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Inbound Transactions Tax Framework | US International Tax Lawyer & Attorney

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.

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!

Beware of Flat-Fee Lawyers Doing Streamlined Domestic Offshore Procedures

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.

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

April 10, 2020/in International Tax Attorney, Legal Notes /by Manager

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:

Form 1040, U.S. Individual Income Tax Return, 1040-SR, U.S. Tax Return for Seniors;
1040-NR, U.S. Nonresident Alien Income Tax Return;
1040-NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents;
1040-PR, Self-Employment Tax Return – Puerto Rico; and
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):

Form 1120, U.S. Corporation Income Tax Return;
1120-C, U.S. Income Tax Return for Cooperative Associations;
1120-F, U.S. Income Tax Return of a Foreign Corporation;
1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation;
1120-H, U.S. Income Tax Return for Homeowners Associations;
1120-L, U.S. Life Insurance Company Income Tax Return;
1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;
1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return;
1120-POL, U.S. Income Tax Return for Certain Political Organizations;
1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;
1120-RIC, U.S. Income Tax Return for Regulated Investment Companies;
1120-S, U.S. Income Tax Return for an S Corporation; and
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:

Form 1065, U.S. Return of Partnership Income; and
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):

Form 1041, U.S. Income Tax Return for Estates and Trusts;
1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts;
1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts;
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;
706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return (for estate of a nonresident not a citizen of the United States);
706-A, United States Additional Estate Tax Return;
706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts;
706-GS(T), Generation-Skipping Transfer Tax Return for Terminations;
706-GS(D), Generation-Skipping Transfer Tax Return for Distributions;
706-GS(D-1), Notification of Distribution from a Generation-Skipping Trust (including the due date for providing such form to a beneficiary);
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
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:

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

Persons who are currently under examination (including an investigation to determine liability for an assessable penalty under subchapter B of Chapter 68);
Persons whose cases are with the Independent Office of Appeals; and
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.

§318 Sidewise Attribution Limitation | US International Tax Attorney

March 29, 2020/in International Tax Attorney, Legal Notes /by Manager

This article explores the third main limitation on the general IRC (Internal Revenue Code) §318 corporate stock re-attribution rules – §318 Sidewise Attribution Limitation.

§318 Sidewise Attribution Limitation: What is “Sidewise Attribution”?

A sidewise attribution occurs when corporate stock owned by an owner of a business entity (or a beneficiary of a trust or estate) is first attributed to this business entity (or estate or trust) and then re-attributed again to another owner of the same business entity (or another beneficiary of the same trust or estate). In other words, stock deemed to be owned by an entity due to the ownership of that stock by an owner or beneficiary of the entity is re-attributed “sidewise” to another owner or beneficiary of the same entity.

Sidewise attribution may have far-reaching income tax and tax reporting consequences, because it may result in a person with no real ownership of a corporation being treated as an owner of this corporation’s stock simply because a member of another entity (in which the first person also has an ownership interest) happens to own corporate stock of this corporation.

§318 Sidewise Attribution Limitation: §318(a)(5)(C) Prohibition

§318(a)(5)(C) describes the §318 Sidewise Attribution Limitation. Under §318(a)(5)(C), stock constructively owned by a partnership, estate, trust or corporation pursuant to §318(a)(3) is not treated as owned by this partnership, estate, trust or corporation for the purpose of treating a partner, beneficiary, or shareholder as owner of the stock. In other words, the sidewise attribution limitation prevents re-attribution of corporate stock to an owner of an entity where such stock is constructively-owned by an entity solely by virtue of ownership of this stock by another owner of the entity.

Let’s look at the following example to illustrate the §318 Sidewise Attribution Limitation: A and B are unrelated persons, they equally own a partnership P and A owns 100 shares of corporation X’s stock. In this situation, partnership P is a constructive owner of A’s 100 shares of X under §318(a)(3)(A). Without any sideways limitation, B would have been also treated as an owner of these 100 shares of X due to §318(a)(2)(A). Under §318(a)(5)(C), however, none of these stocks are attributed to B.

§318 Sidewise Attribution Limitation: Attribution from Actual Ownership Not Affected

It is important to emphasize that §318(a)(5)(C) applies only to the re-attribution of stock constructively owned as a result of the application of §318(a)(3). This prohibition does not affect the §318(a)(2) attribution of stock actually owned by an entity to its beneficiary, partner, or shareholder.

§318 Sidewise Attribution Limitation: Re-Attribution Under Other Rules

Additionally, stock constructively owned under §318(a)(3) may still be re-attributed under an attribution rule other than §318(a)(2). In other words, stock constructively owned under §318(a)(3) may still be re-attributed under the upstream corporate attribution rules or the option attribution rules of §318(a)(4) (see Treas. Reg. §1.318-4(c)(2)).

Moreover, re-attribution under the §318 family attribution rules still possible. A potential situation for such re-attribution would arise in a situation where corporate stock is attributed from an entity to its member and from this member to a qualified family member of the same entity. Berenbaum v. Commissioner, 369 F.2d 337 (10th Cir. 1966), rev’g T.C. Memo 1965-147.

Let’s look at a couple of examples to understand better the interaction between the §318 Sidewise Attribution Limitation and the re-attribution rules other than §318(a)(2).

