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Provocative International Tax News

offshore tax planning, offshore tax strategies, controlled foreign corporation,

Tax Planning Small Business Are Taxed at 14%

Government Report Shames Businesses Paying More than 14% in Taxes.    Hard to believe that Senator Bernie Sanders  (who paid tax at 13%) released the report.  It reports that business that plan their taxes are taxed at 14%. Here’s what’s going on.

International tax planning for the Contract Manufactuere

International tax planning for the Contract Manufacturer

Amazing tax savings for importers of contracted manufacturer of their products.  This new IRS law gives tax savings to small businesses.  Learn more on this link and send it to your CPA.
For additional small business tax savings get my book International Taxation in America for the Entrepreneur on sale for $9.50 on this link.

International tax planning

Small businesses are now reaping big tax savings.  Importers, exporters, and e-commerce business can use the same loopholes as big business. I wrote my book to teach you these tried and true strategies in an easy two-hour read.

But, I did more.  I had an audiobook created.  It downloads onto your smartphone so that you can listen while you are commuting.   Get the 2016 edition of  International Taxation in America for the Entrepreneur for $9.50 at Amazon on this link.

saving taxes, how to save taxes, tax planning,

Saving taxes with an IRS approved tax plan is called a private letter ruling.

International Gift Tax Plans with this IRS internal letter on this link. Fantastic legal tax avoidance for the foreign person with family in the U.S. is explained in this letter.

  • Avoiding state income taxes this new IRS  designer  Nevada trust.  IRS tells how to use your Nevada corporation as your trustee to legally stop paying state taxes on your investment income. Here’s what’s happeningon this link.

New- Saving international taxes with this letter from the U.S. Department of the Treasury letter to the U.K. tax authorities on tax planning in the U.S. for UK and EU companies.

Tax planning, with the Supreme Court common tax laws

Tax planning with Supreme Court common tax laws

18th Century Supreme Court case destroys IRS tax penalty law. Using this case, the Tax Court gave the IRS a big defeat.  Here is what happen.   The Supreme Court is the “Law of the Land.”  It rules over the IRS and Congress.   

It works both ways.  The blog on this link explains the most missed Supreme Court Doctrine use by the IRS to blow up this offshore plan.

international tax planning, international, tax, planning,

International tax planning and international tax savings with this Treasury Department report. 

The secret report on tax savings international tax plans that the IRS cannot stop was issued by the U.S. Department of the Treasury (a branch of the White House).

They reported the successful foreign tax plans of international businesses. We have obtained a copy.  It is on this link.   Here you will learn the legitimate foreign tax plans that Congress likes. 

offshore trust, foreign trust, nevada trust, estate planning trust, esbt,    Since the Middle Ages, the wealthy have capitalized on trusts to avoid paying taxes. During the Great Crusades, upon the death of a knight, his entire estate went to the king.    Nine hundred years later, things have not changed much except the ‘King” takes only half.

Trust are the most efficient tax tool. International tax planning should start with a Nevada trust to own the foreign company.  Learn trust tax planning and asset protection on this easy to read blog post.    It has the blueprint for successful trust tax planning.   IRS memo on asset protection and tax planning with an offshore trust.  Get it now on this blog post.

internet tax planning, saving taxes, cloud tax planning

Saving taxes with the cloud-based

Cloud tax planning. Learn how businesses are using the cloud to save taxes on this link.  E-commerce companies are avoiding state income taxes and in some cases deferring U.S. taxes.

Be an IRS tax wizard with our new custom Google search, below.  This custom Google app to read 400,000 pages deep inside the IRS’s website and the tax court’s website.


Foreign Tax Accountants Are Watching for the New Form 1120F and Form 5471

A great debate over the United States corporate tax reform is underway.   Foreign tax accountants are waiting to see how this will change the Form 1120F (reporting for an international company with U.S. income)  and the Form 5471 (reporting for a controlled foreign corporation).

