CFC Income Recognition: Five Groups | International Tax Lawyer & Attorney

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Ownership of a Controlled Foreign Corporation (“CFC”) presents unique income tax challenges under US international tax law. One of them is the fact that US shareholders of a CFC may have to recognize CFC income on their US tax returns beyond what is required under US domestic tax laws. In this article, I will introduce the readers to the main five CFC income recognition groups.

CFC Income Recognition: General Definitions of “CFC” and “US Shareholder”

Before we describe the five main CFC income recognition groups, we should briefly define the US international tax concepts of “CFC” and “US Shareholder”. I will provide only a general definition of both here; there are some specific circumstances that may modify this definition.

Generally, a foreign corporation is a CFC if US shareholders own more than 50% of the corporation’s stock. One determines the percentage of stock ownership either based on the value of stocks or the voting rights associated with these stocks.

A person is considered to be a US Shareholder if this person is a US person that owns more 10% or more of the total voting power or the total value of all classes of stock in a foreign corporation. Besides the direct ownership of stock, one should also include this US person’s indirect ownership of stock as well as any stock he (or it) owns constructively by the operation of any of the attribution rules of IRC §958(b). These rules are described in detail in other articles on sherayzenlaw.com.

CFC Income Recognition As A Special Set of US International Tax Rules

When we talk about “CFC income recognition”, we mean a set of special US international tax rules that require US shareholders of a CFC to recognize income from the CFC that would not be normally taxed. In other words, this is income that no one would recognize under the normal US domestic tax rules or even any other US international tax rules.

CFC Income Recognition: Five Main Groups

The CFC income recognition rules force US shareholders of a CFC to increase their gross income only by certain types of income of a CFC. There are five main groups of this special CFC income:

  1. §951(a)(1)(A): subpart F income earned by a CFC;
  2. Former §951(a)(1)(A)(ii) and former §951(a)(1)(A)(iii) (both repealed by the 2017 tax reform, but still relevant for the years beginning before January 1, 2018): previously excluded subpart F income withdrawn from certain types of investments;
  3. §951(a)(1)(B): investments in certain types of US property;
  4. §951A: GILTI (Global Intangible Low-Taxed Income) income starting January 1, 2018; and
  5. §59A: base erosion minimum tax starting January 1, 2019.

Note that these are not the only rules that may accelerate recognition of CFC income. As stated above, these five groups of income are the ones that apply only to US shareholders of a CFC. However, there are other tax rules that apply to CFCs as well as other types of corporations.

Contact Sherayzen Law Office Concerning CFC Income Recognition Rules

Each of the aforementioned five groups of CFC income contains a huge amount of highly complex rules and exceptions. There are also important rules for the interaction of these categories with each other as well as other general US tax rules. It is very easy to get into trouble in this area of law without the help of an experienced international tax lawyer.

If you are US shareholder of a CFC contact Sherayzen Law Office for professional tax help. We have successfully helped US shareholders around the world with their US tax compliance concerning their ownership of CFCs, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

January 28 2021 Inbound Transactions Seminar | US International Tax Lawyer

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On January 28, 2021, Mr. Eugene Sherayzen, an international tax attorney and founder of Sherayzen Law Office, Ltd., co-presented with a business lawyer a seminar titled “Investing in US Businesses by Foreign Persons – Common Business and Tax Considerations” (the “Inbound Transactions Seminar”). The Inbound Transactions Seminar was sponsored by the International Business Law Section of the Minnesota State Bar Association. Due to the ongoing COVID-19 pandemic, the seminar was conducted online.

Mr. Sherayzen began his part of the Inbound Transactions Seminar with an explanation of the term “inbound transactions” and how it differs from “outbound transactions”. He then laid out a flowchart which represented the entire analytical tax framework for inbound transactions; the tax attorney warned the audience that, due to time restraints, the breadth of the subject matter only allowed him to generally highlight the most important parts of this framework.

Then, Mr. Sherayzen proceeded with an explanation of each main issue listed on the inbound transactions tax framework flowchart. First, he discussed the explanation of the concept of a US person and how it related to the flowcharted. The international tax attorney provided definitions for all four categories of US persons: individuals, business entities (corporations and partnerships), trusts and estates.

Then, Mr. Sherayzen focused on the second part of the flowchart – US income sourcing rules. After the general explanation of the significance of the income sourcing rules, the international tax attorney discussed in general terms the application of these rules to specific types of income: interest, dividends, rents, royalties, sales of personal property, sales of inventory, sales of real estate and income from services. Despite the time limitations, he was even able to provide a few examples of some of the most paradoxical outcomes of some of the US source-of-income rules.

