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First Quarter 2024 IRS Interest Rates on Overpayment & Underpayment of Tax

On November 17, 2023, the IRS announced that the First Quarter 2024 IRS interest rates on overpayment and underpayment of tax will not change from the Fourth Quarter of 2023.

This means that, the First Quarter 2024 IRS interest rates will be as follows:

eight (8) percent for overpayments (seven (7) percent in the case of a corporation);
eight (8) percent for underpayments;
ten (10) percent for large corporate underpayments; and
five and a half (5.5) of a percent for the portion of a corporate overpayment exceeding $10,000.

Internal Revenue Code (“IRC”) §6621 establishes the IRS interest rates on overpayments and underpayments of tax. Under §6621(a)(1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points for individuals and 2 percentage points in cases of a corporation. There is an exception to this rule: with respect to a corporate overpayment of tax exceeding $10,000 for a taxable period of time, the rate is the sum of the federal short-term rate plus one-half of a percentage point.

Under §6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points. Again, there is an exception for a large corporate underpayment: in such cases, §6621(c) requires the underpayment rate to be the sum of the relevant federal short-term rate plus 5 percentage points. The readers should see §6621(c) and §301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date.

Pursuant to the IRC §6621(b)(1), the First Quarter 2024 IRS interest rates were computed based on federal short-term rates for October 2023 to take effect on November 1, 2023, based on daily compounding.

It is important to note that the First Quarter 2024 IRS interest rates are relevant for a great variety of purposes. Let’s highlight three of its most important uses. First, these rates will determine the interest a taxpayer will get on any IRS refunds.

Second ,the rates will also be used to establish the interest to be added to any additional US tax liability on amended or audited tax returns. This also applies to the tax returns that were amended pursuant to Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.

Finally, the First Quarter 2024 IRS interest rates will be used to calculate PFIC interest on any relevant §1291 PFIC tax. This PFIC interest will be reported on the relevant Form 8621 and ultimately Form 1040.

We at Sherayzen Law Office constantly deal with the IRS interest rates on overpayments and underpayments of tax. This is why we closely follow any changes in these IRS interest rates, including the First Quarter 2024 IRS interest rates.

Inbound Transactions: Non-US Person Definition | International Tax Attorney

In a previous article, I described the analytical framework for conducting tax analysis of inbound transactions. In this article, I will focus on the first issue of this framework – the Non-US Person definition.

Non-US Person Definition: Importance in the Context of Inbound Transactions

Before we delve into the issue of Non-US Person definition, we need to understand why this definition is so important in the context of inbound transactions.

The significance of this definition comes from the fact that the extent of exposure to US taxation depends on whether a person is classified as a US-Person or a Non-US Person. A US person is taxed on his worldwide income and may be subject to a huge array of US reporting requirements. A Non-US Person, however, may only be taxed by the IRS with respect to income earned from US investments or US businesses (even then, there are a number of exceptions). Hence, the classification of US Person versus Non-US Person may have a huge practical impact on a person’s US tax exposure.

Non-US Person Definition: Everyone Who Is Not a US-Person

There is no definition of “Non-US Person” in the Internal Revenue Code (“IRC”); there is not even a definition of a “foreign person”.

Rather, one needs to look at the IRC §7701(a) to look for identification of categories of persons who are considered “domestic”. Anyone who is not a “domestic person” is a foreign person or, for our purposes, a Non-US Person.

Non-US Person Definition: What Does “Person” Mean

Before we analyze who is considered to be a “US Person”, we should first clarify who a “person” is. 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.

Non-US Person Definition: General Definition of US Person

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 condition of §7701(a)(30)(E). Almost each of these categories is highly complex and needs a special definition. I will not cover here every detail, but I will provide certain general definitions with respect to each category.

Non-US Person 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 is a US citizen; most complications occur with “accidental Americans” and Americans with only one parent who is a US citizen.

A US resident alien is a more complex term. It includes not only US Permanent Residents (i.e. “green card” holders), but also all persons who satisfied the Substantial Presence Test 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.

Non-US Person 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!

Non-US Person 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 supervisorial 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.

Non-US Person 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 a foreign estate as: “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”.