The Form 1120F includes the Branch Profits Tax.  A tax on U.S. equity and foreign interest expense.

Form 1120F’s Branch Profits Tax is a surprise attack tax.   Small international businesses rarely spend the time needed to avoid this tax.  Quarterly proforma tax returns are required to manage this tax.   Corporate minutes are needed to justify the retention of liquid assets on the U.S. branch.

The word “branch” is misleading.  A foreign corporation does not need a branch (such as an office or a factory) for this tax to apply.  The tax is on U.S. equity that is not necessary for an active U.S. business.

The second part of the branch profits tax is in the method of the corporation’s debt financing.

Foreign tax accountants are expecting the new Form 1120F to include an easy to use worksheet for computation of the interest expense portion of the branch profits tax.

International and Global Tax Strategies as the U.S. reduces the business tax rate.

The best international and global tax structure includes an IRS approved Nevada Self-directed trust.

Optimizing your tax savings requires thinking outside the box. Using a foreign trust for tax planning and asset protection will keep you and your family safe.

Optimizing your tax savings requires thinking outside the box. Using a foreign trust for tax planning and asset protection will keep you and your family safe.

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Treasury Department Leads the Way in Saving Taxes and Protecting Assets with a Foreign Trust

saving taxes, how to save taxes, tax planning,

Saving taxes by requesting a private letter ruling from the IRS National Office.

At the end of last century, the Department of the Treasury led the way in making foreign trust attractive.  The IRS issued a legal memorandum providing the blueprint for protecting assets and saving taxes. 

Nevada  provides unique asset protection for these trusts.  A new IRS regulation allows the Nevada trust to be classified as a foreign trust. 

The tax advantage of a foreign trust is its classification as a “grantor trust.”  This tax plan uses a special asset protection section of the tax code, section 679.

Unlike a domestic trust, all assets transferred to a foreign trust are allowed “grantor trust” status (with one tax planning exception explained below).  They are also excluded from the taxable estate of the settlor.

As a “grantor trust,” the tax law allows the transfers of assets to the trust to be income tax-free.  Thus, you can do what you want to protect your assets and reduce estate taxes without worrying about income taxation.  

This IRS blueprint on foreign trust tax planning is the explained in this episode of my radio show, Tax Talk below.

The play time is about 22 minutes.  Or, If you would like to brainstorm your tax planning, then please call me, Brian Dooley CPA, at 949-939-3414 for a consultation.

If you want to defer income taxes, then fund the foreign trust with a loan due within five years.  Such a loan is called a “qualified obligation.”  This makes the trust a tax deferral vehicle.  The tax deferral can last for more than a century.  This type of a trust is named “non-grantor foreign trust.” 

The IRS Form 3520-A (filed by the trustee) details the tax planning structure for a tax-deferred foreign trust.  You will want to use the “qualified obligation” found on page 3 of the Form 3520 (filed by the settlor).   

Learn the basics on offshore trust on this short video.  Be an expert with my easy to read book, International Taxation in America, available at Amazon.

International Tax Strategy for E-commerce and the Virtual Robot Store

21st Century.   If you own a small business, please say 21st Century.

If your CPA’s tax planning is similar to what you were told or read (on the internet) last century, then you are paying more than your legal obligation in taxes.     Think of the iPhone you had last century?  Okay, you caught me.  There was no iPhone in the 1900’s.

Bank of America is showing us the future.  As you read below, not only will they make more money,  they will pay less in taxes.

Internet tax planning for the small business in the virtual world. Bank of America is creating a branch without people

Internet tax planning for the small business in the virtual world. Bank of America is creating a branch without people

Robots are better than employees.  No Obama Care insurance (or whatever is replacing it), no overtime, no sick leave or all of the other rules that states such as California impose.

I was at the main branch of Bank of America in Newport Beach, California.   I felt like I was sneaking into a museum after hours.

By the way, rent in Newport Beach is not cheap and the main branch is very large and impressive.   But, who is being impressed?  No one goes into the branch and when you do, you see rows and rows of empty desks.

