Tag Archives: foreign llc

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 states that a business that plans its taxes are taxed at 14%. Here’s what’s going on.    

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- Department of the Treasury letter to the U.K. tax authorities on U.S.  tax planning for UK and EU companies. Here is the  this letter from the U.S. 

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 significant 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 in 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 avoid 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, on this link.  This custom Google app to read 300,000 pages deep inside the IRS’s website and the tax court’s website.

Is the U.S. a tax haven for citizens of the UK, Sweden, Belgium, Canada, Luxembourg, and Austria?  Yes, says the IRS in its Publication.  Learn the magic Tax Treaty words for these lucky citizens of The UK, Sweden, Belgium, Canada, Luxembourg, Austria on this link.

How to Prepare Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests

Form 8288, form 8288-b

Preparing Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests

The non-resident alien, foreign LLC and foreign corporations all have one common international tax problem- the U.S. 15% real estate sale price withholding tax.

Additionally, states have a  withholding tax.

For example, Hawaii is a five percent withholding tax of the sales price.  As a result, a whooping 20% of the sales price is withheld.

The seller is personally responsible for this tax and so is the escrow company or law firm handling the sale.   It is what we call, in America, as a “hot potato”.   Every person connected with the sale proceeds is personally responsible.

I am sorry.  I have more bad news about Form 8288-B FIRPTA Certificate.  Congress slashed funding for the IRS.  The other day, an IRS International Tax Attorney told me that the IRS has “limited resources”.   This means a longer, much longer, wait for your FIRPTA Certificate   (click here to learn how to get a fast refund of the tax). 

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What is the Worst International Tax Planning Structure for Small Business?

Amazing and I am just amazed at the number of telephone calls I get from small business owners with the worst international tax structure.

And to be honest with you, there is nothing that can be done to fix it.  First, let me tell you the fatal problem of a corporation for both domestic and foreign tax planning.  All corporations are like a cage.  You can’t take property out without adverse taxation.

This includes S-corporations, domestic corporations, foreign corporations, and foreign LLCs.[1]

Table of Contents to International Tax Planning Strategies

What is the worst international tax structure for small business?

Foreign Tax Credit Planning for the Small Business. 

What is the worst international tax structure for small business?

Small business international tax planning should avoid the use of a U.S. corporation.   This above structure is the worst for small business.   Corporations traded on the stock market can use this structure because they have a different tax law than privately owned businesses.

As the foreign entities make a profit, they start transactions with the U.S. Parent Corporation. These related party transactions terminate the tax deferral legitimately earned by the foreign entities.

In other cases, the foreign entity borrows money from the U.S. Parent Corporation.   The IRS can treat these loans as an equity investment in the foreign entity.  Repayment of the loans is taxable income.  This tax law is called “debt versus equity”.   I have information on this debt versus equity on this link.

On the other hand, if a foreign entity loans money to the U.S. Parent Corporation, the loan is treated as a dividend because of tax code section 956.  You can learn more about section 956 on this link.

Now here is the dumbest plan that I have seen.  A “check the box” election is made for the Foreign   LLC #1 creating an unexpected taxable event.   This international tax law issue is the same if the U.S. Parent Corporation is taxed as a C-corporation or an S-corporation.

Foreign Tax Credit Planning for the Small Business

Yep, it is getting worse.  This international tax structure causes the loss of the foreign tax credit unless a complicated tax accounting method is elected.  This election, once made, is for all future years.

The election works great for publically traded companies because they want “earnings per share” for their audited financial statement.  Small business owners want to create wealth and pay less in taxes so that they can grow their business.

If you need help organizing your international business, give me (Brian Dooley, CPA, MBT) a call at 949-939-3414.  Of course, my easy to read (in two hours) book is a must for every small business owner.

[1] Foreign LLC have an exception if you elect to treat them a disregarded entities or partnerships in their first year of business.

How to Save Taxes with the New IRS Foreign Check-the-Box Rules for Offshore Companies

Offshore Trust International Tax Strategy and Planning is a sophisticated concept used by the wealthy. Learn more in my book, International Taxation in America, available at Amazon.

Offshore Trust International Tax Strategy and Planning is a sophisticated concept used by the wealthy. Learn more in my book, International Taxation in America, available at Amazon.

Just how do you save taxes with an offshore company?  It depends on who owns the company.

If the company is owned by a non-public business, this blog will help you. Publicly-traded companies, such as Google and Apple, have different tax laws. This is because they pay little of their profits to their owners.

Offshore companies and foreign limited liability companies can maximize the foreign tax credit for privately-owned American businesses–but only if they are careful. First, let me update you.

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Saving Taxes with the New IRS Foreign Entity Classification Rules

Domestication of a foreign trust

Applying for an IRS ruling on your international tax planning will save you taxes in the long run.

Your first task in foreign tax planning  is  knowing if your foreign company is treated as  a corporation or a pass through entity for U.S. taxes.  Both have great but different tax savings.

