Andrew Mitchel LLC

International Tax Blog - New and Interesting International Tax Issues


Recent Web Traffic Data

2022-05-09

I compiled some data on recent visitors to AndrewMitchel.com and Tax-Charts.com.  The data is based on the past 12 months (May 2021 to April 2022).

Charts on AndrewMitchel.com

The top 20 charts visited on AndrewMitchel.com were as follows:

  1. Rev. Rul. 99-6, Situation 1  (Partnership to Disregarded Entity - Member Purchase)
  2. Rev. Rul. 99-6, Situation 2  (Partnership to Disregarded Entity - Third Party Purchase)
  3. Rev. Rul. 99-5, Situation 1  (Disregarded Entity to Partnership - Sale)
  4. Rev. Rul. 99-5, Situation 2  (Disregarded Entity to Partnership - Contribution)
  5. Rev. Rul. 79-70  (Busted 351 Via Prearranged Plan to Sell Stock)
  6. Rev. Rul. 74-605  (Upstream Stock Sale is Not a 304 Transaction)
  7. Granite Trust Co.  (Intentionally Avoiding Section 332)
  8. Zenz v. Quinlivan  (Part Sale / Part Redemption)
  9. Rev. Rul. 84-111, Situation 3  (Partnership Conversion to Corporation: Partnership Interests Down)
  10. A Reorganization
  11. Rev. Rul. 91-5  (Section 304 Transaction with U.S. Seller of Foreign Co)
  12. Plantation Patterns  (Guarantor treated as borrower)
  13. Rev. Rul. 2003-51  (Successive 351 Exchanges)
  14. Kimbell-Diamond  (Stock Purchase & Target Liquidation Treated as Asset Acquisition)
  15. Rev. Rul. 70-140  (Purported 351 Followed by B Reorganization)
  16. D Reorganization (acquisitive - i.e., not a 355 type transaction)
  17. Rev. Rul. 2008-18, Situation 1  (S Election In F Reorg With QSub)
  18. Rev. Rul. 90-95  (Cash Merger of Transitory Subsidiary Treated as Qualified Stock Purchase)
  19. Rev. Rul. 67-448  (Reverse Triangular Merger Was, in Substance, a B Reorganization)
  20. Rev. Rul. 70-496  (Classic 304 Transaction)

 

Visitors to AndrewMitchel.com

Many of the visitors are “bots”, scraping my websites. In addition, many of the visitors come from Internet Service Providers (“ISPs”) (e.g., Comcast, MCI, AT&T, etc.). The following is a list of the top 20 entities visiting AndrewMitchel.com that were not bots or ISPs:

  • PriceWaterhouseCoopers, LLP
  • KPMG LLP
  • Internal Revenue Service
  • Ernst & Young LLP
  • New York University
  • RSM McGladrey, Inc.
  • CohnReznick LLP
  • Georgetown University
  • University of San Diego
  • Crowe LLP
  • Skadden, Arps, Slate, Meagher & Flom
  • University of Washington
  • Kirkland & Ellis LLP
  • University of Florida
  • Northwestern University
  • Morrison & Foerster
  • SULLCROM
  • University of Texas at Austin
  • Davis Polk & Wardwell, LLP
  • University of Miami

 

Charts on Tax-Charts.com

The top 5 free charts visited on Tax-Charts.com were as follows:

  1. Section 7701: Rev. Proc. 2009-41 - Relief for Late Entity Classification Elections
  2. Section 83: Rev. Proc. 93-27: Taxation of Profits Interests
  3. Section 267(a)(2) and (3) Matching Rules
  4. Sections 6038A and 6038C: Form 5472 Filing Requirements
  5. Section 302: Distributions in Redemption of Stock
Tags: Charts - Flowcharts, Charts - Situational Charts

New Flowchart – Section 1202 Exclusion for Qualified Small Business Stock (“QSBS”)

2022-01-18

Today we published a new flowchart on our sister website, Tax-Charts.com, regarding the Section 1202 exclusion for qualified small business stock (“QSBS”).

Analysis of whether gain from the sale of stock qualifies to be excluded from income under Section 1202 is primarily based on certain definitions that build upon each other.  Graphically flowcharting definitions is often difficult or impossible.  This chart does not have one sequential list of questions that lead to whether gain can be excluded under Section 1202.  Instead, the chart has multiple sequential lists of questions for each material definition in Section 1202.

Tags: 1202 Exclusion for QSBS, Charts - Flowcharts

Free Flowchart - Section 894(c): Hybrid & Reverse Hybrid Entities

2020-06-09

Today we published an updated version of our Section 894(c): Hybrid & Reverse Hybrid Entities flowchart on our sister site Tax-Charts.com.

