Andrew Mitchel LLC

International Tax Blog - New and Interesting International Tax Issues


New IRS Practice Unit - Taxation of Beneficiary of a Foreign Non-Grantor Trust

2023-12-01

IRS Practice Unit

Yesterday the IRS published a new practice unit titled Taxation of Beneficiary of a Foreign Non-Grantor Trust.

This practice unit discusses the classification of foreign trusts, the “default calculation”, Form 3520, Form 4970, and more.

This new practice unit has been added to our Practice Units By Topic page.

Tags: 641-684 Trusts, Form 3520 / 3520-A, Other - IRS Practice Units

New IRS Practice Unit: Expatriation – Mark-to-Market Tax Regime

2023-07-13

IRS Practice Unit

Yesterday the IRS published a new practice unit titled “Expatriation – Mark-to-Market Tax Regime

This practice unit discusses the “exit tax” under Code §877A.

This new practice unit has been added to our Practice Units By Topic page.

Tags: 877A Individual Expatriation, Other - IRS Practice Units

New IRS Practice Unit - FTC - Categorization of Income and Taxes Into Proper Basket

2023-06-27

IRS Practice Unit

Yesterday the IRS published a new practice unit titled “FTC - Categorization of Income and Taxes Into Proper Basket.”

This practice unit discusses the various Code §904(d) categories (a.k.a. “baskets”). There are now seven categories, and they include:

  • 951A
  • Foreign branch
  • General
  • Passive
  • 901(j)
  • Income resourced by treaty
  • Lump-sum distributions

This new practice unit has been added to our Practice Units By Topic page.

Tags: 901 Foreign Tax Credits, Other - IRS Practice Units

Three New IRS Practice Units - 267(a)(3), 385, and 163(j) for CFCs

2023-05-18

Yesterday the IRS published three new practice units titled:

The first practice unit discusses the deductibility of interest expense under Code §267(a)(3). Also see our flowchart dealing with Code §267(a)(3).

The second practice unit discusses whether intercompany debt should be respected as debt for U.S. federal income tax purposes.

The third practice unit concentrates on the Code §163(j) rules as applied to CFCs.

These new practice units have been added to our Practice Units By Topic page.

In addition, the IRS seems to be in the process of changing the name of these types of documents from “practice units” to “concept units”.

Tags: 163(j) Limit on Business Interest, Other - IRS Practice Units, 385 Debt vs. Equity, 267(a)-3 Amts owed to rel'd fgn persons

New IRS Practice Unit - 1120-F Delinquent Returns - Filing Deadline Waiver Process

2022-07-26

Yesterday the IRS published a new practice unit titled “Allowance of Deductions and Credits on 1120-F Delinquent Returns.”

Under Code §882(c)(2), an untimely foreign corporation filer is not entitled to deductions and credits.  However, Treas. Reg. §1.882-4(a)(3)(ii) permits the filing deadline to be waived.  This practice unit explains the deadline waiver process.

This new practice unit has been added to our Practice Units By Topic page.

Tags: 882 Foreign Corps with ECI, Other - IRS Practice Units

New IRS Practice Unit - NRA Deferred Compensation

2022-04-02

Yesterday the IRS published a new practice unit titled “Deferred Compensation Received by Nonresident Alien Individuals.”

The practice unit discusses payments to NRAs from four types of deferred compensation plans:

  1. Salary deferral – unfunded deferred compensation plans under which U.S. taxation is deferred until payment is made.
  2. Distributions from a tax-qualified retirement plan (usually a pension or profit-sharing plan) of a U.S. company.
  3. Payments made by a U.S. company under an unfunded “top hat” retirement plan for key employees.
  4. Income arising under an equity-based compensation plan (employee stock option plan or restricted stock plan).

Generally, the practice unit only applies to deferred compensation received by NRAs who were treated as employees, and not as independent contractors, during the period in which the deferred compensation was earned.

This new practice unit has been added to our Practice Units By Topic page.

Tags: 861 Source of Income, 864 Engaged in U.S. Trade or Business (ETOB), Other - IRS Practice Units

Two New IRS Practice Units - NRA employee expenses & Form 1040NR for RGS

2021-10-31

This past week the IRS published two new practice units titled:

The first practice unit mentioned above applies only to tax years beginning before 2018 and after 2025. The Tax Cuts and Job Acts of 2017 suspended the deductibility of unreimbursed employee expenses as itemized deduction from 2018 through 2025.

