Tag Archives: cfc

Section 956 Controlled Foreign Corporation

International tax planning for foreign corporations looks carefully at section 956.  This is the tax law that prevents American companies from investing their foreign profits back into the U.S.

Now, you may wonder “why would Congress passed such a stupid tax law?”.  Well, Congress excels in stupid.  Of course, the President has to approve every new tax law.  So, they share the blame.   The point of this blog is to help you avoid this tax trap.

A foreign tax plan requires U.S. shareholders to have a long term plan.  The income created by section 956 is reported on form 5471.

Section 956 requires shareholders of controlled foreign corporations (CFC) to recognize dividend income if the profits are invested in “United States property.”  The investment in U.S. property creates the taxable dividend.

If you would like to brainstorm your tax planning ideas, then please call me, Brian Dooley CPA, at 949-939-3414 for a complimentary consultation with your CPA or get me easy to read international tax book at Amazon.

I rewrote the law in the format of a simple to use equation. Placing the code into an equation simplifies the law.  You can learn more with my book at Amazon.  Try any of my books on international taxation and planning for a week risk-free.  You will find section 956 explained in easy terms.

If you are interested in exploring international tax strategies for your business, I invite you to email me, Brian Dooley, CPA, at [email protected]

 

Small Business Foreign Tax Planning for Related Party Transaction

tax planning, avoid taxes, small tax business,

President John Kennedy (Democrat) is the most respected president of last century. The President and Supreme Court Justice Hand agreed that patriotism does not mean paying more than your legal share.
Supreme Court Justice Holmes said tax planning means you get as close to that legal line as possible

We found this IRS “Industry Specialization Paper” on international and foreign related party transaction.

The IRS uses section 482 as its Big Hammer.   Once you know how the IRS thinks, then you will be able to design your business to legally avoid taxes on your offshore activity.

You will help America by paying less in taxes.  JFK said it best.. the less taxes you pay, the more you have to create a new job.

The best tax planning practice is to work actively with the IRS National Office.  This part of the IRS is pro-small business.  If you qualify, the IRS will provide you a “ruling” in which they approve your tax strategy.  You can learn more on this link.  The IRS Paper is below in blue print.
Continue reading

Controlled Foreign Corporation’s Offshore Income Taxed at 15% to 20%.

I am back from teaching my course for the California Society of CPAs on avoiding International Tax malpractice.
Here is what CPA’s are doing:  Their clients pay more than the legal tax.  Yep, many CPAs think all the offshore income is taxable, and this was the theme of the seminar.

When the income is taxable, they make it worse by using a 44% tax rate instead of a 15% to 20% rate.

If you want to save taxes like Google and Apple, you need to do what Donald Trump stated; you need to work very hard to pay the lowest tax.     You have to do it because your CPA is too busy with tax returns and financial statements to research what you will find in this blog.

The rest of this blog explains how to get the low tax rate on your offshore income earned by your foreign corporation.

Here is the first thing a CPA misses:  They starts international tax planning using international tax laws.  However,  domestic corporate tax law is the foundation of international tax law.
Continue reading

Bitcoin Tax Planning and Savings with Offshore Tax Planning

offshore tax planning, bitcoin tax planning, cfc, foreign corporation, controlled foreign corporation, offshore corporation, offshore tax planning,

Bitcoin tax planning works great with International tax planning.

Bitcoin tax planning is intriguing and powerful because?  Here is why.

A Bitcoin is not a currency.  Why?  A government is needed for a currency to exist.  Bitcoin prides itself in no government intervention.  So, what is it?

A Bitcoin is a type of private money.  You can learn about other private money tax planning and savings on this link.    Private money is a contract.  My favorite private money is Disney money.

I live in Orange County close to Disneyland.  For Christmas, my children loved Disney money with its cute pictures of Donald Duck or Snow White.   Disney money is a contract between Disneyland the owner (the bearer) of the paper money.

