taxation law services

2022 2Q IRS Interest Rates | US International Tax Lawyers

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On February 23, 2022, the Internal Revenue Service (“IRS”) announced that the 2022 Second Quarter IRS underpayment and overpayment interest rates (“2022 2Q IRS Interest Rates”) will increase from the first quarter of 2022. This means that, the 2022 2Q IRS interest rates will be as follows:

  • four (4) percent for overpayments (three (3) percent in the case of a corporation);
  • one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000;
  • four (4) percent for underpayments; and
  • six (6) percent for large corporate underpayments.

The second quarter will start on April 1, 2022.

Under the Internal Revenue Code, these interest rates are determined on a quarterly basis. The IRS used the federal short-term rate for February of 2022 to determine the 2022 2Q IRS interest rates. The IRS interest is compounded on a daily basis.

The 2022 2Q IRS interest rates are important for many reasons for US domestic and international tax purposes. For example, the IRS will use these rates to determine how much interest a taxpayer needs to pay on an additional tax liability that arose as a result of an amendment of his US tax return through Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures. The IRS will also utilize 2022 2Q IRS interest rates with respect to the calculation of PFIC interest on Section 1291 tax.

As an international tax law firm, Sherayzen Law Office keeps track of the IRS underpayment and overpayment interest rates on a regular basis. Since our specialty is offshore voluntary disclosures, we often amend our client’s tax returns as part of an offshore voluntary disclosure process and calculate the interest owed on any additional US tax liability. In other words these interest rates are relevant to Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures, IRS Voluntary Disclosure Practice, Delinquent International Information Return Submission Procedures and Reasonable Cause Disclosures. We also need to take interest payments into account with respect to additional tax liability that arises out of an IRS audit.

Moreover, we regularly have to do PFIC calculations for our clients under the default IRC Section 1291 methodology. This calculation requires the usage of the IRS underpayment interest rates in order to determine the amount of PFIC interest on the IRC Section 1291 tax.

Finally, it is important to point out that the IRS will use the 2022 2Q IRS interest rates to determine the amount of interest that needs to be paid to a taxpayer who is due a tax refund as a result of an IRS audit or amendment of the taxpayer’s US tax return. This situation may also often arise in the context of offshore voluntary disclosures.

Thus, the IRS underpayment and overpayment interest rates have an impact on a lot of basic items in US tax law. Hence, it is important to keep track of changes in these rates on a quarterly basis.

Austin Business Trip | February 2022 | International Tax Lawyer & Attorney

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In early February of 2022, Mr. Sherayzen, an international tax attorney and owner of Sherayzen Law Office, Ltd., traveled to Austin, Texas. Let’s discuss this Austin business trip in more detail.

Austin Business Trip: Goals

While the business trip to Austin was very short, Mr. Sherayzen set forth three main goals for the trip: (1) meeting with a client; (2) familiarizing himself with the city, which is a major source of clients to the firm; and (3) conducting important marketing activities to promote the firm.

All of these goals were accomplished (though #2 may still need more work) despite the fact that he came to Austin at the worst possible moment – right after a winter storm when the temperatures plummeted to the twenties (Fahrenheit) from the usual upper fifties/lower sixties and there was still ice on the roads.

Austin Business Trip: Client Meeting

The first goal was very easy to achieve as the meeting with a client was set prior to his arrival to Austin.

Austin Business Trip: Getting to Know Austin

The weather and the brevity of the Austin business trip presented a formidable challenge to the second goal. Despite these problems, Mr. Sherayzen was able to familiarize himself with the old-city Austin. Even more important, he was able to visit the IRS campus in Austin that processes streamlined disclosures: Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures. Both of these options are known as Streamlined Compliance Procedures.

Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures belong to the core practice of Sherayzen Law Office. This is why visiting the Austin IRS campus was an indispensable part of the Mr. Sherayzen’s trip to this city.

One may ask: why does Mr. Sherayzen want to know Austin in person? The answer is very simple: he wants to understand how his clients live, what their particular needs are, what logistical problems they may be facing and what are the peculiarities of their everyday life. At Sherayzen Law Office, we take an extra step in delivering customized services to our clients; for this reason, we strive to understand not only the financial situation of our clients, but also their logistics.