The third part of the Inbound Transactions Seminar was devoted to the definition of “US trade or business activities”, an important tax term. Mr. Sherayzen provided a general definition and gave some specific examples, warning the audience that this is a highly fact-dependent issue.

In the next two parts of the seminar, the international tax attorney explained one of the most important terms in US taxation – ECI or Effectively Connected Income. Mr. Sherayzen not only went over all three ECI income categories but he also explained how ECI should be taxed. He also mentioned the affect of specific tax regimes (such as BEAT and branch taxes) on the taxation of ECI.

After finishing the left side of the flowchart (the part that was devoted to the analysis of the ECI of US trade and business activities), Mr. Sherayzen switched to the explanation of inbound transactions that do not involve US trade or business activities. In this last part of his presentation, the international tax attorney discussed the definition of FDAP income and the potential Internal Revenue Code and treaty exemptions from US taxation.

While the ongoing pandemic currently limits the number of options for conducting seminars, Mr. Sherayzen already plans future talks in 2021 on the subjects of US international tax compliance and US international tax planning.

Inbound Transactions Tax Framework | US International Tax Lawyer & Attorney

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Inbound transactions deal with Non-US persons who operate in and/or derive income from the United States. This introductory essay opens a series of articles concerning US taxation of inbound transactions. Today, I will set forth the general inbound transactions tax framework; in future articles, I will explore in more detail each element of this framework.

Inbound Transactions Tax Framework: General Guiding Principals

US taxation of inbound transactions is mainly based on the following guiding principle – nexus to the United States. In other words, the US government taxes Non-US persons in a different manner depending on the level and extent of a Non-US person’s activities in the United States.

The more extensive and regular these activities are, the more likely the income derived from these activities to be taxed by the IRS on a net-income basis (as opposed to gross income) at graduated tax rates. On the other hand, if a Non-US person’s activities are limited, less frequent and more passive, then they are likely to be subject to a completely different type of taxation – the one based on gross income at a set rate.

This “US nexus” principal is subject to numerous exceptions due to the fact that the inbound transactions tax framework incorporates two additional goals. The first goal is the US government’s attempt to design the framework in a manner which would attract foreign investments into the United States. For this reason, the Internal Revenue Code (“IRC”) may exclude entire categories of income from US taxation either directly or by altering the source-of-income rules (i.e. excluding certain income from the definition of “US-source income”).

Second, as a counter to the “attraction of foreign investments” principal, the US government wishes to make sure that all income of Non-US persons that needs to be taxed is actually taxed and there is no inappropriate non-taxation of US-source income. As a result of the IRS efforts to ensure the effectiveness of this principal, certain types of income are subject to special regimes of taxation. The most prominent example is the taxation of foreign investments in US real property.

Finally, one should remember to consult US income tax treaties for country-specific exceptions. In particular, treaties often modify tax-withholding provisions with respect to various categories of US-source income.

Inbound Transactions Tax Framework: Main Test

The analytical framework for the taxation of inbound transactions is comprised of a test with seven critical questions. The answers to each question will point us to the right sections of the Internal Revenue Code and establish the correct tax treatment for specific types of income.

  1. Is the person who derives the income is a US person or a Non-US person?

Obviously, if the answer to the question is “US person”, then we are not dealing with an inbound transaction, but a domestic investment. Hence, the taxation of a transaction or investment should be examined under a different tax framework (the one that applies to US persons) than the inbound transactions tax framework.

The difference between these tax frameworks is huge. A US person is subject to worldwide income taxation, whereas a Non-US person is generally taxed only on the income derived from US business activities and US investments.

2. Is it a US-source income?

The question whether a Non-US person derives US-source income or foreign-source income is of huge importance and complexity. The answer to this question involves the analysis of relevant source-of-income rules as modified by a relevant tax treaty.

Generally, Non-US persons are taxed only on their US-source income. This means that if it is determined that the income is derived from a foreign-source, none of it is likely to be subject to US taxation. However, certain types of foreign-source income deemed “effectively connected” with US business activities may still be taxed in the United States. Hence, even if the answer to this question #2 is “no”, you must still continue your analysis by answering question #4 below.

3. Does the Non-US person engage in US trade or business activities?

The determination of whether a Non-US person engages in “trade or business within the United States” depends highly on the facts of a case. In a future article, I will discuss in more detail what the IRS and the courts have determined this term of art to mean.