The second practice unit mentioned above deals with how to use the IRS’ internal Return Generation Software (RGS) when IRS agents are dealing with Form 1040NR. The RGS application does not have a dedicated Form 1040NR module for examiners to use when examining Form 1040-NR and Form 1040-NR-EZ. RGS is designed mainly to computes tax for Form 1040, U.S. Individual Income Tax Return, Form 1120, U.S. Corporate Income Tax Return, Form 1120S, U.S. Income Tax Return for an S Corporation, and Form 1065, U.S. Return of Partnership Income.

These new practice units have been added to our Practice Units By Topic page.

(My web scraping tool also notified me that on October 26, 2021 the IRS had published a practice unit called “Identification of a U.S. Trade or business or Permanent Establishment (PE).” However, that practice unit seems to have been removed from the website. Perhaps it was prematurely published and it will be coming soon?)

Tags: 864 Engaged in U.S. Trade or Business (ETOB), Other - IRS Practice Units

New IRS Practice Unit - FTC (Business) General Principles

2021-09-02

Yesterday the IRS published a new practice unit titled:

FTC (Business) General Principles

This new practice unit has been added to our Practice Units By Topic page.

Tags: 901 Foreign Tax Credits, Other - IRS Practice Units

2 New IRS Practice Units

2021-08-26

Last week the IRS published two new practice units.  One was titled:

Transfers of Property to Partnerships with a Related Foreign Partner

and the other was titled:

Accuracy-Related Penalty on Understatements With Respect to Reportable Transactions

These 2 practice units have been added to our Practice Units By Topic page.

Tags: 701 Partnerships, Other - IRS Practice Units

New IRS Practice Unit: Overview of IRC 987 and Branch Operations in a Foreign Currency

2021-08-04

Last week the IRS published a new practice unit titled Overview of IRC 987 and Branch Operations in a Foreign Currency.

This practice unit has been added to our Practice Units By Topic page.

Tags: 987 Branch Transactions, Other - IRS Practice Units

3 New IRS Practice Units

2021-07-09

Yesterday the IRS published a new practice unit titled “IRC Section 250 Deduction: Foreign-Derived Intangible Income (FDII)”. 

In addition, Wednesday they published the practice unit “Revised ASC 730 Directive - Computing Qualified Research Expense”, and last week they published the practice unit "Foreign Tax Redeterminations".

These 3 practice units have been added to our Practice Units By Topic page.

Tags: 250 GILTI & FDII Deductions, 861 Source of Income, 901 Foreign Tax Credits, Other - IRS Practice Units

New IRS Practice Unit: Concepts of GILTI

2021-06-18

Yesterday the IRS published a new practice unit titled “Concepts of Global Intangible Low-Taxed Income Under IRC 951A.”

In addition, last week the IRS published a practice until titled “Partner’s Outside Basis.”

Both of these practice units have been added to our Practice Units By Topic page.

Tags: 701 Partnerships, 951A GILTI, Other - IRS Practice Units

New IRS Practice Unit: Allocation and Apportionment of Deductions

2021-05-21

Yesterday the IRS published a new practice unit titled “Allocation and Apportionment of Deductions.” This practice unit discusses the allocation and apportionment of expenses and deductions for purposes of computing the foreign tax credit limitation.

We have added this practice unit to our Practice Units By Topic page.

Tags: Other - IRS Practice Units

New IRS Practice Units - FTC Carryback and Carryover & Liquidating Distributions of a Partner’s Interest in a Partnership

2021-04-12

Last week the IRS published 2 new practice units related to international tax: 

We have added these practice units to our Practice Units By Topic page.

Tags: 701 Partnerships, 901 Foreign Tax Credits, Form 1116, Other - IRS Practice Units

New IRS Practice Unit: 965 Transition Tax

2021-03-24

Yesterday the IRS published a new practice unit titled “IRC 965 Transition Tax Overview.”  This practice unit discusses the section 965 transition tax that was enacted as part of TCJA.  Section 965 deals with the treatment of deferred foreign income upon the transition to the participation exemption system of taxation.

You can find links to this practice unit on our Practice Units By Topic page.

