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April 27, 2018 - Phil Hodgen

Section 962 Elections, GILTI, and “As If” in the Internal Revenue Code

Yet Another “As If”

And the preparation for next Friday’s Section 962 workshop dragged my attention across a sleepy backwater of the Internal Code: Section 951A(f)(1)(A).

Well, not so sleepy, actually. Section 951A is the gnarled source of that gratuitously complex eruption of overly excessive legislative overkill dubbed GILTI by its authors.1

There we find a newly-minted (circa December, 2017) instance of “as if”, this time disguised by using the magic words “in the same manner”.

Everything works out in the end. We can figure out what the law is (more or less). Still, I wish the writers (let’s be fair to writers, like Sparky Anderson)2 had not introduced yet another fiction into the Code.... continue reading

Friday Edition
April 13, 2018 - Phil Hodgen

June 15 Payment Dates for Section 965

Sometimes you need to confirm situation normal. This is one of those times. Thanks to correspondent BZ for triggering the discussion of this topic.

Here is the conclusion up front, in case you want to go outside and have fun:

Americans abroad with tax caused by Section 965 (you know who you are) can pay that tax over eight years. The first installment is due June 15 — the regular tax payment due date.

That seems unremarkable.

Americans abroad have a June 15 filing deadline for their income tax returns, and can pay their tax due by that date without incurring late payment penalties.... continue reading

Friday Edition
March 30, 2018 - Phil Hodgen

Section 965 and Net Investment Income Tax

Question From Section 965 Workshop

We received a question from our March 23, 2018 workshop discussion about Section 965 about the interplay between the new transition tax rules (IRC §965) and the Net Investment Income Tax (IRC §1411).

The Answer

There is no free lunch. The taxpayer will pay income tax AND Net Investment Income Tax on the income recognized because of new Section 965.

When Income Tax is Paid

Income tax is paid all at once, or over eight years, as the taxpayer chooses.

When Net Investment Income Tax is Paid

The taxpayer will not escape the Net Investment Tax.... continue reading

Friday Edition
March 16, 2018 - Phil Hodgen

In Which Form 5472 is Required and not Required

Does a treaty election to be taxed as a nonresident of the United States trigger a Form 5472 filing requirement? The Schrödinger’s cat meme gives us the answer. Yes and no.

The Setup

Imagine a green card holder living outside the United States. She is the sole shareholder of a domestic corporation.

For various good and valid reasons, our green card holder decides to make an election under the applicable income tax treaty’s tiebreaker rules to be treated as a resident of the foreign country where she lives, and thereby be treated as a nonresident of the United States for income tax purposes.... continue reading

Friday Edition
March 2, 2018 - Phil Hodgen

Form 8833, Nonresident Status Under a Treaty, and Penalties

Simple question:

A taxpayer who wishes to invoke an income tax treaty to claim nonresident alien status for U.S. income tax purposes–must Form 8833 be filed to claim this status?

The answer is no. A taxpayer may claim nonresident alien status for U.S. income tax purposes without filing Form 8833 to tell the IRS about this tax reporting position.

The follow-up question is also interesting:

What’s the worst that can happen if the IRS audits an income tax return and claims that Form 8833 is missing?

The worst that can happen is that the IRS can impose a $1,000 penalty. But the IRS cannot disallow the treaty claim to nonresident status.... continue reading

Friday Edition