Tag Archive for Tax Blog

Special Rules In The Canada-US Tax Treaty Apply To Cross-Border Death Tax Issues

Canada and the United States have very different regimes for imposing taxes on death. The United States imposes a Federal Estate Tax; however, Canada has not imposed any Estate Tax since 1971. Rather, Canada taxes accrued, but unrealized, capital gains on death, as part of its income tax system.

Most tax practitioners are not aware of the fact that there special rules found in Article XXIX-B of the Canada-United Tax Convention (“the Treaty”) that are aimed at providing relief in connection with certain cross-border death taxes issues.

Some of these are summarized below:

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Written by | Posted in Capital Gains • Estate Planning Tax • Individual • International • Tax Provision/Tax Reporting

Foreign Earned Income Exclusion: What Is “Earned Income”?

Americans working abroad may be eligible to exclude certain foreign earned income (wages, compensation for services) from US taxable income under the rules governing the Foreign Earned Income Exclusion (FEIE). The FEIE amount is adjusted annually for inflation. This amount for 2014 is $99,200. If a couple is married, each spouse can claim the full FEIE amount (e.g., for 2014, each spouse can exclude up to $99,200 of his or her earned income). If one spouse does not earn enough salary to fully utilize the exemption amount and has “excess” FEIE, this excess cannot be used by the other spouse to exclude amounts beyond his or her own exemption.

The exclusion can apply regardless of whether any foreign tax is paid on the foreign earned income, provided certain tests are met. Generally, for an individual to qualify for the Read More

Written by | Posted in Corporate • Expatriate • Income Tax • Individual • International • IRS

Should I Stay or Should I Go? – Part 15

Answers to the Most Frequently Asked Questions Regarding OVDP

As a tax attorney specializing in the Offshore Voluntary Disclosure Program (OVDP), nary a day goes by that I don’t get a call from a person inquiring about the OVDP. The questions asked are relatively the same. After a while, I began to make a list of the most frequently asked questions. Below are my answers to them: (continued)

XIX. Must I complete and sign agreements to extend the period of time to assess tax – including tax penalties – and to assess FBAR penalties for any years that are set to expire while my application is being processed?

Yes. Agreements to extend the period of time to assess tax (including tax penalties) and Read More

Written by | Posted in FBAR • OVDP

Repairs vs. Capitalization – Part 1

We are going to review and discuss the new IRS Final Regulations for Guidance Regarding Deduction and Capitalization of Expenditures Related to Tangible Property (TD 9636). Let’s start with some history and definitions.

Prior to 2006, the IRS Regulations surrounding the treatment of business expenses for tangible property as either Repairs/Materials/Supplies to be expensed in the year of purchase or as capital items that fall under the UNICAP rules were brief, vague and often contradictory. (§263(a) and §162(a)) In 2006, new proposed regulations were issued for comments and concerns. (Prop. Reg. §1.168(i)-1 thru 8) In 2008, new proposed regulations were issued after taking these concerns into account and in 2011, after another round of fine-tuning, the temporary regulations were issued. Finally, in September Read More

Written by | Posted in IRS • Tax Policy

S Corporations Beat-Out LLCs For Americans Carrying On Business In Canada

As a general rule, U.S. residents are only subject to Canadian tax on business income to the extent that such income is earned via a permanent establishment (“PE”) in Canada(1).

If a U.S. C corporation earns profits that are taxable in Canada, such profits will be subject to federal corporate taxation under Part I of the Income Tax Act (“the Act”) at a rate of 15%, plus, assuming there is a PE in a province, provincial corporate taxation at varying rates. For example, in Ontario the rate is 11.5% and in Alberta the rate is 10%, thereby resulting in combined corporate tax rates of 26.5% and 25%, respectively(2).

In addition, a U.S. corporation earning income from carrying on business in Canada may also be subject to the “branch tax” that is levied under Part XIV of the Act. This tax is quite Read More

Written by | Posted in Corporate • International

Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 3 – 3.2)

Posted in sections, this is my Doctoral Thesis on taxpayers rights when audited by the tax authorities in South Africa – equally applicable to many English-based law systems in Africa and abroad (eg. India). This will be of particular use to any tax practitioners doing work in Africa and in other English-based legal systems around the world.