Tags: 965 Transition Tax, Other - IRS Practice Units

New IRS Practice Unit: Foreign Earned Income

2020-08-27

Yesterday the IRS published a new practice unit titled “Foreign Earned Income for Purposes of IRC 911.” This practice unit discusses "foreign earned income" for purposes of Code §911, and rounds out the 10th practice unit on the foreign earned income exclusion ("FEIE"). The IRS now has the following practice units on the foreign earned income exclusion:

  1. Foreign Earned Income (2020)
  2. Physical Presence Test (2017)
  3. Bona Fide Residence Test (2015)
  4. Calculating the FEIE - Employee (2015)
  5. Calculating the FEIE - Partner in a Partnership (2016)
  6. Calculating the FEIE - Self-Employed Individual (2015)
  7. Foreign Housing Exclusion (2016)
  8. Foreign Housing Deduction (2016)
  9. Election and Revocation (2014)
  10. FEIE - Disallowance of FTCs for Foreign Taxes on Excluded Income (2020)

You can find links to these practice units on our Practice Units By Topic page.

Tags: 911 Foreign Earned Income Exclusion, Other - IRS Practice Units

New IRS Practice Units: Reasonable Cause and Good Faith & FTC Limitation

2020-07-18

The IRS recently published two new practice units related to international tax: Reasonable Cause and Good Faith and FTC Limitation.  The first practice unit discusses the reasonable cause exception for penalty relief.  The second practice unit discusses the foreign tax credit limitation for individuals.  Foreign tax credits are generally limited to the U.S. tax on foreign income.

We have added these practice units to our Practice Units By Topic page.

Tags: 901 Foreign Tax Credits, Other - IRS Practice Units

New IRS Practice Unit: Flow-Through Entities Effects on FTC

2020-06-04

Yesterday the IRS published a new practice unit titled “Flow-Through Entities Effects on FTC.” This practice unit discusses how flow-through entities affect an individual’s foreign tax credit.

We have added this practice unit to our Practice Units By Topic page.

Tags: 901 Foreign Tax Credits, Other - IRS Practice Units

Two New (& One Updated) IRS Practice Units

2020-05-09

Yesterday the IRS published some new practice units and updated an existing practice unit.  The new units included:

The updated practice unit was:

We have added these practice units to our Practice Units By Topic page.

(The IRS also yesterday published a practice unit on 481(a) Adjustments for 263A Accounting Method Changes.  However, since this practice unit is not international related, we have not added it to our practice units by topic).

Tags: 911 Foreign Earned Income Exclusion, 986(c) PTEP Exch. Gain/Loss, Other - IRS Practice Units

Three New IRS Practice Units

2020-04-29

Yesterday the IRS published three new practice units:

We have added these practice units to our Practice Units By Topic page.

Tags: 453 Installment Sales, 901 Foreign Tax Credits, 986 Translation of Foreign Inc. Taxes, Other - IRS Practice Units

New IRS Practice Unit On The Statute Of Limitations

2020-04-11

Yesterday the IRS published a new practice unit titled “Overview of Statute of Limitations on the Assessment of Tax.” This practice unit discusses the time limits under which the IRS can no longer assess additional tax, with a focus on international.

We have added this practice unit to our Practice Units By Topic page.

Tags: 6501 Statute of Limitations, Other - IRS Practice Units

New IRS Practice Unit for “Adjustments for Overwithholding on Form 1042”

2020-04-08

Yesterday the IRS published a new practice unit titled “Adjustments for Overwithholding on Form 1042.” This practice unit discusses adjustments for overwithholding of tax done on payments of U.S. source income to foreign persons on Forms 1042 tax returns and Forms 1042-S information returns.

As discussed in the practice unit, how corrections to overwithholding are made depends on the timing of when the overwithholding is discovered. Three time periods are discussed:

  1. Before last deposits for the year,
  2. Before Form 1042-S due date (with additional limitations), or
  3. After that.

1. A withholding agent that discovers overwithholding before the withholding agent’s final deposits are made for the year can make balancing payments to the payees and to the IRS. In this case the withholding agent never needs to report the errors or corrections to the IRS.

2. A withholding agent that has overwithheld and already completed its deposits for the calendar year but whose Forms 1042-S have neither been sent out nor are overdue, may adjust the overwithheld amount using one of the following methods:

  1. a. Reimbursement Procedure (Treas. Reg. §1.1461-2(a)(2)) or,
  2. b. Set-off Procedure (Treas. Reg. §1.1461-2(a)(3)).