This free chart guides you through the classification of an entity as a hybrid entity, a reverse hybrid entity, or not a hybrid entity. 

Tax-Charts.com now has 16 free flowcharts (and 27 flowcharts for sale).

Tags: Charts - Flowcharts

Rev. Proc. 2020-17 - Exemption From Filing Forms 3520 and 3520-A for Applicable Tax-Favored Foreign Trusts

2020-03-03

Yesterday the IRS published Rev. Proc. 2020-17.  This revenue procedure provides an exemption from filing Forms 3520 and 3520-A for an “eligible individual’s” transactions with, or ownership of, an “applicable tax-favored foreign trust” (“ATFFT”).

An eligible individual generally means an individual who is a U.S. citizen or resident and who is compliant with all requirements for filing U.S. federal income tax returns and has reported as income (to the extent required) any contributions to, earnings of, or distributions from, an ATFFT.  Rev. Proc. 2020-17, Sec. 5.02.

There are two types of ATFFTs.  The first is a foreign pension or retirement trust (a “tax-favored foreign retirement trust”).  Rev. Proc. 2020-17, Sec. 5.03.  The second is a foreign medical, disability, or educational trust (a “tax-favored foreign non-retirement savings trust”).  Rev. Proc. 2020-17, Sec. 5.04.

Both types of ATFFTs must be “tax-favored.”  An ATFFT is tax favored if the trust is generally exempt from income tax or is otherwise tax-favored under the laws of the trust’s jurisdiction.  A trust is tax-favored if (i) contributions to the trust that would otherwise be subject to tax are deductible or excluded from income, are taxed at a reduced rate, give rise to a tax credit, or are otherwise eligible for another tax benefit (such as a government subsidy or contribution) and/or (ii) taxation of investment income earned by the trust is deferred until distribution or the investment income is taxed at a reduced rate.  Rev. Proc. 2020-17, Sec.s 5.03(1) and 5.04(1).

Tax-Favored Foreign RETIREMENT Trusts

Tax-favored foreign retirement trusts generally have the following requirements:

  1. The trust must be created to operate exclusively or almost exclusively to provide, or to earn income for the provision of, pension or retirement benefits. Rev. Proc. 2020-17, Sec. 5.03.
  2. The trust generally must annually report information with respect to the trust to the relevant tax authorities in the trust’s jurisdiction. Rev. Proc. 2020-17, Sec. 5.03(2).
  3. The trust must only permit contributions with respect to income earned from the performance of personal services. Rev. Proc. 2020-17, Sec. 5.03(3).
  4. Contributions to the trust must: (a) be limited by a percentage of earned income of the participant, (b) be subject to an annual contribution limit of $50,000 or less, or (c) be subject to a lifetime contribution limit of $1,000,000 or less. Rev. Proc. 2020-17, Sec. 5.03(4).
  5. Withdrawals from the trust must be conditioned upon reaching a specified retirement age, disability, or death, or penalties must apply to withdrawals made before such conditions are met. However, an exception is provided for early withdrawals for hardship or educational purposes, or for the purchase of a primary residence. Rev. Proc. 2020-17, Sec. 5.03(5).
  6. If the trust is employer-maintained, then certain additional requirements must be met:
    1. The trust must be nondiscriminatory insofar as a wide range of employees, including rank and file employees, are eligible to make or receive contributions or accrue benefits under the terms of the trust. Rev. Proc. 2020-17, Sec. 5.03(6)(i).
    2. The trust must actually provide significant benefits for a substantial majority of eligible employees. Rev. Proc. 2020-17, Sec. 5.03(6)(ii).
    3. The benefits actually provided under the trust to eligible employees must be nondiscriminatory. Rev. Proc. 2020-17, Sec. 5.03(6)(iii).

A trust is not disqualified because it may receive a rollover from another tax-favored foreign retirement trust established and operated under the laws of the same jurisdiction.  Rev. Proc. 2020-17, Sec. 5.03(6), flush.

Although Rev. Proc. 2020-17 provides that an “employer-maintained” trust must be “nondiscriminatory,” it does not define the terms “employer-maintained” or “nondiscriminatory.”

Tax-Favored Foreign NON-RETIREMENT SAVINGS Trusts

Tax-favored foreign non-retirement savings trusts generally have the following requirements:

  1. The trust must be created to operate exclusively or almost exclusively to provide, or to earn income for the provision of, medical, disability, or educational benefits. Rev. Proc. 2020-17, Sec. 5.04.
  2. The trust generally must annually report information with respect to the trust to the relevant tax authorities in the trust’s jurisdiction. Rev. Proc. 2020-17, Sec. 5.04(2).
  3. Contributions to the trust must be limited to $10,000 or less annually or $200,000 or less on a lifetime basis. Rev. Proc. 2020-17, Sec. 5.04(3).
  4. Withdrawals from the trust must be conditioned upon the provision of medical, disability, or educational benefits, or penalties must apply to withdrawals made before such conditions are met. Rev. Proc. 2020-17, Sec. 5.04(4).