B of A announced that they are opening branches without people.  ATMs will take your deposits, help you get a car loan or home loan and give you money.   You can talk to people face to face; they just will not be in the branch or even the state.   They can be an income tax-free state.   I assume that they will be working in a Bank of America virtual center.

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Form 1120-F (U.S. Income Tax Return of a Foreign Corporation) covers three different taxes. Saving International Taxes Requires an International Tax Accountant.

Table of Contents

1. This blog tells you how to protect yourself from the U.S. courts and the IRS.
2. his blog is primarily about U.S.  international income taxation and the branch profits tax.
3. Two important international tax laws to watch.
4. Tax Planning for your Balance Sheet and the Branch Profits Tax.
5. Liability Of Corporate Agent in the USA.

6. You Must Timely File  Form 1120F to Claim Deductions or Credits.
7, Protective Filing of Form 1120F:  Smart International Tax Accounting.
8. What if only part of your U.S. income is U.S. business income?

This just might be the most important blog on international tax that you will ever read. Here is the problem for U.K., EU, Australian, New Zealand, and Canadian corporations with U.S. income.

The internet is full of stories of how the tax treaty permanent establishment article prevents the USA from taxing you.  What the stories don’t tell is that the U.S. Tax Court does not care about your tax treaty.

The U.S. Tax Court is part of the Government.  The Government wants your money.  It is that simple.  Okay, it’s not fair.  But they really  do not care.  This link discusses a few of these anti-tax treaty court cases.

This blog tells you how to protect yourself from the U.S. courts and the IRS.

Foreign corporations have income from U.S. sources are always required to file U.S. tax returns.
Three different taxes are on the form as follows:

  1. Foreign corporations must pay a 30 percent tax on income from U.S. sources not connected with a U.S. trade or business.
  2. Foreign corporations engaged in trade or business within the United States is subject to income tax, alternative minimum tax, and other taxes applicable to corporations on their taxable income.
  3. Foreign corps engaged in business within the U.S. must pay the branch profits tax.

This blog is primarily about U.S.  international income taxation and the branch profits tax.

A foreign corporation with a business in the United States at any time during the tax year or that has income from United States sources must file a return on Form 1120-F.  A foreign corporation with U.S. business income must file (I will explain why later in this blog) even though:

(1) It has no business income (that is income effectively connected with the conduct of a trade or business) in the United States,

(2) It has no income from U.S. sources  or

(3) Its revenues are exempt from income tax under a tax convention or any provision of the tax law.

Two important international tax laws to watch.

  1. If the foreign corporation has no gross income for the year, it is not required to complete the return. However, it must file a Form 1120F and attach a statement (I will explain why later in this blog) to the return indicating the nature of any tax treaty exclusions claimed and the amount of such exclusions to the extent these amounts are readily determinable.[1]  For example, if you believe that you have avoided having a permanent establishment, you need to explain why.  Here is more on court cases on permanent establishment).
  1. To claim tax deductions and credits,  the corporation must file an accurate tax return on time. If the return is not timely file, all of the expenses and costs of goods sold can never be deducted.  If the U.S. income of a foreign corporation includes income that is subject to a lower rate of tax under a treaty, it must attach a statement to its return explaining this and showing:

(a) The income and amounts of tax withheld,

(b) The names and post office addresses of withholding agents, and

(3) any other information required by the return form or its instructions.[2]

Tax Planning for your Balance Sheet and the Branch Profits Tax.

The foreign corporation may elect to limit the balance sheets and reconciliation of income to the U.S. business use assets, liability and equity and its other income from U.S. sources.[3]   The branch profits tax traces the U.S. business equity and debts.  Thus, the balance sheet is the IRS’s primary audit tool.   Reporting your worldwide assets is providing the IRS information that has little or no value.

TAX TIP: A foreign corporation that is not engaged in a trade or business in the United States it is not required to file a return when the U.S. withholding of tax at the source of its payments covers the taxes owed.   A matter of fact, the goal of U.S. withholding tax is eliminated U.S. tax compliance for the foreign person.

