taxation law services

International Tax Planning Priorities for US Corporations

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Sometimes, I encounter in my practice one particularly damaging belief concerning international tax planning for US corporations that engage in cross-border transactions and maintain a foreign subsidiary or a network of foreign subsidiaries. This is a belief that international tax planning for such corporations should only focus on the reduction of its US taxes above all other considerations. I reject this one-sided view and argue for balancing of international tax planning priorities for such US corporations. In this article, I will discuss the top priorities that are subject to balancing during proper international tax planning for US corporations who operate overseas.

International Tax Planning Priorities: Tax Planning Should Correspond to Dynamic Facts

Before we outline international tax planning priorities, we need to state a rule that seems very obvious but, unfortunately, is often overlooked – tax planning must correspond to the factual situation around which the planning is done. Since a factual situation of a business is prone to rapid changes, tax planning either needs to pro-actively respond to these dynamic facts or, in cases where it is not possible, adjust to these facts as soon as possible in order to avoid a negative tax impact in the future.

This means that engaging in business transactions that spread over multiple taxing jurisdictions requires continuous tax planning, continuous monitoring of the factual background in which these transactions take place and continuous assessment of tax consequences of these activities.

This rule also means that tax planning must respond to the facts generated by the required business transaction rather than create business transactions purely to save taxes. I should point out that such purely tax-motivated schemes are also unlikely to pass judicial review.

International Tax Planning Priorities: Lower US Tax Liability

There is no question that ethically lowering US tax liability based on the opportunities and incentives present in the Internal Revenue Code is one of the most important priorities of international tax planning. As I stated above, however, this is not the only priority.

International Tax Planning Priorities: Lower Foreign Tax Liability

It is not just the US tax liability of the head office that we should be concerned about. International tax planning should also seek to lower foreign tax liability of its subsidiaries. Moreover, if lowering US tax liability comes at the cost of increasing foreign tax liability or missing an opportunity to minimize it, this outcome may not be optimal for the overall corporate structure.

International Tax Planning Priorities: Maximizing Corporate Earnings

This is a key issue that many practitioners and business owners often miss in US international tax planning. Tax planning is not only about lowering taxes at any cost. If a business is continuously losing a significant amount of money (not strategically recognizing losses, but its profits are actually reduced) because of tax planning, then such tax planning may not be worth the effort.

Effective tax planning means that a tax practitioner should coordinate tax saving efforts with business priorities. Business planning will always see to utilize corporate cash and personnel in a way that maximizes profits. Moreover, business planning will also seek to creatively allocate and move excess cash flow between corporate subsidiaries (and the head office) for the same purpose.

It is precisely the latter function of business planning that requires the most attention of international tax attorneys, because it may result in significant tax costs (which may more than offset the benefit of business planning). At the same time, tax planning must be done in such a way as to minimize the damage it can do to the business’ ability to move cash across the entire corporate structure.

Contact Sherayzen Law Office for International Tax Planning Help

At Sherayzen Law Office, we understand these priorities and the need to balance them before finalizing international tax planning. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Foreign Partnership Definition | International Business Tax Lawyers

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Defining a partnership as “foreign” or “domestic” can be highly important for US tax purposes. In this article, I will explain the foreign partnership definition and explain its significance.

Foreign Partnership Definition: Importance

There may be important US international tax law consequences that stem from whether a partnership is classified as “foreign” or “domestic”. These consequences may encompass not only income tax compliance, but also the type of information returns that may have to be filed. Even tax withholding requirements may be affected by this classification.

Let me give you a few examples of where foreign partnership directly appears in the IRC (Internal Revenue Code) in order for you to appreciate the significance of the foreign partnership definition. The term foreign partnership appears in such diverse provisions as IRC §6046A (filing of information returns by U.S. persons with regard to acquisition, disposition, or substantial change of interest in foreign partnership – this is the famous IRS Form 8865), §3401(d)(2) (wage withholding), §168(h)(5) (tax-exempt entity leasing rules) and even tax withholding rules for disposition of US real property under §1445.

The main reason for this significance of the foreign partnership definition lies in §7701(a)(30), which states that a foreign partnership is not a “US Person”, a highly important term of art in US international tax law. The implications of being a “foreign person” rather than a “US person” can be huge, extending as far as affecting anti-deferral tax regimes.