A trust is not disqualified because it may receive a rollover from another tax-favored foreign non-retirement savings trust established and operated under the laws of the same jurisdiction.  Rev. Proc. 2020-17, Sec. 5.04, flush.

Penalties Not Applicable

Because an ATFFT is exempt from reporting on Forms 3520 and 3520-A, the penalties under Code §6677 do not apply to an eligible individual who doesn’t report transactions with, or ownership of, an ATFFT under Code §6048.  Rev. Proc. 2020-17, Sec. 3 and 4.

Abatement Or Refund Of Penalties

Rev. Proc. 2020-17 also includes procedures for eligible individuals who have been assessed a penalty under Code §6677 for failing to comply with Code §6048 with respect to an ATFFT (without regard to whether such failure was due to reasonable cause) to request an abatement of the penalty assessed, or a refund of the penalty paid.  The request is made by filing Form 843, Claim for Refund and Request for Abatement.

The Form 843 should be mailed to the IRS service center in Ogden, UT.  Line 7 of the Form 843 should include the statement “Relief pursuant to Revenue Procedure 2020-17,” and should include an explanation of how the eligible individual meets each relevant requirement under section 5.02 and how the foreign trust meets each relevant requirement under section 5.03 or 5.04.

We have created a flowchart that goes through the requirements of Rev. Proc. 2020-17.  The flowchart is available for purchase on Tax-Charts.com.

Tags: 6048 Foreign Trusts, Authority - Revenue Procedures, Charts - Flowcharts, Form 3520 / 3520-A

11 New Tax Charts

2020-02-15

We recently added 11 new charts to andrewmitchel.com (listed in topical order and listed in alpha-numeric order).  We now have more than 1,200 charts available.  The recently added charts include:

  • Reg. 1.960-2(b)(5), Example (Deemed Paid Foreign Income Taxes: Subpart F Income Inclusion)
  • Reg. 1.960-2(c)(7)(i), Example 1 (Deemed Paid Foreign Income Taxes: GILTI Inclusion)
  • Reg. 1.960-2(c)(7)(ii), Example 2 (Deemed Paid Foreign Income Taxes: GILTI Inclusion, CFC Owned Thru P'ship)
  • Reg. 1.960-3(e)(1), Example 1 (Foreign Income Taxes Deemed Paid Under Sec. 960(b) and Accounting for PTEP)
  • Reg. 1.960-3(e)(2), Example 2 (Tracking PTEP & PTEP Group Taxes Thru Tiers of CFCs)
  • Reg. 1.986(a)-1(a)(2)(iv)(D), Example (Corp. Elects To Use The Spot Rate To Translate Non-Functional Currency Taxes of Dollar QBUs)
  • Reg. 1.6694-1(b)(6), Example 1 (Two Attorneys in Same Firm Advising on Client's Tax Return: Primary Responsibility For a Position)
  • Reg. 1.6694-1(b)(6), Example 3 (One Attorney Passing Along Advice of Another Attorney in the Same Firm: Primary Responsibility For a Position)
  • Reg. 1.6694-1(b)(6), Example 4 (Potential For Two Sec. 6694 Penalties With Attorneys From Different Firms)
  • Reg. 1.6694-1(e)(3), Example 1 (Verification of Info: No Reasonable Inquiries Were Made)
  • Reg. 1.6694-1(e)(3), Example 2 (Verification of Info: Reasonable Inquiries Were Made)

1_6694_1_e_3_2

Additionally, our website Tax-Charts.com recently added 2 new flowcharts for sale.  The flowcharts cover:

  • Section 905(c): Adjustments to US Tax As a Result of Foreign Tax Redetermination
  • Section 986: Translation of Foreign Income Taxes
Tags: 960 Deemed Paid Foreign Taxes, 6694 Paid Preparer Penalties, Charts - Flowcharts, Charts - Situational Charts

New Flowchart – Form 5471 Filing Requirements

2017-11-13

Today we published a flowchart on our sister website, Tax-Charts.com, regarding Form 5471 filing requirements.  There are 17 free flowcharts at Tax-Charts.com.

The new Form 5471 flowchart assists in the determination of whether a U.S. person needs to file a Form 5471 as a Category 2, 3, 4, and/or 5 filer.  The flowchart also addresses the attribution rules relevant to each category, as well as the applicable exceptions to the filing requirements.