Liability Of Corporate Agent in the USA

A representative or agent of a foreign corporation must file a return for and pay the tax on the income coming within his control as representative.   The agent can include a related corporation or an individual.

You Must Timely File  Form 1120F to Claim Deductions or Credits

I can not say this too often. A foreign corporation must its return on time to take deductions and credits against its U.S. business income.[4]

However, the following deductions and credits are allowed even if such a return is not filed:

(1) the charitable deduction;

(2) the foreign tax credit passed through from mutual funds;

(3) the fuels tax credit; and

(4) The credit for income tax withheld.[5]  

Timely filed means the Form 1120-F is filed no later than 18 months after the due date of the current year’s return.  

But it is more complicated, and you must read this:  I know this next section is tricky.  So, please be patient.  However, if you need help, then just give me, Brian Dooley, CPA, MBT a call at 949-939-3414. 

When the return for  the prior year was not filed, the return for the current year must have been filed no later than the earlier:

  1. of the date which is 18 months after the deadline for filing the current year’s return, or
  2. the date, the IRS mails a letter to the foreign corporation advising it that the current year return has not been filed and no deductions may be claimed it.[6]

The IRS may waive these deadlines when the foreign corporation proves that:

  1. It acted “reasonably and in good faith”  in failing to file a U.S. income tax return (including a protective return), and
  2. cooperates in determining its income tax liability for the year for that the return was not filed.[7]  

 Protective Filing of Form 1120F:  Smart International Tax Accounting 

This is the smartest thing you can do as a foreign corporation.   The chances of an audit are low and the tax protection is high.  I have the rules below. 

A foreign corporation with limited activities in the United States that it believes does  not give rise to U.S. gross business income should file a protective return.  

A timely filed protective return preserves the right to receive the tax savings  of the deductions and credits if it is later determined that the foreign corporation did have a U.S. business.  

Here is the very good news:  On that timely filed protective return, the foreign corporation is not required to report any gross income taxable income and thus pays no net income tax or branch profits tax.  

However, do not forget to attached a statement indicating that the return is being filed as a protective return and to check the box on the Form 1120F.  Also, you must include your tax treaty disclosure IRS form. Be sure to attach the IRS tax treaty disclosure Form 8823, on this link.  

What if only part of your U.S. income is U.S. business income? 

If the foreign corporation determines that part of the activities is U.S. business gross income that U.S. business income and part are not, then the foreign corporation must timely file a return reporting the U.S. business gross income and deducting the related costs and expenses.  

Important: Also, the foreign corporation must attach a statement that the return is a protective return about the other activities.   The protective election ensures that it can deduct the related expenses if the IRS should disagree.  

The same procedure is available if the foreign corporation when if they initially believe that it has no U.S. tax liability due to a tax treaty.[8]  Be sure to attach the IRS tax treaty disclosure Form 8823, on this link

As discussed above, many foreign corporations believe that their home country tax treaty “permanent establishment” provisions protect them since they do not have an office in the U.S.  However, the U.S. courts treat almost any office (even an office owned by an agent or a related person) as a permanent establishment.  

Lastly, U.S. Department of the Treasury will guide you and provide you with a tax guarantee.  This is known as a private letter ruling.  Here is more information.

FOOTNOTES

  1. Section 1.6012-2(g)(1)(i).

If the foreign corporation with a place of business in the United States, the return must be filed by the 15th day of the third month after the end of the tax year.

[2] Reg. Section 1.6012-2(g)(1)(ii).

[3] Reg. Section 1.6012-2(g)(1)(iii).

[4] Code Section 882(c)(2).

[5] Reg. Section 1.882-4(a).

[6] Reg. Section 1.882-4(a)(2).

[7] Reg. Section 1.882- 4(a)(3).

[8] . Reg. Section 1.882-4(a)(3)(iv).