Here is the first hypothetical fact pattern: A is a beneficiary of a trust T, B is another beneficiary of T, T is a beneficiary of an estate, and A owns 100 shares of a C-corporation X. Under §318(a)(3)(B), T is a constructive owner of 100 shares of X. Since T is a constructive owner of A’s shares of X, these shares are re-attributed to the estate under §318(a)(3)(A); §318(a)(5)(C) does not apply to this type of a re-attribution since it is not a sidewise attribution. On the other hand, the §318 Sidewise Attribution Limitation would prevent the re-attribution of A’s shares of X to B that otherwise would have occurred under §318(a)(2)(B).

Note, however, that, if B is A’s son (or other qualified relative under the §318 family attribution rules), then the re-attribution of A’s stocks of X to B is possible under §318(a)(1)(A).

Let’s now look at another fact pattern to understand the power of the option rule attribution vis-a-vis §318(a)(5)(C): A and B are beneficiaries of a trust T; T has an option to buy corporate stock from A. The most important point to understand here is the fact that T is considered here as an owner of A’s stock not under the upstream trust attribution rules of §318(a)(3)(B), but under the option attribution rules of §318(a)(4). Hence, the sidewise attribution limitation under §318(a)(5)(C) does not apply and B becomes a constructive owner of a his proportional part of A’s stock under the downstream trust attribution rules of §318(a)(2)(B).

Contact Sherayzen Law Office for Professional Help With US International Tax Law Compliance

US international tax law is incredibly complex and the penalties for noncompliance are exceptionally severe. This means that an attempt to navigate through the maze of US international tax laws without assistance of an experienced professional will most likely produce unfavorable and even catastrophic results.

Contact Sherayzen Law Office for professional help with US international tax law. We are a highly experienced, creative and ethical team of professionals dedicated to helping our clients resolve their past, present and future US international tax compliance issues. We have helped clients with assets in over 70 countries around the world, and we can help you!

New July 15 Deadline for 2019 Tax Compliance | International Tax News

March 22, 2020/in International Tax Attorney, Legal Notes /by Manager

On March 21, 2020, the IRS moved the federal income tax filing and tax payment due date from April 15, 2020, to July 15, 2020. Let’s discuss the new July 15 deadline in more detail.

July 15 Deadline: Why the IRS Moved the Tax Deadline to July 15, 2020?

The IRS moved the deadline because of the huge logistical problems that have arisen as a result of the spread of the coronavirus pandemic in the United States. The coronavirus panic as well as the imposition of what can be described as curfew and other restrictive safety measures in many states have dramatically reduced the ability of tax professionals to effectively and timely help their clients.

It would have been unfair and unreasonable to require taxpayers to file their tax returns by April 15 during this unprecedented national crisis. Hence, President Trump and the IRS decided to prevent this injustice and moved the tax filing and tax payment deadlines to July 15, 2020. This was the right move to make and it is applauded by tax professionals around the country.

The legal authority for the deferral of the April 15 deadline came from President Trump’s emergency declaration last week pursuant to the Stafford Act. The Stafford Act (enacted in 1988) is a federal law designed to bring an orderly and systematic means of federal natural disaster and emergency assistance for state and local governments in carrying out their responsibilities to aid citizens.

July 15 Deadline: What Returns Are Affected?

The deferment of the April 15 deadline applies to all taxpayers – individuals, corporations, trusts, estates and other non-corporate filers, including those who pay self-employment tax. In other words, all Forms 1040, 1041, 1120, et cetera are now due on July 15.

All international information returns which are filed separately or together with the income tax returns are also now due on July 15, 2020. This includes FBAR, Forms 8938, 3520, 5471, 5472, 8865 and other US international information returns.

July 15 Deadline: When are the Tax Payments Due?

All tax payments which are generally due on April 15 are now due on July 15, 2020.

July 15 Deadline: Do I Need to Do Anything Else to Obtain Tax Return Deferral?

Taxpayers do not need to file any additional forms or call the IRS to qualify for this federal tax filing and payment relief. This deferral to July 15, 2020, automatically applies to all of the aforementioned taxpayers.

July 15 Deadline: Is Extension to October Still Possible?

This automatic deferral does not affect the ability of taxpayers to request extension of the July 15 deadline to October 15. Individuals will need to file a Form 4868 in order to request such an extension. Businesses will need to file a Form 7004 to request this extension.

July 15 Deadline: Can I file Before July 15, 2020?

Taxpayers can still file their tax returns prior to July 15, 2020. The IRS promises to issue most refunds within 21 days if returns are e-filed.

New IRS Updates Possible

The IRS will continue to monitor issues related to the COVID-19 virus. New updates will be posted on a special coronavirus page on IRS.gov.

Contact Sherayzen Law Office for Professional Help With Your US International Tax Compliance

The extended July 15 deadline is especially welcome for US taxpayers with foreign assets. The delays caused by coronavirus now become irrelevant and there is plenty of time to finalize both, 2019 US international tax compliance forms and offshore voluntary disclosures.

If you have undisclosed foreign assets and foreign income, contact Sherayzen Law Office for professional assistance. We have successfully helped hundreds of US taxpayers around the world to bring their US tax affairs into full compliance with US tax laws, and we can help you!

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