Form 5471 is used by certain U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations. The form and schedules are used to satisfy the reporting requirements of Code §§6038 and 6046, and the related regulations.

Tags: Charts - Flowcharts, Form 5471

Update to Form 8833 Flowchart (Treaty-Based Return Positions)

2017-01-27

We made a change to the Form 8833 (Treaty-Based Return Position) flowchart that we published earlier this week. The change relates to residency of individuals that are dual resident taxpayers.

Treas. Reg. §301.6114-1(c)(2) provides that Form 8833 is required for individuals claiming that residency is determined under a treaty only if the income items reportable from the change in residency are greater than or equal to $100,000. However, Treas. Reg. §301.7701(b)-7(b) and (c) require that Form 8833 be filed for all taxpayers claiming that residency is determined under a treaty.

To reflect the requirement to file Form 8833 under Treas. Reg. §301.7701-7(b) and (c) for all dual resident taxpayers, we moved the residency of individuals box (an orange box) to near the beginning of the flowchart.

The updated Form 8833 flowchart can be found here.

Form8833

Tags: 6114 Treaty-Based Return Positions, Charts - Flowcharts

Free Flowchart – Reg 301.7701-7: Trusts -- Domestic and Foreign

2017-01-26

Today we published a free flowchart on our sister website, Tax-Charts.com, regarding Treas. Reg. §301.7701-7, which deals with whether a trust is domestic or foreign for U.S. tax purposes under Code §7701(a)(30)(E).

7701-7-Trusts-domestic-and-foreign

Tags: 641-684 Trusts, Charts - Flowcharts

Free Flowchart – Reg 301.6114-1 Disclosure of Treaty-Based Return Positions (Form 8833)

2017-01-23

Today we published a flowchart on our sister website, Tax-Charts.com, regarding Treas. Reg. §301.6114-1, which deals with the disclosure of treaty-based return positions on IRS Form 8833.  The flowchart goes through the exceptions to filing Form 8833 and includes the circumstances where Form 8833 is specifically required to be filed.

6114

Tags: 6114 Treaty-Based Return Positions, Charts - Flowcharts

Free Flowchart – Reg. 1.937-1 – Bona Fide Residency in a U.S. Possession

2016-08-25

Today we published a flowchart on our sister website, Tax-Charts.com, regarding Treas. Reg. §1.937-1, which deals with when an individual is considered a bona fide resident of a U.S. possession. We now have 15 free flowcharts at Tax-Charts.com.

Generally, for an individual to be considered a bona fide resident of a U.S. possession, the individual must (i) be physically present in the possession for at least 183 days during the year (ii) not have a tax home outside the possession for any part of the year, and (iii) not have a closer connection to the U.S. or a foreign country for any part of the year.

Tags: Charts - Flowcharts

Free Flowchart - Form 5472 Filing Requirements (Code §§6038A and 6038C)

2016-06-07

Today we published a flowchart on our sister website, Tax-Charts.com, regarding Form 5472 filing requirements.  We now have 14 free flowcharts at Tax-Charts.com.

Form 5472 is used to provide information required under Code §§6038A and 6038C when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic related party.  A reporting corporation is either a U.S. corporation that is 25% foreign owned or a foreign corporation that is engaged in a U.S. trade or business.  The reportable transactions are essentially related party transactions.  Consequently, Form 5472 is an important tool in IRS audits relating to transfer pricing and Code §482.  See IRM §4.61.3.4.1.

Tags: Charts - Flowcharts, Form 5472

Flowchart - Section 267(a)(2) & (3) Related Party Matching Rules

2015-12-22

Today we published a flowchart on our sister website, Tax-Charts.com, regarding the related party matching rules under Code §267(a)(2) and (3).  We now have thirteen free flowcharts at Tax-Charts.com.

Tags: Charts - Flowcharts

Flowchart - PFIC Mark-to-Market Elections

2015-08-20

Today we published a flowchart on our sister website, Tax-Charts.com, regarding the application of mark-to-market (“MTM”) elections for passive foreign investment companies (“PFICs”). A PDF of the PFIC MTM flowchart is included here.