3. A withholding agent that discovers overwithholding after the Form 1042-S has been filed (or after its due date, including extensions) must report the overwithholding on Form 1042-S and the recipient must claim a refund for the overwithholding.

The practice unit notes that overwithholding “[m]ost commonly * * * seems to occur because a payee has not supplied complete documentation that allows a [withholding agent] to withhold less than 30%.” Typically, this would mean that the payee has not provided a Form W-8BEN or W-8BEN-E.

We have added this practice unit to our Practice Units By Topic page.

Tags: 1441 U.S. Withholding Taxes, Form 1042, Other - IRS Practice Units

New IRS Practice Unit – FDAP Statistical Sampling in the Audit of a U.S. Withholding Agent

2020-01-23

The IRS has published a new practice unit that deals with FDAP statistical sampling in audits of U.S. withholding agents. This practice unit would typically apply to the audit of a U.S. financial institution.

To see all IRS Practice Units, click here.

Tags: 871 / 881 FDAP, 1441 U.S. Withholding Taxes, Other - IRS Practice Units

New IRS Practice Units published in March

2019-03-18

Tags: 894 Competent Authority, 894 Treaties, Other - IRS Practice Units

New IRS Practice Unit: Creation of a Permanent Establishment (PE) through the Activities of a Dependent Agent in the United States

2019-01-31

Yesterday the IRS released a new practice unit titled: Creation of a Permanent Establishment (PE) through the Activities of a Dependent Agent in the United States.  We updated our IRS Practice Units By Topic page to add this new practice unit.

Tags: 894 Permanent Establishment, 894 Treaties, Other - IRS Practice Units

Updated IRS Practice Units by Topic Page

2018-11-13

The IRS publishes Practice Units (“PUs”) (formerly "International" Practice Units) on its website. PUs provide IRS staff with explanations of general tax concepts, as well as information about specific types of transactions. These PUs discuss many U.S. international tax issues that are applicable to businesses. The IRS website does not categorize them by topic therefore it can be difficult to find PUs on a particular topic. Our page Practice Units by Topic categorizes the PUs that relate to international activities by topic.

We have recently updated the page to include 29 new international related practice units published over the last several months. 

The topics include:

Tags: 367(b) Fgn to Fgn Corp, 367(d) Intangibles, 482 Cost Sharing Arrangements, 641-684 Trusts, 861 Source of Income, 884 Branch Profits Tax, 894 Treaties, 897 FIRPTA, 901 Foreign Tax Credits, 911 Foreign Earned Income Exclusion, 951 Subpart F Income, 956 Investments in U.S. Property, 987 Branch Transactions, 988 Transactions, 6038A 5472s, 6048 Foreign Trusts, 7701(b) Individual Residency, Other - IRS Practice Units

Updated - IRS Practice Units by Topic

2017-04-20

Tags: 367(d) Intangibles, 861 Source of Income, 901 Foreign Tax Credits, 988 Transactions, 6038A 5472s, Other - IRS Practice Units

Updated IRS Practice Units by Topic

2016-12-29

Tags: 367(b) Fgn to Fgn Corp, 861 Source of Income, 1441 U.S. Withholding Taxes, Other - IRS Practice Units

IRS International Practice Units By Category

2016-08-05

The IRS drafts publications that summarize in plain English U.S. tax rules for a variety of tax topics.  A few of the publications discuss U.S. international tax issues.  However, most of the IRS international publications deal with the U.S. taxation of individuals, and not with the U.S. taxation of businesses.

For example, IRS publications do not cover Subpart F Income, outbound transfers to foreign corporations, transfer pricing, etc.  To learn about these rules, one would often have to go to specialized training, read the underlying law (e.g., statute, regulations, cases, etc.), or read what advisors provide on the Internet.

Recently, the IRS has been publishing International Practice Units (“IPUs”) on its website.  IPUs provide IRS staff with explanations of general international tax concepts, as well as information about specific types of transactions.  These IPUs discuss many U.S. international tax issues that are applicable to businesses. 

To date, the IRS has published over 100 IPUs.  However, the IRS website containing these IPUs does not categorize them by topic.  Therefore, it can be difficult to find IPUs on a particular topic. 