4. Is the income effectively connected to these US trade or business activities?

The term “effectively connected income” or ECI is one of the most important concepts in US international tax law. It may include not only US-source income generated by a US trade or business, but also certain foreign-source income closely related to a US trade or business. In a future article, I will explore ECI in more detail.

5. Is the ECI subject to a special tax regime such as BEAT or Branch Tax?

The ECI of a foreign person may be subject to a special tax regime related to US companies owned by a foreign person or US branches of a foreign corporation. I will discuss each of these regimes in more detail in the future.

6. If the Non-US person is not engaged in US trade or business activities, is his US-source income classified as FDAP (Fixed, Determinable, Annual or Periodic) income?

FDAP income typically includes passive investment income, such as interest, dividends, rents and royalties. Unless modified by a treaty, FDAP income is subject to a 30% tax withholding on gross income. I will cover FDAP income in more detail in the future.

7. Is this FDAP income subject to an IRC or Treaty Exemption?

In order to promote foreign investment into the United States, certain types of FDAP income are entirely exempted rom US taxation. These exemptions can be found in the IRC or a relevant tax treaty. Again, I will discuss FDAP exemptions in more details in a future article.

Inbound Transactions Tax Framework: Information Returns

In addition to income tax considerations, it is important to remember that the answers to the questions above may lead to the determination of additional compliance requirements in the form of information returns. For example, if a Non-US person engages in a US trade or business through a foreign-owned US corporation, then this corporation may likely have to file Form 5472. A failure to file relevant information returns may lead to an imposition of significant IRS penalties.

Contact Sherayzen Law Office for Professional Help With US Tax Compliance and Planning

If you are a Non-US person who has income from the United States or engages in business activities in the United States, contact Sherayzen Law Office for professional help with your US tax compliance. We have helped hundreds of taxpayers around the world and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Beware of Flat-Fee Lawyers Doing Streamlined Domestic Offshore Procedures

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Recently, I received a number of phone calls and emails from people who complained about incorrect filing of their Streamlined Domestic Offshore Procedures (“SDOP”) packages by lawyers who took their cases on a flat-fee basis. In this article, I would like to discuss why a flat fee is generally not well-suited for a proper SDOP preparation and why clients should critically examine all facts and circumstances before retaining flat-fee lawyers.

A small disclosure: the analysis below is my opinion and the result of my prior experience with SDOPs. Moreover, I am only describing general trends and there are certainly exceptions which may be applicable to a specific case. Hence, the readers should consider my conclusions in this article carefully and apply them only after examining all facts and circumstances related to a specific lawyer before making their final decision on whether to retain him.

Flat-Fee Lawyers versus Hourly-Rate Lawyers

The two main business models that exist in the professional tax community in the United States with respect to billing their clients are the hourly-rate model and the flat-fee model. The hourly-rate model means that an attorney’s fees will depend on the amount of time he actually worked on the case. The flat-fee model charges one fee that covers a lawyer’s work irrespective of how much time he actually spends on a case.

Both billing models have their advantages and disadvantages. Generally, the chief advantage of an hourly-rate model is potentially higher quality of work. The hourly-rate model has a built-in incentive for attorneys to do as accurate and detailed work as possible, maximizing the quality of the final work product. An hourly-rate attorney is likely to take more time to explore the documents, uncover hidden problems of the case and properly resolve them.

The disadvantage of an hourly-rate model is that it cannot make an absolutely accurate prediction of what the legal fees will ultimately be. However, this problem is usually mitigated by estimates – as long as he knows all main facts of the case, an experienced attorney can usually predict the range of his legal fees to cover the case. Only a discovery of substantial unexpected issues (that were not discussed or left unresolved during the initial consultation) will substantially alter the estimate, because more time would be needed to resolve these new issues.

The chief advantage of the flat-fee model is the certainty of the legal fee – the client knows exactly how much he will pay. A secondary advantage of this model is the built-in incentive for flat-fee lawyers to complete their cases as fast as possible.

However, this advantage is undermined by several serious disadvantages. First, the flat-fee model provides a powerful incentive for lawyers to spend the least amount of time on a client’s case in order to maximize their profits; in other words, the flat-fee model has a potential for undermining the quality of a lawyer’s work product. Of course, it does not happen in every case, but the potential for such abuse is always present in the flat-fee model.