We now have twelve free flowcharts at Tax-Charts.com:

  1. Section 83: Rev. Proc 93-27 Taxation of Profits Interest
  2. Section 302: Distribution in Redemption of Stock
  3. Section 351 Exchange: Transfer to Corporation Controlled by Transferor(s)
  4. Section 351(g): Nonqualified Preferred Stock
  5. Section 357: Assumption of Liabilities in Certain Exchanges
  6. Section 736: Payments to a Retiring Partner or a Deceased Partner's Successor in Interest
  7. Section 894: U.K. - U.S. Income Tax Treaty: Taxation of Pension Distributions
  8. Section 894: Limitation on Benefits: Mexico-U.S. Income Tax Treaty
  9. Section 1296: PFIC Mark-to-Market (“MTM”) Elections
  10. Section 1298(f) Annual PFIC Reporting Requirements
  11. Section 7701: Rev. Proc. 2009-41 - Relief for Late Entity Classification Elections
  12. Attorney-Client Privilege
Tags: 1291 PFICs, Charts - Flowcharts

New Free Flowchart at Tax-Charts.com : Code §357 Assumption of Liabilities in Certain Exchanges

2014-01-09

Today our sister website, Tax-Charts.com, published a free flowchart regarding Code §357 and the assumption of liabilities in Code §351 or §361 exchanges. The flowchart determines when the assumption of liabilities in such exchanges is treated as "boot." 

There are now ten free flowcharts available at Tax-Charts.com:

  1. Section 83: Rev. Proc 93-27 Taxation of Profits Interest
  2. Section 302: Distribution in Redemption of Stock
  3. Section 351 Exchange: Transfer to Corporation Controlled by Transferor(s)
  4. Section 351(g): Nonqualified Preferred Stock
  5. Section 357: Assumption of Liabilities in Certain Exchanges
  6. Section 736: Payments to a Retiring Partner or a Deceased Partner's Successor in Interest
  7. Section 894: Limitation on Benefits: Mexico-U.S. Income Tax Treaty
  8. Section 1298(f) Annual PFIC Reporting Requirements
  9. Section 7701: Rev. Proc. 2009-41 - Relief for Late Entity Classification Elections
  10. Attorney-Client Privilege
Tags: 351 Exchanges, Charts - Flowcharts

New Rules for PFIC Annual Filing (Form 8621)

2014-01-08

Last week the IRS released Treasury Decision 9650, which includes Treas. Reg. §1.1298-1T, temporary regulations regarding Passive Foreign Investment Companies (“PFICs”).  A PFIC is defined as any foreign corporation if 75 percent or more of its gross income for the taxable year consists of passive income, or 50 percent or more of its assets consists of assets that produce, or are held for the production of, passive income.  The quintessential PFIC is a foreign mutual fund.

To provide some background on the new regulations, on March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment Act of 2010 (the Act).  The Act amended the Internal Revenue Code by adding a new Code §1298(f). 

Code §1298(f) requires U.S. persons who are shareholders of a PFIC to file an annual report with the I.R.S.  Prior to the enactment of Code §1298(f), PFIC shareholders were required to file Form 8621 only in certain circumstances (e.g., upon disposition of stock of a PFIC, or with respect to a qualified electing fund under Code § 1293), but not annually. 

Although Code §1298(f) was effective upon signing, the I.R.S. released Notice 2010-34 which provided that shareholders of a PFIC that were not otherwise required to file Form 8621 annually prior to the enactment of Code §1298(f) would not be required to file an annual report as a result of the addition of Code §1298(f) for taxable years beginning before March 18, 2010. 

Pending the release of a revised Form 8621, Notice 2011-55 further suspended the Code §1298(f) reporting requirement for taxable years beginning on or after March 18, 2010 for PFIC shareholders that were not otherwise required to file Form 8621 as provided in the then-current instructions to Form 8621.  PFIC shareholders with Form 8621 reporting obligations as provided in the then-current instructions to Form 8621 had to continue to file the Form 8621 with an income tax or information return filed prior to the release of a revised Form 8621.

Notice 2011-55 also provided that upon the commencement of Code §1298(f) annual reporting, taxpayers would need to file a Form 8621 for the years in which the reporting requirement was suspended (generally 2010, 2011, and 2012).  However, the regulations released last week clarify that taxpayers will not need to file Form 8621 under Code §1298(f) with respect to taxable years ending before December 31, 2013.  If required under Code §1298(f), calendar year taxpayers will need to file Form 8621 starting with the 2013 tax year.

The regulations create two de minimis rules where no Form 8621 is required to be filed.  The de minimis rules apply only if the shareholder:  (i) has not made a Qualifying Electing Fund ("QEF") election, (ii) has not received an excess distribution during the year, and (iii) does not recognize gain treated as an excess distribution during the year.  The first de minimis rule applies if the aggregate value of all of the PFIC stock owned by the shareholder (directly or indirectly) does not exceed $25,000 ($50,000 for joint filers).  The second de minimis rule applies if the PFIC stock is owned indirectly by the shareholder through another PFIC and is valued at $5,000 or less.  

There are additional exceptions to the filing requirement.  We have created a comprehensive flowchart of the new Code §1298(f) regulations that determines when Form 8621 must be filed.  The chart is available for free at our sister website, www.Tax-Charts.com, along with many other charts dealing with international tax issues.