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Sherayzen Law Office is a leader in US international tax compliance. We have advised hundreds of clients around the globe with respect to their US international tax compliance, international tax planning (including investment into US companies) and offshore voluntary disclosures. We can help you!

§318 Entity-Member Attribution Summary | International Tax Lawyer

May 10, 2020/in international tax lawyer, Legal Notes /by Manager

In a previous article, I discussed the IRC (Internal Revenue Code) §318 sidewise attribution limitation. This limitation was the last piece in the jigsaw puzzle of the §318 entity-member attribution rules; now, we are ready to summarize these rules in light of this exception. This is the purpose of this article – state the §318 Entity-Member Attribution summary.

§318 Entity-Member Attribution Summary: Definition of Member

For the purpose of this §318 Entity-Member Attribution summary, I am using the word “member” to describe partners, shareholders and beneficiaries.

§318 Entity-Member Attribution Summary: Limitations

This summary of §318 entity-member attribution rules is limited only to situations where a member owns at 50% of the value of stock (in case of a corporation) and a beneficiary of a trust does not hold a remote and contingent interest in a trust. The readers need to keep these limitations in mind as they apply the summary below to a particular fact pattern.

Moreover, the readers must remember that this summary of the §318 Entity-Member attribution rules may be altered when one applies it within the context of a specific tax provision. Hence, the readers must check for any modification of these §318 attribution rules contained in that specific tax provision.

§318 Entity-Member Attribution Summary

Now that we understand the limitations above, we can state the following summary of the §318 Entity-Member attribution rules:

All corporate stock is attributed to an entity from its member irrespective of whether the member owns this stock actually or constructively;
If corporate stock is attributed from an entity to its member, such attribution will be done on a proportionate basis; and
The following corporate stock is attributed from an entity to its member on a proportionate basis:
(a). Corporate stock which the entity actually owns;
(b). Corporate stock which the entity constructively owns under the option rules; and
(c). Corporate stock which the entity constructively owns because it is a member of some other entity.

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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!

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 Upstream Estate Attribution | International Tax Lawyer & Attorney

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

This article continues a series of articles concerning the constructive ownership rules of the Internal Revenue Code (“IRC”) §318. Today’s focus is on the §318 upstream estate attribution rules.

§318 Estate Attribution Rules: Downstream Attribution vs. Upstream Attribution

There are two types of the IRC §318 estate attribution rules: downstream and upstream. In a previous article, I discussed the downstream attribution rules concerning attribution of ownership of corporate stocks held by an estate to its beneficiaries. This brief article focuses on the upstream attribution rules, which means rules governing the attribution to the estate of corporate stocks held by its beneficiaries.

§318 Upstream Estate Attribution: Main Rule

The IRC §318(a)(3)(A) states the general rule for the upstream estate attribution of beneficiaries’ corporate stock: irrespective of the proportion of his beneficiary interest in the estate, all corporate stocks owned directly or indirectly by a beneficiary are deemed to be owned by the estate.

Notice the difference here between the downstream and the upstream estate attribution rules. §318 downstream estate attribution rules attribute the ownership of corporate stock proportionately from an estate to its beneficiaries. The upstream attribution rules under §318, however, completely disregard the proportionality rule; instead, all of the stocks of a beneficiary are attributed to the estate even if he has only 1% interest in the estate.

For example, let’s suppose that W owns 100 shares in corporation X; then, H dies and leaves one-tenth of his property to W. Due to the fact that W is a beneficiary of H’s estate, the estate constructively owns all of W’s 100 shares in X.

§318 Upstream Estate Attribution: No Re-Attribution

I already stated this rule in another article on estate attribution, but it is also important to re-state it here. §318 estate attribution rules contain a prohibition on re-attribution of stocks. Under §318(a)(5)(C), a beneficiary’s stock constructively owned by an estate through the operation of the §318 estate attribution rules cannot be attributed to another beneficiary.

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

If you have questions concerning US business tax in general and US international business tax law specifically, contact Sherayzen Law Office for professional help. We are a highly-experienced tax law firm that specializes in US international tax law, including offshore voluntary disclosures, US international tax compliance for businesses and individuals and US international tax planning.

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