Foreign Partnership Definition: Formal Partnership

Let’s delve now into the foreign partnership definition. Our starting point is §7701(a)(5); it states that a partnership is considered to be foreign as long as it is “not domestic”. §7701(a)(4) defines domestic partnership as those which were “created or organized in the United States, or under the law of the United States or of any State.”

Under §7701(a)(9), the term “United States” includes only the states and the District of Columbia. In other words, if a partnership is formally organized in any place other than the fifty states of the United States and the District of Columbia, it is a foreign partnership.

What about partnerships created or organized in US possessions? The IRS and the courts have consistently stated that they are foreign (though there are more examples of these rulings with respect to corporations rather than partnerships).

What if a partnership is chartered both in the United States and another country? Without delving too deeply into legal analysis, pursuant to Treas. Reg. §301.7701-5(a), such a partnership would be classified as a domestic entity

Foreign Partnership Definition: Common Law/Private Agreement Partnerships

The above definition only works well in cases where a partnership is formally created or organized under the laws of a country. However, it is also possible for the IRS to classify a contractual relationship as a partnership for tax purposes. In these cases, the determination of whether a partnership is a foreign or domestic for US international tax purposes is a lot more difficult.

At this point, there is no absolute clarity provided by the IRS on this issue. However, there are two main approaches for determining whether a deemed partnership is domestic or foreign that may be acceptable to the IRS: (1) the contract’s governing law; and (2) primary location of the business of the deemed partnership. Let’s review these approaches.

Foreign Partnership Definition for Deemed Partnerships: Governing Law Approach

The governing law approach to classification of partnerships as foreign or domestic states that a partnership should be classified as foreign or domestic depending on the governing law which controls the agreement that gave rise to the deemed partnership.

The IRS often likes this approach, because it pretty much mimics the foreign partnership definition for formal partnerships described above. In other words, while in a formal partnership we look at the place of organization, the governing law approach for deemed partnerships basically looks at the jurisdiction which controls the legal enforcement of the partnership agreement. Both approaches are based on the premise that the foreign partnership definition should depend on whether the partners’ rights and duties are defined under domestic or foreign law.

Foreign Partnership Definition for Deemed Partnerships: Business Location Approach

The primary location of business approach, on the other hand, seeks to classify a deemed partnership not based on where the partners’ rights and duties are defined, but based on where the business of the partnership is actually conducted. The advantage of this approach is that it is closer to business reality and does not artificially classify a partnership based on which law governs it.

There are, however, problems with this approach which make the IRS like it a lot less. First of all, it is very difficult to apply this approach to a partnership with extensive business operations within and outside of the United States. Second, the classification of the same partnership may often switch depending on the shift in the volume of its US operations versus foreign operations.

Contact Sherayzen Law Office for Help With Foreign Partnership Definition

If you are unclear about the classification of your partnership for US tax purposes or you wish to change the existing classification for US tax planning purposes, contact the US international tax law firm of Sherayzen Law Office for professional help. We Can Help You!

Happy New Year 2022 From Sherayzen Law Office!!!

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Dear clients, followers, readers and colleagues:

Sherayzen Law Office wishes you a very Happy New Year 2022!!!

For those of you who are currently not in compliance with their US international tax reporting obligations, including FBAR or FinCEN Form 114, we wish you to successfully resolve your prior noncompliance in this new year 2022 with a minimal amount of IRS penalties!

Dear friends, in the year 2022, you can continue to rely on Sherayzen Law Office for your annual US international tax compliance (including the preparation of FBAR and other US international tax compliance forms such as: Forms 3520, 3520-A, 5471, 8621, 8865, 8938 and 926), your international tax planning (inbound and outbound) and your offshore voluntary disclosures (including: Streamlined Domestic Offshore Procedures (SDOP), Streamlined Foreign Offshore Procedures (SFOP), Delinquent FBAR Submission Procedures, Delinquent International Information Return Submission Procedures, IRS Voluntary Disclosure Practice and Reasonable Cause Disclosures).

