Tag Archives: International taxation

Provocative International Tax Accounting and Planning News for Small Business

Forget the Trump tax reform with a 20$% corporate tax rate because a new Government Report show business how to get a 14% tax rate, now.  Here’s what’s going on.    

International tax planning and strategy

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

Fantastic IRS 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.

Amazing IRS Avoidance of  state income taxes  with 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 letter from the U.S. to the U.K. 

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 and it is free!.  Find the answers to your tax question quickly and accurately.

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 used by the IRS to blow up this offshore plan.

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.

Trusts 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 offshore cloud computer. 

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.

Here is how it works.  A computer service that can provide a service (such as a tax research program) or a product (such as music, e-books, video) has special sourcing rules.  The income can be foreign source income when the computer server in a foreign country. 

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.

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.

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.

Saving Taxes with the New IRS Partnership Audit Guide

saving taxes, how to save taxes, tax planning,

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

I came across the IRS audit guide for partnerships.  IRS agents are not tax experts. So, the IRS has a guide to tell them what to do. Knowing how to save taxes means you will need to know the tax planning strategies discussed in this audit guide.

Just how do you save taxes if you have a partnership?  I recommend that read this guide and you will become a partnership tax expert.  

International tax planning strategies include the use of foreign partnerships.  They are ideal for income shifting.  As you will see in this guide, the section for international taxation of a foreign partnership is left “blank.”  If an IRS agent audits your foreign partnership, the agent is on his own.

A word of caution, a foreign limited liability company is not treated as a domestic LLC. A foreign LLC is classified as a foreign corporation unless the owner’s make an election with the IRS.   If you need help with this, then contact me. 

Both the Delaware LLC  Nevada LLC are popular international tax planning entities. They are so effective that the Mexico has complained to the U.S.Government.

Great tax planners guide their clients.  They do more than just prepare a tax return.  If your CPA is not guiding you, then find a new CPA.  My firm does not prepare tax returns.  However, we guide many clients.

If you need help with your tax planning, then email me, Brian Dooley, CPA, MBT at [email protected]

Partnership Tax Planning with the  IRS Audit Techniques Guide

This Audit Techniques Guide (ATG) is presented in several chapters. The publication/revision date of each chapter is posted in the Table of Contents below. These chapters can be accessed and then printed by following the links in the Table of Contents below.

Chapter 1 and 2 – Initial Year Return Issues  (Published 12-2002) (author note – this section has many tax elections that will save you taxes).

Chapter 3 – Contributions of Property with Built-in Gain or Loss ─ IRC section 704(c) (Revised 12/2007) (Author note – here you will learn sophisticated tax planning methods for both onshore and offshore tax planning).

Chapter 4 – Distributions (Revised 12/2007) (Author note: this chapter contains the fundamentals of tax basis (tax cost) shifting).

Chapter 5 – Loss Limitations (Revised 12/2007) (Author note: loss limitations include the “at risk” tax law from 1976).

Chapter 6 – Partnership Allocations (Revised 12/2007) (Author note: for the foreign partnership this chapter is vital).

Chapter 7 – Dispositions of Partnership Interest (Revised 03-2008) (Author note: timing of income and losses is a sophisticated tax plan.  Your CPA should read this)

Chapter 8 –  Real Estate Issues in Partnerships (Published 12-2002)

Chapter 9 – Tax Shelters (Revised 12/2007) (Author note: read this chapter to learn what not to do).

Chapter 10 – International ─ (Reserved)  (Too complicated for the IRS.  If you want to brainstorm your ideas or concerns, then please give me a call for a free one-hour consultation.) 

Chapter 11 –  Family Partnerships (Author note: on this link your learn income shifting methods, how to avoid estate taxes and asset protection.)

 

The Alluring Tax Benefit of Using Your Own Loan Guarantor Abroad

Another taxpayer victory reminding the IRS of the income sourcing rules.

Another taxpayer victory is reminding the IRS of the income sourcing rules.

The U.S. tax code might have worked for the Industrial Age, but in today’s world, where international business connections and virtual currency dominate, the tax code is severely outdated.

Luckily for tax-savvy business owners, that translates into opportunities for significant tax savings.

Take the case of the Container Corporation, a global company that used its resources abroad to back up notes issued by its U.S.-based company. International, the domestic company, paid guaranty fees to its parent corporation, Vitro, based in Mexico.

To clarify the details of Container Corporation v. the Commissioner of the Internal Revenue, Vitro did not loan money to its U.S.-based subsidiary, International. Instead, Vitro promised to pay notes issued by International in the event of a default. International paid its parent company a guaranty fee in exchange for that service.

Initially, the IRS argued that guaranty fees were similar to interest and therefore, taxable. On the other hand, the Container Corporation argued that the fees were equivalent to payment for services. Moreover, because the fees weren’t generated from within the United States, those fees weren’t subject to withholding taxes under 26 U.S.C. § 881(a).

When the case initially went to the U.S. Tax Court, the court agreed with the Container Corporation. International did not have to withhold 30 percent of the guaranty fees paid, according to the Tax Court ruling.

Nevertheless, the IRS refused to give up. They presented the case to the U.S. Court of Appeals for the Fifth Circuit in 2011. Once again, the victory went to the taxpayers.

The IRS never stood a chance. Guaranty fee income is sourced where the service provider resides. End of story.

In the ruling, the Court of Appeals referred to the landmark 1942 case Comm’r v. Piedras Negras Broadcasting Co., which established the standard for determining the source of income. In the Container Corporation case, the court said, “It is clear that the source of payments for services is where the services are performed, not where the benefit is inured.”

Frequent readers of the International Tax Counselors blog are well aware that avoiding U.S. source income in the virtual world has never been easier. The use of virtual currency has opened a new gateway to tax savings, and for the last 30-plus years, I’ve dedicated my CPA practice to uncovering new strategies to take advantage of that.

If you’re interested in learning more about using virtual currency and income source rules to gain the maximum tax benefits, my book International Taxation in America will get you up to speed. The Piedras Negras Broadcasting Co. case—referenced in the 2011 ruling above—is one of three historic court cases highlighted in the book.

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