For example, I prepare your tax return.  I get paid $100 in Disney money.  For me, it is worth $100 because I can go the Disneyland anytime.  However, the value is not fixed. For example,  I travel to Nebraska and lose my wallet.  I find  $100 of Disney money in my jacket.   I am hungry, so I go into the cafe.  Nebraska is far from Orange County.  There my Disney money bought me two eggs, toast, and sausage.  It was worth $10.

My loss is a capital loss because my contract with Disneyland is a capital asset.  Same with your Bitcoin.  It is merely a contract.  However, the big questions what about a controlled foreign corporation (CFC) as the owner.  International tax planning for the Bitcoin investor has some big tax savings when you use a foreign corporation.

Certain investment income earned by a CFC is taxable to the shareholder.   However, the sale of a contract is not one of those types of income.  The exception is if you purchased the Bitcoin or sold the Bitcoin to a related person.

Remember to file the IRS information return Form 5471.  This is a controlled foreign corporation information return.

Would like to do some more brainstorming?  Then please call me, Brian Dooley CPA, MBT for a free brainstorming consultation at 949-939-3414.

The Limited Department Store and Victoria Secret’s International Tax Planning Lesson for You

This popular clothing store chain[1]  attempted “clever” tax planning.  The changes of tax audit were high since this is a major public company.    The Tax Court reviewed their tax plan (The Limited, Inc. v. Commissioner, 113 T.C. 169).   The Court was not impressed. 

The Tax Court held that certificates of deposit purchased from a taxpayer’s private label credit card bank subsidiary by a foreign subsidiary of the taxpayer’s controlled foreign corporation are U.S. property.  When a controlled foreign corporation (CFC) invest in U.S. property, the amount invested is classified as a dividend income.

 You may have heard how firms like Apple have $billions that they can’t bring back to the U.S.  This is why.

Limited formed a new corporation to lend money to Limited’s domestic private label credit card company.  They named the loan “certificate of deposit” hoping to use an exception to section 956 that applies to banking transactions.  They also used a new foreign corporation that had no earnings, which would have made a distribution not taxable.

Of course, Limited’s credit card company is not a bank and thus, the “certificate of deposits” was not with persons carrying on the banking business.

But it got worse!  And this is what I want you to know. The court also attributed ownership of the certificates to the CFC that formed the foreign subsidiary because a principal reason for the formation of the foreign subsidiary was the avoidance of Subpart F and tax code Section 956.  This last part invokes an old tax doctrine[2] that one must have a business purpose other than saving taxes in entering into a transaction (or as in this case, form a corporation).

It is a doctrine overlooked by many tax planners.   I want all of my readers to have excellent tax planning.  So, please take this gift of learning how a major corporation missed an essential doctrine into your tax planning.

If you need a corporation for tax planning, then embed the corporation with a business activity, have a business plan and corporate minutes.     This story has a happy ending for the taxpayer.  They appealed the court and provided a business purpose of the new foreign subsidiary.

They presented a witness that stated that the sole reason behind the creation of subsidiary was to shield the parent corporation’s assets from Chinese expropriation.   The Appeal Court bought the story, and the IRS was defeated.

Lesson:  Always document your business purpose.  If you need to up the quality of your tax planning, then contact me, Brian Dooley, CPA, MBT, at [email protected]

Here is a link to this court case.

If you want to learn how to save taxes with an offshore business, then listen to the first five minutes of the audiobook (International Taxation in America for the Entrepreneur) by clicking on this link.

[1] Among the popular stores owned by petitioner (the stores) were The Limited, Lane Bryant, Lerner New York, Victoria’s Secret, and Abercrombie & Fitch.
[2] A “tax doctrine” is a tax law created by court cases.  One court case does not make a doctrine.  Usually, the Supreme Court has ruled on the concept.  Congress told the IRS to make the regulations clear on this point.  So, the IRS issued 1.956-1T (b)-4 with examples of this rule.