We have created a web page that categorizes the IPUs by topic.  The topics include:

Tags: 163(j) Limit on Business Interest, 367(b) Fgn to Fgn Corp, 482 Cost Sharing Arrangements, 482 Transfer Pricing, 861 Source of Income, 884 Branch Profits Tax, 894 Limitation on Benefits, 894 Permanent Establishment, 894 Treaties, 897 FIRPTA, 901 Foreign Tax Credits, 911 Foreign Earned Income Exclusion, 911 Housing Cost Amounts, 951 Subpart F Income, 956 Investments in U.S. Property, 988 Transactions, 989 Qualified Business Unit (QBU), 1441 U.S. Withholding Taxes, 6048 Foreign Trusts, 7701(b) Individual Residency, Other - IRS Practice Units

I.R.S. International Practice Units

2014-12-23

Last week the I.R.S. published 46 International Practice Units. The Practice Units provide I.R.S. staff with explanations of general international tax concepts as well as information about specific types of transactions. The 46 topics covered in the Practice Units are shown below. In addition, we have added a link to the Practice Units in our “Resources” section in the right column.

  1. Interest Income Derived by CFC or QBU Engaged in Banking Financing or Similar Business
  2. Computing Foreign Base Company Income
  3. Subpart F Overview
  4. Disposition of a Portion of an Integrated Hedge
  5. Asset Valuation using the FMV Method for Interest Expense Allocation to Calculate FTC Limitation
  6. Overview of Interest Expense Allocation and Apportionment in Calculation of the FTC Limitation
  7. French Foreign Tax Credits
  8. Exhaustion of Remedies
  9. Exhaustion of Remedies and Transfer Pricing
  10. Exhaustion of Remedies in Non Transfer Pricing Situations
  11. How to Allocate and Apportion Research and Experimental Expenses
  12. Interest Expense Limitation Computation under IRC 163j
  13. Issuing a Formal Document Request when a US Taxpayer is Unresponsive to an IDR
  14. Section 861 Home Office and Stewardship Expenses
  15. License of Foreign Owned Intangible Property by US Entity
  16. Management Fees
  17. Purchase of Tangible Goods from a Foreign Parent CUP Method
  18. CPM Simple Distributor Inbound
  19. Foreign Shareholder Activities and Duplicative Services
  20. Best Method Determination for an Inbound Distributor
  21. Services Cost Method Inbound Services
  22. Arms Length Standard
  23. Outbound Liquidation of US Corp to Foreign Parent IRC Section 367 e 2 Overview
  24. Comparability Analysis for Tangible Goods Transactions Inbound
  25. Review of Transfer Pricing Documentation by Inbound Taxpayers
  26. Pricing of Platform Contribution Transaction in Cost Sharing Arrangements Initial Transaction
  27. Cost Sharing Arrangements vs Licensing Alternative
  28. License of Intangible Property from US Parent to a Foreign Subsidiary
  29. Distinguishing Between Sale License and other Transfers of Intangibles to CFCs by US Transferors
  30. Sale of Tangible Goods from a CFC to a USP CUP Method
  31. CPM Simple Distributor Outbound
  32. Rev Proc 99 32 Outbound Guidance
  33. Outbound Transfers of Property to Foreign Corporation - IRC Section 367 Overview
  34. Dual Consolidated Losses Overview
  35. Comparability Analysis for Tangible Goods Transactions Outbound
  36. Determining Tax Residency Status of Lawful Permanent Residents
  37. Substantial Presence Test
  38. Election under Section 6013g
  39. Election under Section 6013h
  40. First Year Election under 7701b4
  41. IRC 911 Election and Revocation
  42. Tax Home for Purposes of IRC Section 911
  43. Branch Profits Tax Concepts
  44. Qualification for Treaty Benefits under the Publicly Traded Test
  45. Creation of a Permanent Establishment through the Activities of Seconded Employees in the United States
  46. Overview of FDAP
Tags: 163(j) Limit on Business Interest, 482 Cost Sharing Arrangements, 482 Transfer Pricing, 884 Branch Profits Tax, 894 Limitation on Benefits, 894 Permanent Establishment, 911 Foreign Earned Income Exclusion, 951 Subpart F Income, 7701(b) Individual Residency, Form 2555, Other - IRS Practice Units