Foreign entities have different rules as to their classifications as a foreign corporation, a foreign partnership or a foreign disregarded entity. 

For example, most foreign LLC have a default classification  as a foreign corporation.  You can elect a partnership or disregarded classification on  a timely election.  A foreign foundation may be a trust or a corporation for U.S. tax law.

Privately owned businesses must have a “pass through” entity to get a foreign tax credit.    Yet, they want asset protection with a limited liability entity such as a corporation or an LLC.  The IRS entity classification rules are below in the blue print

tax planning, international tax strategies, foreign tax strategies, foreign tax plan, international tax plan, offshore tax,

Learn how to save taxes with “International Taxation in America for the Entrepreneur” using tried and true methods.

Tax planning ideas come from reading below and seeing what is not included.   Get more tried and true international tax planning strategies in my easy to read book, International Taxation in America for the Entrepreneur on this link.  Amazon has the Kindle version on sale for only $9.50.  However, the new audiobook allows you to become a tax expert while you are driving. 

SECTION 1. PURPOSE

The Treasury Department and the Internal Revenue Service (IRS) have become aware that taxpayers are concerned about the validity of elections made by certain foreign eligible entities under § 301.7701-3(c) of the Procedure and Administration Regulations to be classified for federal tax purposes as a partnership or disregarded as an entity separate from its owner (a disregarded entity).

The Treasury Department and IRS understand that these concerns arise due to uncertainty regarding the number of owners for federal tax purposes of the foreign eligible entity on the effective date of the election.

To alleviate these concerns and simplify tax administration, this revenue procedure provides that, if the requirements of this revenue procedure are satisfied, the IRS will treat an election under § 301.7701-3(c) to classify a foreign eligible entity that is a qualified entity (as defined in section 3.02 of this revenue procedure) as a partnership or disregarded entity as an election to be treated as a partnership or disregarded entity (as appropriate) rather than as an association taxable as a corporation.

SECTION 2. BACKGROUND

.01 Section 301.7701-1(a)(1) states that the Internal Revenue Code (Code) prescribes the classification of various organizations for federal tax purposes. Whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal tax law and does not depend on whether the organization is recognized as an entity under local law.

.02 Section 301.7701-1(b) provides that the classification of organizations that are recognized as separate entities is determined under §§ 301.7701-2, 301.7701-3, and 301.7701-4 unless a provision of the Code provides for special treatment of that organization.

.03 Section 301.7701-2(a) defines the term “business entity” as any entity recognized for federal tax purposes (including an entity with a single owner that may be disregarded as an entity separate from its owner under § 301.7701-3 (“a disregarded entity”)) that is not properly classified as a trust under § 301.7701-4 or otherwise subject to special treatment under the Code.

A business entity with two or more members is classified for federal tax purposes as either a corporation or a partnership. A business entity with only one owner is classified as a corporation or is disregarded; if the entity is disregarded, its activities are treated in the same manner as a sole proprietorship, branch, or division of the owner.

.04 Section 301.7701-3(a) provides that a business entity that is not classified as a corporation under § 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an eligible entity) can elect its classification for federal tax purposes.

An eligible entity with at least two members can elect to be classified as either an association (and thus a corporation under § 301.7701-2(b)(2)) or a partnership, and an eligible entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner. Elections are necessary only if an eligible entity does not want its default classification or if an eligible entity chooses to change its classification.

.05 Section 301.7701-3(b)(2)(i) provides that, except for certain existing entities described in § 301.7701-3(b)(3), unless a foreign eligible entity elects otherwise, the entity is: (A) a partnership if it has two or more members and at least one member does not have limited liability; (B) an association if all members have limited liability; or (C) disregarded as an entity separate from its owner if it has a single member that does not have limited liability.

Author note- Here is a new  IRS memo The IRS disregards these rule if the foreign entity could be a trust.    

.06 Section 301.7701-3(c)(1)(i) provides that an eligible entity may elect to be classified other than as provided under § 301.7701-3(b) by filing Form 8832, Entity Classification Election, with the appropriate IRS Service Center. Under § 301.7701-3(c)(1)(iii), this election will be effective on the date specified by the entity on Form 8832 or on the date filed if no such date is specified on the election form.

The effective date specified on Form 8832 cannot be more than 75 days prior to the date on which the election is filed and cannot be more than 12 months after the date on which the election is filed.

.07 Section 301.7701-3(c)(1)(ii) provides that an eligible entity required to file a federal tax or information return for the taxable year for which an election is made must attach a copy of its Form 8832 to its federal tax or information return for that year. If the entity is not required to file a return for that year, a copy of its Form 8832 must be attached to the federal income tax or information return of any direct or indirect owner of the entity for the taxable year of the owner that includes the date on which the election was effective.

.08 Section 301.7701-3(c)(1)(iv) provides in part that, if an eligible entity makes an election under paragraph (c)(1)(i) of this section to change its classification (other than an election made by an existing entity to change its classification as of the effective date of this section), the entity cannot change its classification by election again during the 60 months succeeding the effective date of the election. An election by a newly formed eligible entity that is effective on the date of formation is not considered a change for purposes of this paragraph (c)(1)(iv).