Second, closely-related to the first problem, the flat-fee model discourages lawyers from engaging in a thorough analysis of their clients’ cases. This may later result in undiscovered issues that may later expose a client to a higher risk of an unfavorable outcome of the case. Again this does not happen in every case, but I have repeatedly seen this problem occur in voluntary disclosures handled by flat-fee lawyers and CPAs.

Finally, a client may actually over-pay for a flat-fee lawyer’s services compared to an hourly-rate attorney, because a flat-fee lawyer is likely to set his fees at a high level to make sure that he remains profitable irrespective of potential surprises contained in the case. Of course, there is a risk for flat-fee lawyers that the reverse may occur – i.e. despite being set to a high level, the fee is still too small compared to issues involved in a case.

The effective usage of either one of these billing models differs depending on where they are applied. In situations where the facts are simple and legal issues are clear, a flat-fee model may be preferable. However, where one deals with a complex legal situation and the facts cannot all be easily established during an initial consultation, the hourly-rate model with its emphasis on thoroughness and quality of legal work is likely to be the best choice.

Flat-Fee Lawyers Can Be An Inferior Choice for Streamlined Domestic Offshore Procedures

In my opinion and based on the analysis above, in the context of an SDOP voluntary disclosure, a flat-fee engagement is particularly dangerous because of the nature of offshore voluntary disclosure cases.

Voluntary disclosures are likely to deal with complex US international tax compliance issues and unclear factual patterns. It may be difficult to identify all legal issues and all US international tax reporting requirements during an initial consultation. There are too many facts that clients may simply not have at their disposal during an initial consultation. Moreover, additional issues and questions are likely to arise after the documents are processed. I once had a situation where I discovered that a client had an additional foreign corporation with millions of dollars only several months after the initial consultation – the corporation was already closed and the client forgot about it.

For these reasons, SDOP and offshore voluntary disclosures in general require an individualized, detailed and thorough approach as well as a hard-to-determine (during an initial consultation) depth of legal analysis which is generally ill-fit for a flat-fee engagement. A flat-fee lawyer is unlikely to accurately estimate how much time is required to complete a client’s case and, hence, unlikely to accurately set his flat fee for the case.

This can cause a huge conflict of interest as the case progresses. I have seen a number of cases where, in an attempt to remain profitable, flat-fee lawyers did their analysis too fast and failed to properly identify all relevant tax issues; as a result, the voluntary disclosures (including SDOP disclosures) done by them had to amended later by my firm. This caused significant additional financial costs and mental stress to my clients.

In my opinion, this potential conflict of interest makes the flat-fee model unsuitable for the vast majority of the SDOP cases.

Beware of Some Flat-Fee Lawyers Including Unnecessary Services Into the Flat Fee

This applies only to a tiny minority of flat-fee lawyers. I have observed several times where flat-fee lawyers included irrelevant services that the client never used to increase the flat fee for the case (for example, audit fees for years not included in the SDOP). My recommendation is that, if you decide to go with a flat-fee arrangement, you should make sure that it includes only the services that you will likely use.

Contact Sherayzen Law Office for Professional Help With Streamlined Domestic Offshore Procedures

Sherayzen Law Office is a leader in SDOP disclosures. We have helped clients from over 70 countries with their offshore voluntary disclosures, including SDOPs. Our firm follows an hourly-rate billing model, because we value the quality of our work above all other considerations. Of course, we make every effort to make our fees reasonable and competitive, but our priority is the peace of mind of our clients who know that they can rely on the creativity of our legal solutions and the high quality of our work.

Contact Us Today to Schedule Your Confidential Consultation!

July 15 Deferral: More Deadlines Affected | US International Tax News

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On April 9, 2020, the IRS announced additional relief to taxpayers by moving the due date for more deadlines to July 15, 2020. Let’s discuss this additional July 15 Deferral in more detail.

July 15 Deferral: Background Information

On March 13, 2020, in response to the 2019 coronavirus (also called “COVID-19″) pandemic, President Trump issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. This declaration instructed the Treasury Department to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency pursuant to 26 U.S.C. §7508A(a).

Section 7508A of the Internal Revenue Code provides the Secretary of the Treasury with authority to postpone the time for performing certain acts under the internal revenue laws for a taxpayer determined by the Secretary to be affected by a federally-declared disaster as defined in section 165(i)(5)(A). Pursuant to section 7508A(a), a period of up to one year may be disregarded in determining whether the performance of certain acts is timely under the internal revenue laws.