Austin Business Trip: Marketing

Marketing is Mr. Sherayzen’s crucial goal in almost every business trip. Nothing can replace the authenticity of marketing materials made in the city where the client lives. For this reason, more than two-thirds of his trip to Austin was devoted to marketing activities.

Given the presence of an IRS campus in Austin, offshore voluntary disclosures of course constituted the focus of these marketing activities. Besides Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures, Mr. Sherayzen also covered IRS Voluntary Disclosure Practice and other voluntary disclosure options.

Additionally, as always, Mr. Sherayzen promoted the awareness of the FBAR and FATCA reporting requirements in his marketing activities. The attorney also covered important US international tax information returns such as: Forms 8865, 5471, 3520, 3520-A, et cetera.

Austin Business Trip is Part of a Major Marketing Strategy

The Austin business trip is merely one part of a major marketing strategy that Sherayzen Law Office launched last year. It is projected that this strategy will run through the end of the year 2027.

Contact Sherayzen Law Office for Professional Help With Your Offshore Voluntary Disclosure and US International Tax Compliance

Sherayzen Law Office is an international tax law firm that specializes in US international tax compliance and offshore voluntary disclosures. We help clients with their US international tax compliance issues throughout the world, including in all fifty states of the United States.

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Factual Basis & Tax Planning | International Tax Lawyer & Attorney

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In a previous article, I discussed the necessity of balancing international tax planning priorities in order to obtain an optimal tax result. In this article, I will explain why international tax planning should be based on a carefully-studied factual basis.

Factual Basis as the Foundation for International Tax Planning

Young inexperienced lawyers often come up with a particular tax strategy and then they try to implement it independent of the actual facts on the ground. Irrespective of how brilliant such a strategy would be in the abstract, it is almost always doomed to become a failure.

Why? The answer is very simple: these lawyers turn international tax planning on its head. They build the second level of a house without ever building a foundation for it. No matter how well they plan out a strategy, it will fall apart almost immediately when it comes in conflict with the facts – how the business is run, its capital structure, its needs, its goals, its cash flow source, its operating model, its E&P, its foreign tax credit and numerous other important considerations.

Hence, the starting point of any tax planning should be a careful factual study of the business.

Studying Factual Basis as a Way to Uncover Potential Opportunities

In my practice, I have found that a careful study of a business may generate a number of potential planning opportunities that may have otherwise been ignored. For example, during a study of a company’s loan structure, one can sometimes find opportunities to treat these loans as equity investments and utilize much better currency exchange rates to build up the client’s basis in the company (potentially even resulting in a reversal of an entire capital gain upon the sale of this company).

Factual Basis: Four Most Important Components

While an attorney should study all relevant facts, there are four main components that he must cover. The components are: (1) organizational chart and capital structure; (2) operating model; (3) tax status and characteristics; and (4) analysis of financial statements. Let’s analyze each component in more detail.

Factual Basis Components: Organizational Chart and Capital Structure

You should start your factual analysis by building the organizational chart of the business and understanding its capital structure. What you need to do is to understand each entity within the corporate structure and the place it occupies in the overall business structure, identify the tax status of each business, understand the sources of cash and where it is used, create a diagram of debt and equity instruments (including whether these are related or unrelated party instruments), study how the business operates across the entire corporate structure, uncover which currencies are used in business (as well as any currency hedging) and review the withholding tax exposure/compliance.

This first component is likely to help you to identify the tax inefficiencies of the existing corporate structure and seek structural alternatives. I recommend that at this stage you plan for creating a more tax-efficient financing of foreign affiliates to maximize foreign country deductions, minimize tax imposed on interest income, reduce withholding tax and assure sufficient cash flow throughout the structure.

Factual Basis Components: Operating Model

The second component of your factual analysis (though it will probably come at about the same time as you start working on the first component) is the operating model of the business. In other words, what type of a business is it: manufacturing, sales, services or IP (development, ownership and/or usage of IP)? How does the business operate: local country manufacturing, local distributing/franchising, global service contracts, et cetera?