Tags: 1291 PFICs, Charts - Flowcharts, Form 8621

Free Simplified Section 351 Exchange Flowchart

2013-12-26

Today our sister website, Tax-Charts.com, published a free flowchart regarding the requirements for a “tax-free” exchange under Code §351.  The flowchart is a simplified version of the previously published (and also free) Code §351 flowchart.  The simplified version addresses the three primary requirements under Code §351 (transfer of property, in exchange for stock, and control) in an abbreviated manner.

Visit Tax-Charts.com to access the Code §351 exchange flowchart, to view other free tax flowcharts, or to purchase flowcharts.

We also added three new flowcharts (available for purchase) to Tax-Charts.com dealing with the sourcing of income.  The three flowcharts include:

  • Sourcing of inventory sales,
  • Sourcing of non-inventory personal property sales, and
  • Sourcing of other categories of income. 

The inventory sourcing flowchart deals with both manufactured inventory (including the 50/50 method and the independent factory price ["IFP"] method) as well as non-manufactured inventory (including the special rules for inventory sales by foreign persons thru U.S. offices or fixed places of business).

The non-inventory sourcing flowchart includes sourcing of depreciation recapture, the special rules dealing with intangible property sold for contingent consideration, the special sourcing residency rules under Code §865(g), and the special office or fixed place of business rules for residents and nonresidents.

The “other” sourcing flowchart deals with the other categories of income, such as interest income, dividend income, personal services, rentals and royalties, disposition of real property, insurance underwriting, social security benefits, guarantee fees, scholarships, prizes and awards, transportation income, international communications income, space and ocean income, notional principal contracts, and analogy.

Because the sourcing rules can be quite detailed, a “simplified” version of each flowchart is included.  These sourcing flowcharts are available for purchase at Tax-Charts.com.

Tags: 351 Exchanges, 861 Source of Income, Charts - Flowcharts

Inbound Overview Flowchart (for Sale)

2013-05-10

Today our sister website, Tax-Charts.com, published a flowchart that provides an overview of the U.S. tax “inbound” rules.  The inbound rules deal with the U.S. taxation of income earned by non-U.S. persons.

Specifically, the Inbound Overview flowchart outlines the rules to determine (i) when gross income is effectively connected with a U.S. trade or business, and (ii) whether U.S. source fixed or determinable annual or periodical (“FDAP”) income is subject to the U.S. 30% tax on gross income.

The Inbound Overview flowchart is available for sale for $149.

Tags: Charts - Flowcharts

Free Section 351 Exchange Flowchart

2013-01-18

Today our sister website, Tax-Charts.com, published a free flowchart regarding the requirements for a “tax-free” exchange under Code §351. The flowchart includes the three primary requirements under Code §351 (transfer of property, in exchange for stock, and control), as well as the numerous modifications and exceptions these requirements. Some of the specials rules include:

  1. Stock received from underwriters,
  2. Stock received for services,
  3. Property contributed of a relatively small value,
  4. Post-exchange transfers of stock, and
  5. Diversification rules for investment companies.

Although the flowchart addresses the assumption of liabilities as potentially being “boot,” it does not address which types of liabilities assumed are treated as boot under Code §357.

The flowchart is available for free here.

Tags: 351 Exchanges, Charts - Flowcharts

Attorney-Client Privilege Flowchart

2012-03-15

Today our sister website, Tax-Charts.com, published a free flowchart of the attorney-client privilege.  The flowchart is shown below and is also available here.

Attorney_client_privilege_flowchart

Tags: Charts - Flowcharts, Other - Other

Free Section 736 Flowchart

2011-07-06

Today our sister website, Tax-Charts.com, published a free flowchart that deals with payments to a retiring partner or a deceased partner’s successor in interest under Code §736.  The flowchart identifies which payments should be considered Code §736(a) payments (distributive share or guaranteed payment) and which payments should be considered Code §736(b) payments (in exchange for the withdrawing partner’s interest in partnership property).

The flowchart is available for free here.

Tags: Charts - Flowcharts

Flowchart of LOB Article of Chile-U.S. Income Tax Treaty

2011-06-27

Today our sister website, Tax-Charts.com, published a flowchart that deals with the limitation on benefits ("LOB") provisions included in Article 24 of the Chile-U.S. Income Tax Treaty.  Although the treaty has been signed, it has not yet been ratified and is not yet in force.

The limitation on benefits provisions are intended to prevent treaty shopping. The flowchart includes the various types of qualified persons and includes the Publicly Traded Test, the Ownership / Base Erosion Test, the HQ company test, the Active Business Test, Triangular Cases, etc.