On March 18, 2020, the IRS issued Notice 2020-17 to postpone April 15 tax payment deadlines from April 15 to July 15, 2020. A few days later, on March 21, 2020 (the actual relief occurred even earlier on March 20, 2020), among other measures, the IRS announced a new notice 2020-18 for the extension of all April 15 deadlines to July 15, 2020. This extension applied only to the April 15 deadlines.

Later, on March 27, 2020, the IRS issued Notice 2020-20, which amplified the earlier notice 2020-18 and postponed certain federal gift tax return filings and payments to July 15, 2020.

July 15 Deferral: More Deadlines Affected

On April 9, 2020, the IRS took another decisive step forward and issued Notice 2020-23. This notice extends to July 15 all tax deadlines that fall on or after April 1, 2020 and July 14, 2020. This deferral applies to all tax filing and tax payment deadlines.

The July 15 deferral of deadlines applies to all taxpayers – individuals, trusts, estates, corporations and other non-corporate tax filers.

July 15 Deferral: Taxpayers Residing Abroad

Americans who reside abroad usually get an automatic extension to file their tax returns until June 15, but they are required to pay taxes due by April 15. Notice 2020-23 defers the tax payment and the tax filing deadlines from April 15 and June 15 respectively to July 15, 2020.

July 15 Deferral: Individual Tax Returns

Notice 2020-23 applies to the following types of individual tax returns and tax payments:

  1. Form 1040, U.S. Individual Income Tax Return, 1040-SR, U.S. Tax Return for Seniors;
  2. 1040-NR, U.S. Nonresident Alien Income Tax Return;
  3. 1040-NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents;
  4. 1040-PR, Self-Employment Tax Return – Puerto Rico; and
  5. 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico);

July 15 Deferral: Corporate Tax Returns

Notice 2020-23 applies to the following types of corporate tax returns and tax payments (irrespective of whether they are calendar-year or fiscal-year taxpayers):

  1. Form 1120, U.S. Corporation Income Tax Return;
  2. 1120-C, U.S. Income Tax Return for Cooperative Associations;
  3. 1120-F, U.S. Income Tax Return of a Foreign Corporation;
  4. 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation;
  5. 1120-H, U.S. Income Tax Return for Homeowners Associations;
  6. 1120-L, U.S. Life Insurance Company Income Tax Return;
  7. 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;
  8. 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return;
  9. 1120-POL, U.S. Income Tax Return for Certain Political Organizations;
  10. 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;
  11. 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies;
  12. 1120-S, U.S. Income Tax Return for an S Corporation; and
  13. 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B).

July 15 Deferral: Partnership Tax Returns

Notice 2020-23 applies to the following types of partnership calendar-year and fiscal-year tax returns:

  1. Form 1065, U.S. Return of Partnership Income; and
  2. Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return.

July 15 Deferral: Estate, Gift and Trust Tax Returns

Notice 2020-23 applies to the following types of estate, gift and trust tax returns (including all tax payments required to be made under these returns):

  1. Form 1041, U.S. Income Tax Return for Estates and Trusts;
  2. 1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts;
  3. 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts;
  4. Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return (for estate of a citizen or resident of the United States), including for filings pursuant to Revenue Procedure 2017-34;
  5. 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return (for estate of a nonresident not a citizen of the United States);
  6. 706-A, United States Additional Estate Tax Return;
  7. 706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts;
  8. 706-GS(T), Generation-Skipping Transfer Tax Return for Terminations;
  9. 706-GS(D), Generation-Skipping Transfer Tax Return for Distributions;
  10. 706-GS(D-1), Notification of Distribution from a Generation-Skipping Trust (including the due date for providing such form to a beneficiary);
  11. Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent and any supplemental Form 8971, including all requirements contained in section 6035(a) of the Code; and
  12. Estate tax payments of principal or interest due as a result of an election made under sections 6166, 6161, or 6163 and annual recertification requirements under section 6166 of the Code.

July 15 Deferral: Tax-Exempt Tax Returns

Notice 2020-23 applies to Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e) of the Code).

July 15 Deferral: Excise Taxes

Notice 2020-23 applies to excise tax payments on investment income and return filings on Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation as well as excise tax payments and return filings on Form 4720, Return of Certain Excise Taxes under Chapters 41 and 42 of the Internal Revenue Code.