In 2022, we will also continue to help you with your IRS audits and examination, including audits of: your prior SDOP and SFOP submissions (as well as other voluntary disclosure options) and your annual international tax compliance. We can also help you fight the imposition of IRS penalties for prior international tax noncompliance, including Form 3520 and 3520-A penalties, Form 5471 penalties, Form 5472 penalties, Form 8865 penalties, Form 926 penalties, et cetera.

In 2022, the US international tax compliance requirements are going to grow more complex, detailed and extensive. The IRS will continue to demand more and more information from US taxpayers, introducing heretofore unknown reporting obligations such as Schedules K-2 and K-3.

In order to deal with this ever-increasing US tax compliance burden, you will need the professional help of Sherayzen Law Office. In this New Year 2022, we can help you!

Your professional US international tax help is but a phone call away from you! Contact us today to schedule a confidential consultation in this New Year 2022!

HAPPY NEW YEAR 2022 EVERYONE!!!

Foreign Real Estate US Taxpayer Definition | International Tax Lawyer

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This essay seeks to identify those considered to be a “US Taxpayer” with respect to reporting foreign real estate or income from it to the IRS. In other words, today, I will discuss the foreign real estate US Taxpayer definition.

Foreign Real Estate US Taxpayer Definition: IRC §7701(a)

The definition of “US taxpayer” for the purposes of foreign real estate is equivalent to the definition of US tax resident or “US Person” in IRC §7701(a). “US Persons” are equivalent to “US taxpayers” for the purposes of this article.

Note that, under §7701(a)(1), a person “shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation”. In other words, a “person” may mean not only an individual, but also a business entity, trust or estate.

Foreign Real Estate US Taxpayer Definition: General Definition

Under §7701(a)(30), a “US Person” means a US citizen, US resident alien, domestic partnership, domestic corporation, any estate that is not a foreign estate and a trust that satisfies both conditions of §7701(a)(30)(E). Let’s discuss each of these categories of US Persons in more detail.

Foreign Real Estate US Taxpayer Definition: Individuals Who Are US Persons

As I stated above, all US citizens and US resident aliens are considered US Persons. In the vast majority of cases, it is fairly easy to determine who a US citizen is; most complications occur with respect to “accidental Americans” and Americans with only one parent who is a US citizen.

A US resident alien is a more complex term. It includes US Permanent Residents (i.e. “green card” holders) as well as all persons who satisfied the Substantial Presence Test (unless an exception applies) and all persons who declared themselves as US tax residents. This means that a person may be a US resident for tax purposes, but not for immigration purposes. This situation creates a lot of confusion among people who marry US persons or who come to the United States to work; many of them believe themselves to be Non-US Persons, but in reality they are US tax residents.

Foreign Real Estate US Taxpayer Definition: Domestic Corporations & Partnerships

Under §7701(a)(4), corporations and partnerships are considered US Persons if they are created or organized in the United States or under the laws of the United States or any of its states. In the case of partnerships, the IRS may issue regulations that provide otherwise, but the IRS has not done so yet. Conversely, a corporation or a partnership is a Non-US Person if it is not organized in the United States.

Pursuant to §7701(a)(9), the definition of the United States for the purposes of §7701(a)(4) includes only the 50 States and the District of Columbia. In other words, §7701(a)(9) excludes all US territories and possessions from the definition of the United States. For example, a corporation formed in Guam is a Non-US Person!

The biggest complication that one would encounter in this area of law is with respect to common-law partnerships. The determination of their US tax residency may be a lot more complex, because they are not officially organized under the laws of any state.

Foreign Real Estate US Taxpayer Definition: Domestic Trust

A trust is a US Person if it satisfies both tests contained in §7701(a)(30)(E). The first test is a “court test”: a court within the United States must be able to exercise primary supervision administration. The second test is a “control test”: one or more US persons must have the authority to control all substantial decisions of the trust. Failure to meet either test will result in the trust being a Non-US Person with huge implications for US tax purposes.

Foreign Real Estate US Taxpayer Definition: Domestic Estate

While all other definitions described above define a domestic entity and state that a foreign entity is not a domestic one, it is exactly the opposite with estates. Under §7701(a)(30)(D), an estate is a US Person if it is not a foreign estate described in §7701(a)(31).