.09 Section 301.7701-3(c)(2)(i) provides that an election made under § 301.7701-3(c)(1)(i) of this section must be signed by: (A) each member of the electing entity who is an owner at the time the election is filed; or (B) any officer, manager, or member of the electing entity who is authorized (under local law or the entity’s organizational documents) to make the election and who represents to having such authorization under penalties of perjury.

SECTION 3. SCOPE

.01 In General. This revenue procedure provides guidance on the classification for federal tax purposes of a business entity that is a qualified entity (as defined in section 3.02 of this revenue procedure) and is in lieu of the letter ruling process ordinarily used to obtain relief for a late change of entity classification election filed pursuant to §§ 301.7701-3(c), 301.9100-1, and 301.9100-3. Accordingly, user fees do not apply to corrective actions under this revenue procedure.

.02 Qualified Entity. For purpose of this revenue procedure, a business entity is a “qualified entity” if the following conditions are satisfied:

  • (a) As a partnership based on the reasonable assumption that it had two or more owners as of the effective date of the election; or (b) As a disregarded entity based on the reasonable assumption that it had a single owner as of the effective date of the election;
    (a) The business entity and its actual and purported owners (or owner) have treated the entity consistently with the election on the otherwise valid Form 8832 on all filed information and tax returns; or (b) No information or tax returns have been required to be filed since the effective date for the election made on the otherwise valid Form 8832; and

(1) The business entity is an eligible entity under § 301.7701-3(a);

(2) The business entity is foreign under § 301.7701-5(a);

(3) The classification of the business entity, either by default under § 301.7701-3(b)(2)(i)(B) for a newly formed or newly relevant eligible entity, or by election under § 301.7701-3(c) for an existing relevant entity, would be or was an association taxable as a corporation;

(4) As permitted under § 301.7701-3(c), the business entity filed an otherwise valid Form 8832 electing to be treated for federal tax purposes,
(5) For federal tax purposes, either:
(6) The period of limitations on assessments (as established under section 6501(a) of the Code) has not ended for any taxable year of the business entity or its actual and purported owners (or owner) affected by the election made on the otherwise valid Form 8832.

.03 Entities That Fail to Qualify for Relief Under This Revenue Procedure

.A business entity that does not qualify for relief under this revenue procedure may request relief through the letter ruling process in accordance with Rev. Proc. 2010-1, 2010-1 I.R.B. 1 (or its successor).

SECTION 4. APPLICATION

.01 If a qualified entity files an otherwise valid Form 8832 to be classified as a partnership for federal tax purposes but it is later determined that the qualified entity had a single owner for federal tax purposes as of the effective date of the election, the IRS will treat the Form 8832 as an election to classify the qualified entity as a disregarded entity for federal tax purposes provided that:
(1) The qualified entity’s actual single owner and purported owners as of the effective date of the election file original or amended returns consistent with the treatment of the entity as a disregarded entity for any taxable year that would have been affected if the election had been made to treat the qualified entity as a disregarded entity for federal tax purposes;

(2) All required amended returns are filed before the close of the period of limitations on assessments under § 6501(a) for any relevant taxable year; and

(3) A corrected Form 8832 is filed with the appropriate Internal Revenue Service Center and a copy of the corrected Form 8832 is attached to the single owner’s amended return for the taxable year during which the original election was made as required under § 301.7701-3(c)(1)(ii). The statement “FILED PURSUANT TO REVENUE PROCEDURE 2010-32” must be included across the top of the corrected Form 8832. Additionally, the corrected Form 8832 must satisfy the requirements of § 301.7701-3(c)(2)(i).
.02 If a qualified entity files an otherwise valid Form 8832 electing to be classified as a disregarded entity for federal tax purposes but it is later determined that the qualified entity had two or more owners for federal tax purposes as of the effective date of the election, the IRS will treat the Form 8832 as an election to classify the qualified entity as a partnership for federal tax purposes provided that:
(1) The qualified entity files information returns and its actual owners file original or amended returns consistent with the treatment of the entity as a partnership for any taxable year that would have been affected if the original election had been made to treat the qualified entity as a partnership for federal tax purposes;

(2) All required information and amended returns are filed before the close of the period of limitations on assessments under § 6501(a) for the relevant taxable year; and

(3) A corrected Form 8832 is filed with the appropriate Internal Revenue Service Center and a copy of the corrected Form 8832 is attached to the owners’ amended returns for the taxable year during which the original election was made as required under § 301.7701-3(c)(1)(ii). The statement “FILED PURSUANT TO REVENUE PROCEDURE 2010-32” must be included across the top of the corrected Form 8832. Additionally, the corrected Form 8832 must satisfy the requirements of § 301.7701-3(c)(2)(i).

If you need to up the quality of your tax planning, then contact me, Brian Dooley, CPA, MBT, [email protected]