EU Market Entry Seminar | US International Tax Lawyer & Attorney

On February 8, 2018, Mr. Eugene Sherayzen, an international tax lawyer, co-presented with three other attorneys in a seminar titled “EU Market Entry: Business and Tax Considerations” (the “EU Market Entry” seminar). The EU Market Entry Seminar was co-sponsored by the Business Law Section and International Business Law Section of the Minnesota State Bar Association. The three other speakers were a business lawyer from Germany, a tax lawyer from Lithuania and a business lawyer from the United States.

Mr. Sherayzen began his part of the EU Market Entry Seminar with the explanation of the main purpose of tax planning. He asserted that tax planning should not be done only to reduce costs, but to maximize the real profits of a business transaction.

Then, the tax attorney proceeded with the explanation of the main international tax planning strategies with respect to outbound business transactions. In particular, he discussed in detail the following strategies: (1) overseas profit tax reduction; (2) U.S. tax deferral; and (3) Prevention of double-taxation. Each of these strategies was accompanied by three to four relevant tactics. The tax attorney focused especially on U.S. tax deferral as the “heart” of the U.S. tax planning.

The next part of the EU Market Entry Seminar was devoted to the classification of international business transactions. Mr. Sherayzen grouped different types of international business transactions into three categories: (1) Export of Goods and Services; (2) Licensing & Technology Transfers; and (3) Foreign Investment Transactions (including Foreign Direct Investment and Foreign Portfolio Investment).

The final part of the EU Market Entry Seminar consisted of applying the aforementioned tax strategies to each of the three groups of international business transactions and determining which strategies were likely to perform better than others with respect to a particular group of international business transactions. For example, Mr. Sherayzen stated that overseas profit tax reduction and prevention of double-taxation were easier to implement for international business transactions that involved export of goods or services; the U.S. tax deferral would be much more difficult to implement in this context and it would require extensive tax planning.

Mr. Sherayzen concluded the EU Market Entry Seminar with an introduction to the audience the concepts of GILTI (Global Intangible Low-Tax Income), BEPS (Base Erosion and Profit Shifting) rules, CbC (country-by-country) reporting and FDII (Foreign Derived Intangibles Income). These concepts were integrated within the discussion of the effectiveness of certain tax strategies with respect to the second and third categories of international business transactions. For example, the tax attorney discussed how the new GILTI rules affect the ability to achieve U.S. tax deferral.

Liquidating a Corporation and IRS Form 966

If you have a corporation that you have liquidated, or plan to liquidate, you need to be aware of the requirements of the IRS Form 966. Form 966 (“Corporate Dissolution or Liquidation”) must be filed by corporations (including for corporations filing Form 1120, 1120-L, 1120-IC-DISC, 1120S, and farmer’s cooperatives) if they have adopted a resolution or plan to dissolve the corporation, or to liquidate any of its corporate stock.

This article will explain the basics of Form 966; it is not intended to constitute tax or legal advice. Please consult an experienced tax attorney if you have further questions. Sherayzen Law Office, Ltd. can assist you in all of your tax and legal needs.

Filing Form 966

Under Internal Revenue Code Section 6043(a) and applicable regulations, Form 966 must be filed with the IRS center where the corporation or farmer’s cooperative filed its income tax return within 30 days after the resolution or plan is adopted to dissolve the corporation or liquidate any of its stock. If the original resolution or plan is amended or supplemented after Form 966 has been filed, required companies must file another Form 966 within 30 days after the amendment or supplement was adopted. The IRS notes that this additional form will be sufficient if the “[D]ate the earlier form was filed is entered on line 11 and a certified copy of the amendment or supplement is attached. Include all information required by Form 966 that was not given in the earlier form.”

Qualified subchapter S subsidiaries (see IRC Section 1361(b) (3) for definition and requirements) should not file Form 966. Instead, they should submit Form 8869 (“Qualified Subchapter S Subsidiary Election”). Likewise, exempt organizations should not file Form 966; these organizations will need to review the instructions for Form 990 (“Return of Organization Exempt From Income Tax”), or Form 990-PF (“Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation”). Additionally, in general, foreign corporations that are not required to file Form 1120-F (“U.S. Income Tax Return of a Foreign Corporation”), or any other type of U.S. tax return are not required to file Form 966.

Form 966 should also not be filed for a deemed liquidation (such as an IRC Section 338 election, or an election to be treated as a disregarded entity under IRS Regulations Section 301.7701-3).

Information Necessary for Form 966

In addition to the identifying information typically required on IRS forms (name of corporation, EIN, date of incorporation, etc.), various additional information is required to be reported on Form 966. For example, line 5 requests the type of liquidation a company has undertaken- partial or complete. On line 10, filers are required to specify the IRC Code Section under which the corporation is to be dissolved or liquidated; for instance, corporations that have completely or partially liquidated will enter “Section 331”, while a corporation completely liquidating a subsidiary corporation (that meets the requirements of section 332(b)) would enter “Section 332”. Information regarding any amendments to plans may be required on line 9 or 11, depending upon the circumstances involved.