July 15 Deferral: Quarterly Estimated Tax Payments

Notice 2020-23 applies to various types of quarterly estimated income tax payments calculated on or submitted with the following forms:

  1. 990-W, Estimated Tax on Unrelated Business Taxable Income for Tax-Exempt Organizations,
  2. 1040-ES, Estimated Tax for Individuals;
  3. 1040-ES (NR), U.S. Estimated Tax for Nonresident Alien Individuals;
  4. 1040-ES (PR), Estimated Federal Tax on Self Employment Income and on Household Employees (Residents of Puerto Rico);
  5. 1041-ES, Estimated Income Tax for Estates; and Trusts; and
  6. 1120-W, Estimated Tax for Corporations.

July 15 Deferral: Certain Other Affected Taxpayers and Elections; Tax Court Deadlines

Notice 2020-23 also applies to any person performing a time-sensitive action listed in either § 301.7508A-1(c)(1)(iv) – (vi) of the Procedure and Administration Regulations or Revenue Procedure 2018-58, 2018-50 IRB 990 (December 10, 2018), which is due to be performed on or after April 1, 2020, and before July 15, 2020 (“Specified Time-Sensitive Action”). For purposes of this notice, the term Specified Time-Sensitive Action also includes an investment at the election of a taxpayer due to be made during the 180-day period described in the IRS §1400Z-2(a)(1)(A).

Affected Taxpayers also have until July 15, 2020, to perform all Specified Time-Sensitive Actions, that are due to be performed on or after April 1, 2020, and before July 15, 2020. This relief includes the time for filing all petitions with the Tax Court, or for review of a decision rendered by the Tax Court, filing a claim for credit or refund of any tax, and bringing suit upon a claim for credit or refund of any tax. This notice does not provide relief for the time period for filing a petition with the Tax Court, or for filing a claim or bringing a suit for credit or refund if that period expired before April 1, 2020.

July 15 Deferral: Schedules, Elections and Other Forms

Notice 2020-23 applies not only to the aforementioned forms (hereinafter “Specified Forms), but also to schedules, returns, and other forms that are filed as attachments to the Specified Forms or are required to be filed by the due date of the Specified Forms. For example, this affects Schedule H and Schedule SE.

Moreover, elections that are made or required to be made on a timely filed Specified Form (or attachment to a Specified Form) shall be timely made if filed on such Specified Form or attachment, as appropriate, on or before July 15, 2020

July 15 Deferral: International Information Returns and 965 Tax Payments

Notice 2020-23 applies to all US international information returns including forms 3520, 5471, 5472, 8621 (including PFIC elections), 8858, 8865, and 8938. Furthermore, the Notice applies to installment payments under section 965(h) due on or after April 1, 2020, and before July 15, 2020.

This is highly important to Sherayzen Law Office clients’ because almost all of our clients must file these forms and many are required to make 965 installment tax payments.

July 15 Deferral: 2016 Unclaimed Refunds

For 2016 tax returns, the normal April 15 deadline to claim a refund has also been extended to July 15, 2020. The law provides a three-year window of opportunity to claim a refund. If taxpayers do not file a return within three years, the money becomes property of the U.S. Treasury. Notice 2020-23 requires taxpayers to properly address, mail and ensure the tax return is postmarked by the July 15, 2020, date.

July 15 Deferral: IRS Audits, IRS Appeals and Amended Tax Returns

Notice 2020-23 provides a 30-day postponement for “Affected Taxpayers” with respect to “Time-Sensitive IRS Actions” if the last date for performance of the action is on or after April 6, 2020, and before July 15, 2020.

Notice 2020-23 defines “Affected Taxpayers” as:

  1. Persons who are currently under examination (including an investigation to determine liability for an assessable penalty under subchapter B of Chapter 68);
  2. Persons whose cases are with the Independent Office of Appeals; and
  3. Persons who, during the period beginning on or after April 6, 2020 and ending before July 15, 2020, file written documents described in section 6501(c)(7) of the Code (amended returns) or submit payments with respect to a tax for which the time for assessment would otherwise expire during this period.

Notice 2020-23 defines “Time Sensitive IRS Action” as actions described in § 301.7508A-1(c)(2).

July 15 Deferral: Extension of time to file beyond July 15

It is still possible to request an extension of time beyond July 15, 2020 (to October 15, 2020). In order to do it, individual taxpayers must file Form 4868 and business taxpayers must file Form 7004. Both forms should be filed by July 15, 2020.

Taxpayers should keep in mind that an extension to file is not an extension to pay taxes. Taxpayers must estimated their tax liability and pay any taxes owed by July 15, 2020, even if they request an extension to file forms.