correspondence, documents, notes, agreements, opinions, memoranda, and any other relevant information into date order.

Priorities will differ on a case-by-case basis. The factual gathering process is dealt with in more detail in chapter 5 of this special report.

Plan the Analytical and Solutions Process

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The income taxation treatment of foreign trusts and beneficiaries takes into account whether the party or entity has entered United States taxing jurisdiction. It is essential to draw a distinction between a foreign trust and a United States, domestic trust. A foreign trust is defined as one that is not a domestic trust. (1) The term trust itself embraces the notion of an inter vivos declaration in which trustees take title to property for the purpose of protecting or conserving it for beneficiaries in accordance with ordinary rules applicable in chancery or probate courts. (2)

The income taxation of a foreign trust requires there be certain contact factors. The factors to be considered, prior to the 1996 Tax Act, (Small Business Job Protection Act of 1996) in this Read More

Part III – Equity Securities
Wash Sales

A wash sale occurs when the same securities are purchased 30 days before or after the sale. If a loss results, all or part of the loss is disallowed. If an equal or greater number of the same securities that were sold are purchased, the entire loss is disallowed. If fewer shares are purchased than were sold, part of the loss is disallowed. The disallowed loss is added to the basis of the securities purchased.

Example 1-total loss disallowed

On February 15, 2013, Joe sold 200 shares of Microsoft for $7,000 that he purchased on July Read More

On Tuesday, February 21, 2012, we posted Filing False Returns is a Deportable Felony – Supreme Court, where we discussed that the United States Supreme Court February 21, 2012 decided that lawful permanent residents who have pled guilty to charges related to the filing of false tax returns that resulted in a loss to the government of more than $10,000 have committed aggravated felonies involving fraud or deceit and are subject to deportation (Kawashima v. Holder, U.S., No. 10-577, 2/21/12). Petitioners Akio and Fusako Kawashima (“the Kawashimas”) are Japanese natives and citizens, but have been lawful permanent residents of the United States since 1984. The Kawashimas established a successful restaurant in California, owned by Nihon Seibutsu Kagaku Center, Inc., a Read More

This is an updated post.  The IRS has offered taxpayers with undisclosed foreign financial accounts the opportunity to “come clean” under its Offshore Voluntary Disclosure Initiative (OVDI) since 2009. According to the Internal Revenue Service, more than 38,000 United States taxpayers have entered the program. They have paid more than $5.5 billion to resolve issues, with an estimated $5 billion yet to come.

What is OVDI? It is a program of limited duration that offers significant benefits to taxpayers who may have engaged in conduct that could be viewed as criminal. Benefits include immunity from criminal prosecution and avoidance of the full brunt of civil penalties that otherwise could far exceed amounts concealed in offshore accounts. The OVDI program Read More

According to IRS Revenue Procedure 2013-13 in addition to claiming the traditional office in home (OIH) or home office deduction on Internal Revenue Service Form 8829 there is a new simplified option now you can consider effective January 1, 2013. Basically this new simplified method if selected allows you to claim essentially a “standard deduction” of $5 per square foot up to 300 square feet for the portion of the home that meets the normal OIH limitations. There are some rules and of course advantages and disadvantages of each method so I’ve done some research comparing the traditional method and the new simplified method.

Under the traditional method

You calculate the square footage of the home used for business and maintain records of Read More

The Internal Revenue Service Advisory Council (IRSAC) released its annual report featuring recommendations on a wide range of tax administration matters.

IRSAC is an advisory group to the entire agency. IRSAC’s primary purpose is to provide an organized public forum for senior IRS executives and representatives of the public to discuss relevant tax issues. The advisory group held a public meeting in Washington, D.C.

Based on its findings and discussions, IRSAC made several recommendations on a broad array of issues and concerns including:

• The IRS needs sufficient funding to operate efficiently, provide timely and useful Read More

What is a “Sailing Permit”?

A Certificate of Compliance, or “Sailing Permit,” is a tax form that a foreign (non-US) individual must file with the IRS to demonstrate that he/she has paid all applicable U.S. taxes before departing the United States. The purpose of the “sailing permit” is to establish whether a departing foreign national owes any tax dollars to the US government before he leaves the country. Foreign executives and professionals working temporarily in the US can potentially be a large source of revenue for the US’ ailing fisc. The envisioned procedure was set to be easily administered. Prior to departure, the foreigner was to report to an IRS office and submit a preliminary tax computation, as well as pay the amounts due. The person Read More

Yesterday we looked at dependent agents and their ability on the treaty to create a permanent establishment for an enterprise. Today I’ll be looking at independent agents, which do not lead to the determination of a permanent establishment for tax purposes and hence do not create a tax presence.

The commentaries provide this general definition to begin the discussion:

37. A person will come within the scope of paragraph 6, i.e. he will not constitute a permanent establishment of the enterprise on whose behalf he acts only if

a) he is independent of the enterprise both legally and economically, and Read More

TaxConnections Blog Post
Determine a Tax Team Charter

IT MAY BE useful to determine a tax team charter, which defines the elements of an effective tax team, evaluates the effectiveness of the tax team, determines the guidelines for planning meetings properly and ascertaining effective milestones. Use elements of the Six Sigma process in an adapted form.

The following Six Sigma processes can be adopted for the tax risk management strategy process and may prove to be useful in the strategy process:

• Quality Function Deployment (QFD) where the tax team can more effectively focus on the Read More