One of the more controversial and complex provisions of the Tax Cuts and Jobs Act has been the 21% excise tax on certain types of non-profit executive compensation. The Internal Revenue Service recently issued interim guidance that addresses how this tax will apply in various situations that commonly arise for tax-exempt employers. However, establishing internal systems to determine which employees are covered by this tax may prove challenging.
The Internal Revenue Service and the Department of the Treasury recently released proposed regulations that address the calculation of corporate US shareholders' deemed paid foreign tax credits under Section 960 of the Tax Act. The proposed regulations also clarify that certain foreign income taxes paid by controlled foreign corporations will be lost and that corporate US shareholders cannot claim a deemed paid credit with respect to such taxes.
The Department of the Treasury and the Internal Revenue Service recently released proposed regulations for the Base Erosion and Anti-abuse Tax (BEAT), which was added to the Internal Revenue Code as part of the Tax Act 2017. The proposed regulations provide helpful guidance on a range of important topics and generally go a long way towards a reasonable implementation of a very challenging statute.
US taxpayers are generally taxable on income earned worldwide, regardless of the manner in which that income is paid (eg, currency (foreign or domestic) or property (tangible, intangible or virtual)). Therefore, if cryptocurrency has been bought, sold or exchanged, those transactions could be subject to federal tax. If the cryptocurrency is held offshore, a number of offshore reporting obligations could also apply to these holdings.
The Internal Revenue Service and US Department of the Treasury recently released proposed regulations that would prevent, in many cases, income inclusions for corporate US shareholders of controlled foreign corporations (CFCs) under Section 956. The proposed regulations are highly favourable to corporate taxpayers by significantly expanding the ability of US corporate borrowers to benefit from the credit support of CFCs.
The 2017 Tax Act significantly increased the tax benefits of a Section 338(g) election for domestic corporate purchasers of stock in a controlled foreign corporation (CFC). If an election is made, buyers are treated as organising a 'new' CFC that purchases the assets of the 'old' target CFC for the amount paid for the CFC stock. For buyers, this stepped-up basis in the CFC's assets can facilitate tax-efficient post-acquisition integration and a reduction of future global intangible low-taxed income.
The Internal Revenue Service (IRS) Compliance Assurance Process programme is a real-time audit programme that seeks to resolve the tax treatment of all or most return issues before tax returns are filed. Taxpayers and IRS leadership have generally praised it as one of the most successful corporate tax enforcement programmes. However, its fate has been uncertain in recent years given the IRS's shift in the examination process and the agency's dwindling resources.
A domestic corporation's royalty income derived in connection with business conducted outside the United States is generally eligible for the reduced 13.125% effective tax rate on foreign derived intangible income. To qualify, the licensee must be a foreign person and the intangible property must be used outside the United States for the ultimate benefit of an unrelated foreign person. The reduced tax rate is also available for certain royalties derived from licensing intangible property to related foreign persons.
Department of Justice Principal Deputy Assistant Attorney General Andrew Finch recently stated that the Antitrust Division is re-examining whether, and to what extent, it should recognise pre-existing compliance programmes with some form of credit, including potentially at the charging stage or at sentencing. This might take the form of fine discounts of up to 20% for companies that have a credible and effective compliance programme.
The 2017 Tax Act added a separate foreign tax credit limitation category for income earned in a foreign branch. As a result, certain US groups may be limited in their ability to use foreign income taxes paid or accrued by a foreign branch as a credit against their US federal income tax liability. This new limitation could present a problem for taxpayers with losses in some foreign branches and income in other foreign branches.
A minimum tax has been imposed on domestic corporations with substantial amounts of deductible payments made to related foreign persons, referred to as the 'base erosion and anti-abuse tax' (BEAT). BEAT is particularly onerous if a controlled foreign corporation's income is subject to foreign taxation because, while foreign income taxes can be used as a credit to reduce regular tax liability, no foreign tax credit is permitted to offset the BEAT.
The latest announcement by the Internal Revenue Service (IRS) focuses on the $10,000 cap on the amount of state and local taxes that can be deducted for federal income tax purposes. In a press release and release of guidance in the form of Notice 2018-54, the IRS announced that proposed regulations will be issued to help taxpayers understand the relationship between federal charitable contribution deductions in exchange for a tax credit against state and local taxes owed.
The US Department of Justice Antitrust Division has further intensified its compliance focus by announcing the creation of the Office of Decree Enforcement, which will have the sole goal of ensuring compliance with, and enforcement of, Antitrust Division decrees. Firms that operate under existing decrees should stay ahead of any complaints of violation, as a newly energised and dedicated enforcement office will likely be investigating any claimed default.
The Internal Revenue Service has increased the 2018 maximum deductible health savings account (HSA) contribution for taxpayers with family coverage under a high deductible health plan to $6,900. Employers that previously lowered their plan's contribution limit for HSAs to $6,850 should consider how to address the increased limit and whether any changes or employee communications are necessary.
According to press reports, the Antitrust Division of the Department of Justice (DOJ) is investigating several issues relating to the admission of students to institutions of higher learning. The DOJ expects institutions of higher learning to compete freely for students and faculty much as ordinary businesses compete for customers and employees. In today's high-enforcement environment, college and university counsel should be alert to Sherman Act pitfalls and seek antitrust counsel if close calls arise.
Declining to address whether certain technology licensing royalties should be subject to taxation as income or capital gains, the US Court of Appeals for the Third Circuit found that a patentee-taxpayer had waived his claim on appeal and affirmed the Tax Court's decision that the royalties should be treated as income. The Third Circuit acknowledged that a patentable invention may be subject to capital gains treatment even without a patent or patent application.
The New Mexico Administrative Hearings Office recently issued an opinion that addressed the following questions: under what circumstances can a state constitutionally impose tax on a domestic company's income from foreign subsidiaries, including Subpart F income; and when is factor representation required? Since many state income taxes are based on federal taxable income, inclusion of these new categories of income at the federal level could potentially result in their inclusion at the state level.
The International Trade Commission (ITC) has issued an opinion dismissing US Steel Corporation's antitrust claim made under Section 337 of the Tariff Act 1930 against several Chinese steel manufacturers and distributors, ruling that a complainant must show an antitrust injury even in a trade case. The case demonstrates that a complainant with a Section 337 antitrust claim before the ITC must satisfy the same antitrust pleading requirements that a plaintiff in a federal court is required to satisfy.
The Oregon Supreme Court has rejected a business taxpayer's constitutional challenges to a 1993 Oregon statute that eliminated the right to utilise a three-factor apportionment formula in calculating Oregon income tax. The Oregon Supreme Court joined courts in Texas, Minnesota, California and Michigan in rejecting taxpayer arguments that states which have enacted Article IV of the Multi-state Tax Compact have entered into a binding contractual obligation which may not be overridden.
Taxpayer Advocate Nina E Olson recently testified before a congressional oversight committee regarding ongoing challenges to the administration of an efficient and effective tax system. Her testimony echoes many tax professionals' concerns that the tax system is not being implemented in the most effective and efficient manner. With the advent of tax reform and the government's struggle to implement its sweeping changes, it is hoped that many of these issues will be addressed.