I recommend that you especially focus here (as a goal of your tax planning strategy) on: tax-efficient structuring of current and anticipated foreign operations to maximize tax deferral, tax-efficient financing of capital needs and development of strategy concerning IP development and licensing.

Factual Basis Components: Tax Characteristics

The third component is the one that tax attorneys are likely to like the most, because it is very close to their training and professional interest – the study of the tax characteristics of the corporate structure: income/losses, NOL, AMT, foreign tax credit position (carryovers), E&P, transfer pricing, local tax position and PTI (previously taxed income through Subpart F, 965 tax, GILTI tax, et cetera).

The focus of your tax planning goals here are centered around foreign tax credit, repatriation of earnings, minimizing Subpart F income and transfer pricing (i.e. allocation of profits between the US head office and its foreign affiliate companies).

Factual Basis Components: Financial Statements

Finally, the fourth component of your factual basis study consists of the financial statement analysis. You need to carefully review the financial statement with the focus on: Effective Tax Rate (“ETR”) reconciliation, deferred tax analysis, reinvestment, valuation and foreign currency. The focus of your tax planning goals here should be on low-tax deferral structures (for example, through indefinite reinvestment outside of the United States at a lower tax rate) and the most optimal foreign tax credit utilization.

Contact Sherayzen Law Office for Professional Help With International Tax Planning

If your US company conducts business outside of the United States, contact Sherayzen Law Office for professional help with your international business tax planning. We have helped companies plan their inbound and outbound transactions for US and foreign companies, and we can help you!

Subsidiary vs. Branch | International Business Tax Lawyer Minneapolis

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For the purposes of US international tax laws, it is very important to distinguish a subsidiary from a branch. Let’s define both terms in this short essay.

Subsidiary vs. Branch: Definition of a Branch

A branch is a direct form of doing business by a corporation in another country where the corporation retains the direct title of the assets used in the branch’s business. In other words, a branch is a direct extension of the corporation to another country.

Most importantly, there is no separate legal identity between a corporation’s branch in one country and its head office in another. It is all the same company doing business in two countries.

One of the practical advantages of a branch is that it usually requires a lot less effort to establish a branch than a subsidiary. However, it is not always the case – for example, in Kazakhstan, creation of a branch is a very formal process. Moreover, while the legal formalities may not be that complicated, the tax consequences of having a branch in another country may be far more complex.

Subsidiary vs. Branch: Definition of a Subsidiary

A subsidiary is a complete opposite of a branch. It is a separately-chartered foreign corporation owned by a US parent corporation. In other words, a subsidiary has its own legal identity separate from that of its parent US corporation. In the eyes of a local jurisdiction, the US corporation is merely a shareholder of its foreign subsidiary; the US corporation is not directly doing any business in the foreign jurisdiction.

Of course, a situation can be reversed: it can be a foreign parent corporation that organizes a US subsidiary. In this case, the foreign parent company will have its separate identity from its US subsidiary. It will be merely a shareholder of the US company in the eyes of the IRS.

As a separate legal entity, subsidiaries will usually have a host of legal and tax duties in the jurisdiction where they are organized.

Subsidiary vs. Branch: Forced Tax Similarities

Despite these legal differences, the US tax treatment of a subsidiary and a branch created some artificial similarities between these two forms of business. The reason for these similarities is the huge potential for tax deferral through subsidiaries.

The basic trend here is to minimize the advantages of a separate legal identity of a subsidiary, making it a lot more similar to a branch when it comes to tax treatment. The IRS has achieved this through the usage of a number of anti-deferral regimes, such as Subpart F rules and GILTI tax, as well as transfer pricing rules.

Contact Sherayzen Law Office to Determine Whether a Branch or a Subsidiary is Best for Your Business

Whether you are a US business entity who wishes to do business overseas or a foreign entity that wishes to do business in the United States, you can contact Sherayzen Law Office for professional help. We have helped domestic and foreign businesses with their US international tax planning concerning their inbound and outbound transactions, and we can help you!

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!