Contact Sherayzen Law Office for Tax and Legal Advice With Respect to Liquidation of Your Corporation

If you are planning on liquidating your corporation, you should seek advice of a tax attorney. The experienced tax law firm of Sherayzen Law Office, Ltd. can help you with the entire process of liquidating the corporation with respect to both, legal and tax sides of this process. Contact Us for a Confidential Consultation!

International Tax Planning Lawyers: Importance of Business Purpose Doctrine

It is surprising how often international tax planning lawyers ignore the importance of business purpose doctrine to international tax planning. It seems that a lot of U.S. accountants and, to a smaller degree, attorneys have been limited to the parochial view of the application of the doctrine within the borders of the United States, whereas they seem to lose caution in the context of international business transactions. In this article, I urge the readers to consider the very important role of the business purpose doctrine to international tax planning.

International Tax Planning Lawyers: Business Purpose Doctrine; Combination with the Economic Substance Doctrine

This short writing does not pretend to do justice to the complex analysis of the history, development and interpretation of the business purpose doctrine. I will merely attempt to broadly sketch some important points and the general meaning of the doctrine to provide the necessary background to the discussion below.

The Business Purpose Doctrine (“the Doctrine”) is often cited to have originated in the old Supreme Court case Gregory v. Helvering, 293 U.S. 465 (1935) (even though, upon detailed consideration, it appears that this case stands for a much more limited proposition than the current Doctrine). In reality, the modern Doctrine received a much broader development in the seminal case of Goldstein v. Commissioner, 364 F.2d 734 (2d Cir. 1966), which incorporates the economic substance doctrine into the Doctrine.

The combined effect of both legal developments can be summarized as a two-prong test which says that the IRS will respect a business transaction if: (1) the transaction has objective economic substance (i.e. whether transaction affected the taxpayer’s financial position in any way); and/OR (2) the taxpayer has a subjective non-tax business purpose for conducting the transaction (i.e. whether the transaction was motivated solely by tax avoidance considerations to such a degree that the business purpose is no more than a facade). Notice, the capital “OR” – there is a disagreement among the courts on whether the both, subjective (business purpose doctrine) and objective (economic substance doctrine) prongs should be satisfied, or is it enough that one of them is satisfied.

International Tax Planning Lawyers: the Doctrine is Relevant to International Tax Planning

The application of the Doctrine has been extremely important to International Tax Planning, and international tax planning lawyers should take care to make sure that their tax plans are not merely done for tax avoidance purposes, but reflect the real business purpose behind engaging into the transaction. Moreover, the international tax planning lawyers should impress upon their clients this understanding of importance of the Doctrine to the tax consequences of their business transactions.

A recent IRS victory stand as a stark reminder of the importance of the Doctrine and why international tax planning lawyers must not ignore it. In Chemtech Royalty Associates , L.P. v. United States of America (February of 2013), the federal district court in Louisiana rejected two separate tax shelter transactions entered into by The Dow Chemical Company (“Dow Chemical”) that purported to create approximately $1 billion in tax deductions.

The first transaction rejected by Chief Judge Jackson was created by Goldman Sachs and basically allowed Dow Chemical to claim royalty expense deductions on its own patent through a scheme called Special Limited Investment Partnerships (“SLIPs”). The basic idea behind SLIPs is to create a tax shelter known as a “lease-strip” – the U.S. taxable income is stripped away to a non-US partnership. In the process, some small Swiss tax was paid, but only minor U.S. tax consequences were triggered on Dow Chemical’s US tax return.

The second transaction that was rejected by Chief Judge Jackson involved depreciation by Dow Chemical of a chemical plan asset that had already, for the most part, been fully depreciated. The second scheme (created by King & Spalding) arose due to changes in U.S. tax law which made the first transaction unprofitable from the tax standpoint.

While the economic substance was not the only doctrine discussed by court (the Sham Partnership Doctrine played a large role in the decision as well), it certainly occupied the central role in the decision.

The end result for Dow Chemical – disallowance of $1 billion of deductions and an imposition of 20% penalty (i.e. $200 million) plus interest. As the readers can see, it is highly important for international tax planning lawyers to pay attention to the Doctrine.

Contact Sherayzen Law Office for Professional Help with International Tax Planning

While the precedent-setting cases usually involve large corporations, international tax planning concerns any company that does business internationally. Equally important for all companies is to make sure that they comply with all of the numerous complex U.S. tax reporting requirements concerning international business transactions.