The flowchart can be purchased on Tax-Charts.com.

Tags: 894 Limitation on Benefits, Charts - Flowcharts

Two New Flowcharts on Tax-Charts.com

2011-06-13

Today our sister website, Tax-Charts.com, uploaded two new flowcharts.  One flowchart deals with the limitation of benefits clause of the Ireland-U.S. Income Tax Treaty and the other flowchart deals with the limitation of benefits clause of the Mexico-U.S. Income Tax Treaty.

The flowchart regarding the Mexico-U.S. Income Tax Treaty is available for free (here) and the flowchart regarding the Ireland-U.S. Income Tax Treaty is available for purchase on Tax-Charts.com.

Tags: Charts - Flowcharts

Flowchart of Rev. Proc. 93-27

2011-05-12

Today our sister website, Tax-Charts.com, uploaded a free flowchart that deals with the taxation of profits interests under Rev. Proc. 93-27.  The flowchart includes the clarifications of Rev. Proc. 93-27 made in Rev. Proc. 2001-43, regarding the receipt of partnership interests that are not yet vested (as defined in Treas. Reg. §1.83-3(b)).

The flowchart can be found here.

Tags: Charts - Flowcharts

Two New Flowcharts

2010-10-27

Today our sister website, Tax-Charts.com, published two new tax flowcharts.  One flowchart, available for free, deals with nonqualified preferred stock (“NQPS”) under Code § 351(g).  An earlier version of this flowchart was published on www.andrewmitchel.com several years ago.  However, the logic of the flowchart was flawed and therefore the chart was taken down.  We believe that the new chart is accurate, but, as stated on all of our flowcharts, the flowchart undoubtedly includes errors and omissions and should not be relied upon for any purpose whatsoever.

The second flowchart deals with the limitation on benefits clause in Article 16 of the Australia-U.S. Income Tax Treaty.  This chart is available here.

Tags: Charts - Flowcharts

Free Flowchart of Rev. Proc. 2009-41

2010-10-12

Today our sister website, Tax-Charts.com, published a new flowchart regarding relief for late entity classification elections.  The flowchart covers the requirements of Section 4.01 of Rev. Proc. 2009-41 to be eligible for a late entity classification election.

The flowchart is available for free.  Click on the image below to view the flowchart.

rev_proc_2009_41

Tags: Charts - Flowcharts

Software Classification Flowchart

2010-09-16

Today our sister website (Tax-Charts.com) published a new flowchart dealing with rules for classifying transactions related to computer programs under Treas. Reg. § 1.861-18.  The flowchart is available for purchase as a PDF file.

The flowchart addresses the four types of transactions in the regulations, including services, know-how, copyright rights, and coyprighted articles.

Tax-Charts.com now has a total of 14 flowcharts, including:

  1. Section 152: Dependents (Free)
  2. Section 302: Distribution in Redemption of Stock (Free)
  3. Reg. 1.861-18: Classification of Transactions Involving Computer Programs
  4. Sections 871(h) & 881(c): Portfolio Interest Exception
  5. Section 877A(g): Covered Expatriate Under Section 877A(g)
  6. Section 954(d): Foreign Base Company Sales Income
  7. Section 954(e): Foreign Base Company Services Income
  8. Section 956: Investments in U.S. Property
  9. Section 2501: U.S. Gift Taxes on “Cross-Border” Gifts
  10. Foreign Trust & Gift Reporting Under Sections 6048 & 6039F
  11. Section 7701(b): U.S. Individual Income Tax Residency
  12. Permanent Establishment: Article 5 of the OECD Model Income Tax Treaty
  13. Limitation on Benefits: Article 22 of the U.S. Model Income Tax Treaty
Tags: Charts - Flowcharts

Hybrid Entities and Reverse Hybrid Entities

2010-07-27

U.S. tax planners often refer to “hybrid entities” and “reverse hybrid entities.”  This blog entry briefly discusses the meaning of these terms.

From a U.S. tax perspective, a hybrid entity is an entity that is “fiscally transparent” for U.S. tax purposes but not fiscally transparent for foreign tax purposes.  In general, an entity is fiscally transparent if the entity’s current year profits are currently taxable to the owners of the entity, regardless of whether the entity made any distributions to its owners during that year.  (See Treas. Reg. § 1.894-1(d)(3)(ii) and (iii) for a more extensive definition.)

Partnerships are typically fiscally transparent entities.  Corporations are typically not fiscally transparent entities.  Limited liability companies and various types of foreign entities may or may not be fiscally transparent.