§7701(a)(31)(A) defines foreign estate as estate “the income of which, from sources without the United States which is not effectively connected with the conduct of a trade or business within the United States, is not includible in gross income under subtitle A”.

Contact Sherayzen Law Office for Professional Help with Your Foreign Real Estate Reporting Obligations in the United States

If you are a US person who owns foreign real estate and you have questions concerning your US tax compliance concerning owning foreign real estate, selling real estate or reporting income generated by foreign real estate, contact Sherayzen Law Office for professional help. We have helped US taxpayers around the world with their foreign real estate US tax obligations, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Florida Streamlined Disclosure Lawyer | International Tax Attorney

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Florida is one of the most favorite destinations for immigrants as well as US citizens who do business overseas. Many of these taxpayers own assets in foreign countries and receive income generated by these assets. For this reason, Florida is also one of the leading states when it comes to individuals who wish to go through Streamlined Domestic Offshore Procedures (SDOP) or Streamlined Foreign Offshore Procedures (SFOP). These individuals often look for a Florida streamlined disclosure lawyer for professional help, but they do not understand what this term really means. In this essay, I will explain who would be included within the definition of Florida streamlined disclosure lawyer.

Florida Streamlined Disclosure Lawyer: International Tax Lawyer

From the outset, It is important to understand that both SDOP and SFOP are part of US international tax law, because these options deal with US international tax compliance concerning foreign assets and foreign income. In order to be more precise, I should say that SDOP and SFOP fall within a very specific sub-area of US international law – IRS offshore voluntary disclosures.

The knowledge that SDOP and SFOP are part of US international tax law makes you better understand what kind of a lawyer you are looking for when you search for a Florida streamlined disclosure lawyer. In reality, when you are seeking help with the SDOP and SFOP filings, you are searching for an international tax lawyer.

Florida Streamlined Disclosure Lawyer: Specialty in Offshore Voluntary Disclosures

As I stated above, SDOP and SFOP form part of a very specific sub-area of offshore voluntary disclosures. This means that not every international tax lawyer would be able to conduct the necessary legal analysis required to successfully complete an offshore voluntary disclosure, including Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures. Only a lawyer who has developed expertise in a very narrow sub-field of offshore voluntary disclosures within US international tax law will be fit for this job.

This means that you are looking for an international tax lawyer who specializes in offshore voluntary disclosure and who is familiar with the various offshore voluntary disclosure options. Offshore voluntary disclosure options include: SDOP (Streamlined Domestic Offshore Procedures), SFOP (Streamlined Foreign Offshore Procedures), DFSP (Delinquent FBAR Submission Procedures), DIIRSP (Delinquent International Information Return Submission Procedures), VDP (IRS Voluntary Disclosure Practice) and Reasonable Cause disclosures. Each of these options has it pros and cons, which may have tremendous legal and tax (and, in certain cases, even immigration) implications for your case.

Florida Streamlined Disclosure Lawyer: Geographical Location Does Not Matter

While the expertise and experience in offshore voluntary disclosures are highly important in choosing your international tax lawyer, the geographical location (i.e. the city where the lawyer lives and works) does not matter. I already hinted at why this is the case above: offshore voluntary disclosure options were all created by the IRS and form part of US international (i.e. federal) law. In other words, the local law has no relation whatsoever to the SDOP and SFOP.

This means that you are not limited to Florida when you are looking for a lawyer who can help you with your streamlined disclosure. Any international tax lawyer who specializes in this field may be able to help you, irrespective of whether this lawyer resides in Florida or Minnesota.

Moreover, the development of modern means of communications has pretty much eliminated any communication advantages that a lawyer in Florida might have had in the past over out-of-state lawyers. This is especially true in our world today where the pandemic has greatly reduced the number of face-to-face meetings.

Sherayzen Law Office May Be Your Florida Streamlined Disclosure Lawyer

Sherayzen Law Office, Ltd. is a highly-experienced international tax law firm that specializes in all types of offshore voluntary disclosures, including SDOP, SFOP, DFSP, DIIRSP, VDP and Reasonable Cause disclosures. Our professional tax team, led by attorney Eugene Sherayzen, has successfully helped our US clients around the globe, including in Florida, with the preparation and filing of their Streamlined Domestic Offshore Procedures disclosure. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!