Analysis Of Challenging The Commissioner’s Discretionary Powers In Auditing Taxpayers under The Constitution Of The Republic of South Africa

CHAPTER 3 – LIMITATIONS TO INVOKING SECTIONS 74A AND 74B OF THE INCOME TAX ACT

3.2 THE SARS INTERNAL AUDIT MANUAL

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Written by | Posted in Africa • Audit

Alphabet Soup For Offers In Compromise (“OIC”)

I. Concept and Goals

a. Taxpayers who have few assets and little prospect of generating sufficient income to pay a tax liability in full may be allowed to strike a settlement for less than the full amount due to settle their case.

b. The IRS’s acceptance of an offer in compromise conclusively settles the liability, absent fraud or mistake.

c. What is the policy goal? To achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the government while providing taxpayers with a fresh start toward future voluntary compliance. Read More

Written by | Posted in IRS • Tax Controversy

Global Distributor Expands Micjo Decision

In 2012, an important case in favor of tobacco distributors was decided by a Florida appellate court. Technical tax issues aside, Micjo taught us that if a taxpayer does not agree with a department’s tax decision, then it should fight for its money that is not due. Since the Micjo ruling, many other tobacco distributors have been filing refunds and fighting tax assessments based on the appellate case. After filing several Micjo refund cases, we discovered another pro-tobacco distributor case was decided in Oregon that could take Micjo a step further. Logically, the case should apply to Florida and other states’ tobacco taxing laws. If correct, then tobacco distributors may be entitled to large refund claims.

Taking a step back, Micjo was decided in 2012 and it discussed the correct taxable base Read More

Written by | Posted in Sales/Use Tax • State And Local Tax (SALT)

How Wealthy Immigrants To Canada Can Use A Holding Company To Create A Tax-Free “Pipeline”

There is a little-known method by which wealthy immigrants to Canada can use a holding company (“Holdco”), either in Canada or offshore, to receive, otherwise taxable, money tax-free in Canada.

This will be applicable in situations where that immigrant holds a significant interest in foreign a corporation (“Forco”), either alone, or with family members.

This technique will be even more attractive now that “immigrant trusts” will no longer be available as a tax planning tool for wealthy immigrants (see my blog posting A Sudden Death For The Canadian “Immigrant Trust”!). Read More

Written by | Posted in Estate Planning Tax • International

Is Tax Reform On Or Off? Odd Activities In The House Last Week

Last week, the House Ways and Means passed H.R. 4718 to make 50% bonus depreciation permanent (it expired after 12/31/13). This is in stark contrast to Congressman Camp’s tax reform proposal of February 2014 that calls for straight-line depreciation (rather than accelerated) and longer lives, as a way to pay for a 25% corporate tax rate. The Joint Committee on Taxation estimates the cost over 10 years is $263 billion (JCX-63-14). H.R. 4718 does not include any revenue offset.

It is unlikely that this bill will be passed by the Senate given the cost and that it is not revenue neutral. Even if revenue were found, I think more politicians would rather use the revenue from converting slowing down depreciation to lower the corporate and individual tax rates.* The lower rates would also benefit all businesses while more favorable Read More

Written by | Posted in Corporate • Individual • Tax Policy

Should I Stay or Should I Go? – Part 14

Answers to the Most Frequently Asked Questions Regarding OVDP

As a tax attorney specializing in the Offshore Voluntary Disclosure Program (OVDP), nary a day goes by that I don’t get a call from a person inquiring about the OVDP. The questions asked are relatively the same. After a while, I began to make a list of the most frequently asked questions. Below are my answers to them: (continued)

XVIII. How can the IRS propose adjustments to tax for more than three years without either an agreement from the taxpayer or a statutory exception to the normal three-year statute of limitations for making those adjustments?

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Written by | Posted in FBAR • OVDP
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