Tu Nguyen No Comments

TREASURY AND IRS PROPOSE RULES FOR FOREIGN PARTNERS IN PARTNERSHIPS ENGAGED IN A U.S. TRADE OR BUSINESS

Summary

Recently, the Department of the Treasury and the Internal Revenue Service (collectively, Treasury), proposed regulations implementing Section 864(c)(8) of the Code (the Proposed Regulations). The Proposed Regulations affect certain foreign persons that recognize gain or loss from the sale or exchange of an interest in a partnership that is engaged in a trade or business within the United States. The Proposed Regulations also affect partnerships that, directly or indirectly, have foreign partners.
Details

Section 864(c)(8), which was added to the Code by the Tax Cuts and Jobs Act (TCJA), provides that gain or loss of a nonresident alien individual or foreign corporation (a foreign transferor) from the sale, exchange, or other disposition (transfer) of a partnership interest is treated as effectively connected (EC) with the conduct of a trade or business within the United States (EC gain or EC loss) to the extent that the transferor would have had EC gain or loss if the partnership had sold all of its assets at fair market value as of the date of the sale or exchange (deemed sale). Section 864(c)(8) essentially overturns the holding in Grecian Magnesite Mining v. Commissioner, 149 T.C. No. 3 (2017), appeal argued, No. 17-1268 (D.C. Cir. Oct. 9, 2018).

Read more

Tu Nguyen No Comments

How Do You Solve a Problem like Foreign Taxes?

By Bethany Bouw, CPA

There have been some rumblings recently about foreign taxes, specifically foreign real estate taxes. As one might imagine, there are a wide variety of foreign taxes. These foreign taxes can include items such as income taxes, real estate taxes, wealth taxes, estate taxes, solidarity taxes, and value-add taxes It can be easy to lump these all together when asked about foreign taxes paid or accrued if a taxpayer is not careful. Instead, it is best to be aware of the breakdown as not all foreign taxes are treated equally. Taxpayers should also be aware that there are limits on foreign taxes that would otherwise be creditable or deductible.

Foreign Real Estate Taxes

Schedule A of the Form 1040 used to include foreign real estate taxes in the taxes deducted. Unfortunately, with the recent tax reform, these may no longer be deducted on Schedule A (though for taxpayers already limited by the SALT cap with just domestic real estate and state income tax this is not as large of a loss). This disallowance means taxpayers without a state income tax and domestic real estate tax may find themselves unable to deduct much in the way of taxes on Schedule A. Read more

Tu Nguyen No Comments

Giving more than your heart to your non-US spouse

By Bethany Bouw, CPA

Around this time of year it is common to find ads for flowers, chocolate, and jewelry which can mean only one thing: Valentine’s Day. While foreign tax considerations are not nearly as romantic and sentimental a gift for your foreign spouse, you can be assured that you will not regret taking the time to consider what their status means for gifts and estates. Presents are still advisable.

Many taxpayers think that once they get through the hurdles of marrying their foreign spouse and the paperwork entailed in marriage, residency, and work permits that it will be just like being married to a US citizen. Unfortunately, that is not the case for US taxation. It is vital to make sure you inform yourself as to what the differences are.

Gifting to non-US spouses

For married couples that are both US citizens, the gifts between the spouses would qualify for the marital deduction and therefore would not be subject to gift tax or eat up one’s unified credit. A couple with one spouse who is not a US citizen have limits on non-taxable gifts and also additional reporting considerations. A non-US citizen spouse who is not a US resident that gifts the US person more than $100,000 in a year creates a reporting requirement. Conversely, a US citizen who gifts their non-US citizen spouse may not be able to do so without creating gift taxation. The annual exclusion for gifts to a non-US citizen spouse is $155,000 for 2019. The annual exclusion for gifts to non-US citizen spouses, like the typical annual gift tax exclusion, is adjusted for inflation. Jointly purchased assets with a non-US citizen could create gifts that the US citizen needs to consider against the annual exclusion. Depending on where you live, buying a house could incur a gift tax or force the taxpayer to use a portion of their unified credit.

Read more

Tu Nguyen No Comments

TCJA Depreciation and Other Deduction Changes

By Jason Dudas, CPA

Under the Tax Cuts and Jobs Act, contractors are now able to take a deduction for the full cost of machinery and equipment purchase made each year. This new provision is referred to as 100% bonus depreciation and there is no limitation on the amount of purchases. The provision is available for assets acquired and placed-in-service after September 27, 2017.

Read more