If you have a substantial ownership interest in or an officer of a small or mid-size company that does business internationally, contact Sherayzen Law Office for professional help with international tax planning and compliance. Attorney Eugene Sherayzen will thoroughly analyze your case, create an ethical business tax plan to make sure that you do not over-pay taxes under the Internal Revenue Code provisions, and prepare all of the tax and legal documents that are required for your U.S. tax compliance.

Contact Us to Schedule a Confidential Consultation NOW!

Termination of a Partnership

Because partnerships have many different features from corporations, a question is frequently asked concerning partnerships: when do they officially end? While corporations theoretically have an indefinite life and identifying the closure of a corporation may sometimes be regarded as relatively easy, it may not always be as apparent when a partnership has terminated.

This article will explain the basics of partnership termination for U.S. federal tax purposes only (please, consult specific state statutes for relevant partnership termination provisions). Remember that there are numerous exceptions to and modifications of these basic rules on state and federal levels. This article is not intended to constitute tax or legal advice.

Partnerships can involve many complex tax and legal issues, so it may be advisable to seek an experienced attorney in these matters. Failure to do proper tax planning can result in significant adverse tax consequences. Sherayzen Law Office, Ltd. can assist you in all of your partnership tax and legal needs, and help you avoid making costly mistakes.

Termination of a Partnership

There are many ways in which a partnership can be terminated; this article will focus only on several common situations. First, as should be obvious from the definition of a partnership, a partnership will end when it no longer has at least two partners. This may occur, for instance, when one partner purchases the other partner’s complete interest in a two-person partnership, thus creating a new sole proprietorship.

A partnership may also terminate if none of its partners continues to carry on the partnership’s business. This may occur, for example, because of a partnership liquidation.

The third way a partnership may terminate is if there is a sale or exchange of 50% or more of the total partnership capital and profits interest within a twelve-month period. In such a case, the IRS is likely to treat such situation as a formation of a new partnership. It is important to remember that multiple sales of shares of the same partnership interest with percentages less than 50% will not be aggregated. For example, assume that partner A in an equally-owned four person partnership ABCD sells his partnership share to a new partner, who subsequently sells this 25% share again to yet another new partner. In this case, the original ABCD partnership is likely to be treated as still existing (barring any other circumstance that forces the termination of a partnership). In most cases, a partnership will not be terminated simply because of the admittance of a new partner to the partnership.

Furthermore, the death or liquidation of a partner normally is not likely to terminate a partnership where a partner owns a minority partnership interest (unless, for example, it involves a two-person partnership). While the partnership itself may not be terminated, for the deceased or liquidated partner, the partnership tax year will end at that point. The share of partnership profits or loss will be determined as of the date of death or liquidation for that partner, and will be reported for tax purposes in the year the event occurs.

The examples above state the general law and it is highly important to remember that a partnership agreement may modify the application of this law to specific partnership. While, unless the law expressly permits so, a partnership agreement cannot override the law, it may add to it (for example, a death of a partner can be made a termination event in a partnership agreement even if this partner owned a very small percentage of the partnership interest). Therefore, you should always make sure to consult the existing partnership agreements before arriving to a legal conclusion. In such complex situations, it is highly advisable to retain an experienced attorney.

Partnership Mergers

When two partnerships merge, partnership terminations may also arise, depending upon the circumstances. An interesting situation may occur under federal tax law where the IRS may deem the partnership of any partners who have more than a 50% interest in the newly-formed partnership to be continued. For instance, if partnership AB merges with partnership CD, and the partners of CD own more than a 50% interest in the new resulting partnership, partnership ABCD may be treated as a termination of partnership AB, and continuation of partnership CD.

Contact Sherayzen Law Office for Partnership Legal and Tax Help

If you own a partnership interest and would like to receive a legal and tax advice with respect such ownership, contact the experienced tax firm of Sherayzen Law Office.

Payroll Tax Cut Extended to the End of 2012 and Revised Form 941

On February 23, 2012, the Internal Revenue Service released revised Form 941 enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.

The IRS needed to revise Form 941 due to the Middle Class Tax Relief and Job Creation Act of 2012 (enacted on February 22, 2012). Under the new law, the social security tax cut was continued until the end of 2012. This means that employees will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011 (enacted in December of 2011).

The new law also repeals the two-percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.

Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent.

For the tax year 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.

Revised Form 941 Will Need to Be Filed By Employers

The revised Form 941 is already available and will have to be filed by employers for every quarter of 2012. Failure to file Form 941 may lead to significant penalties.

Contact Sherayzen Law Office to Deal With Form 941 Penalties

If you are facing Form 941 penalties, contact Sherayzen Law Office NOW. Our experienced tax firm will rigorously and skillfully represent your interests in the IRS negotiations with respect to any Form 941 penalties.