A reverse hybrid entity is the “reverse” of a hybrid entity in that the entity is fiscally transparent for foreign tax purposes but not fiscally transparent for U.S. tax purposes.  Entities that are treated the same for U.S. and foreign tax purposes are not “hybrid” entities.

Shown below is a flowchart/decision tree that helps determine whether an entity is a hybrid entity or a reverse hybrid entity.  The flowchart also indicates some of the special U.S. tax rules that may apply to domestic and foreign, hybrid and reverse hybrid entities.

Click here for a full size version of the chart.

894c_hybrid_entities

Tags: Charts - Flowcharts, Charts - Situational Charts

U.S. Model Treaty: Limitation on Benefits Flowchart

2010-06-03

Today our sister website, Tax-Charts.com, offered a new flowchart for sale, covering limitation on benefits ("LOB") provisions of Article 22 of the 2006 U.S. Model Income Tax Treaty.  U.S. income tax treaties generally include rules that limit the benefits of the treaties to prevent treaty shopping.  These rules are typically called "limitation on benefits" or "LOB" provisions. 

Tax-Charts.com now has a total of 12 flowcharts, including : Section 302: Distribution in Redemption of Stock (Free).

Tags: 894 Treaties, Charts - Flowcharts

Covered Expatriate Flowchart

2010-05-27

Today our sister website, Tax-Charts.com, published a new flowchart regarding the term “covered expatriate” under Code § 877A.  Under this section, certain individuals that renounce their U.S. citizenship or cease to be long term U.S. residents are deemed to have sold their worldwide assets just prior to expatriation.  Tax is due on the deemed sale to the extent that net gain exceeds $627,000 (for 2010).

Only “covered expatriates” are subject to the deemed sale rules.  The flowchart guides one through the logic of whether an individual is an “expatriate” and then if the individual is a “covered expatriate.”  The flowchart does not go through the details of calculating the gain or the special rules regarding deferral of the tax, deferred compensation, deferred tax accounts, and nongrantor trusts.

Tax-Charts.com now has a total of 11 flowcharts, including:

  1. Section 152: Dependents (Free)
  2. Section 302: Distribution in Redemption of Stock (Free)
  3. Sections 871(h) & 881(c): Portfolio Interest Exception
  4. Section 877A(g): Covered Expatriate Under Section
  5. Section 954(d): Foreign Base Company Sales Income (Subpart F Income)
  6. Section 956: Investments in U.S. Property
  7. Section 2501: U.S. Gift Taxes on “Cross-Border” Gifts
  8. Foreign Trust & Gift Reporting Under Sections 6048 & 6039F
  9. Section 7701(b): U.S. Individual Income Tax Residency
  10. Permanent Establishment: Article 5 of the OECD Model Income Tax Treaty
Tags: Charts - Flowcharts

Free Code § 302 Redemption Flowchart

2009-08-19

On our sister website, Tax-Charts.com, we have published a flowchart of distributions in redemption of stock under Code § 302.  Redemptions of stock can be treated either as sales/exchanges or as Code § 301 distributions.  The flowchart leads the user, step-by-step, through the process of determining whether the redemption should be treated as a sale/exchange or as a Code § 301 distribution.

The flowchart covers the substantially disproportionate rules of Code § 302(b)(2) as well as the family attribution rules of Code §§ 302(b)(3) and 302(c), and more.

The flowchart is available for free.  Students taking corporate tax classes may be particularly interested in studying the flowchart.

Andrew Mitchel is an international tax attorney who advises businesses and individuals with cross-border activities.

Tags: Charts - Flowcharts

Canadian Outbound Taxation

2008-05-25

I recently read an article dealing with Canadian taxation of cross-border transactions.  Part of the article discussed the Canadian approach to outbound taxation.  In many ways, the Canadian rules for taxing outbound investments are very similar to the U.S. rules. 

The U.S. generally allows for deferral -- Canada generally allows for deferral.

The U.S. has certain anti-deferral regimes (subpart F income and passive foreign investment companies) -- Canada has certain anti-deferral regimes (foreign accrual property income, or "FAPI," and foreign investment entities).

The U.S. allows foreign tax credits to offset U.S. tax when foreign profits are repatriated -- Canda allows foreign tax credits to offset Canadian tax when foreign profits are repatriated.

One major difference, however, is that the U.S. generally does not allow foreign profits to be exempt from U.S. taxation when the profits are repatriated.  In contrast, Canada exempts from Canadian corporate income tax certain foreign profits of active businesses in countries that have income tax treaties or tax information exchange agreements ("TIEAs") with Canada.

Based solely on information provided in the article, we have created a rudimentary flowchart showing the Canadian taxation of outbound transactions.  The flowchart is shown below:

Canadian_outbound

Tags: Charts - Flowcharts, Other - Other