French Taxes - IRS Clarifies How to Claim Refund for Previously Non-Creditable (CSG) & (CRDS) taxes

The IRS website; Foreign Tax Credit states that US employers may not file for refunds claiming the foreign tax credit (FTC) for the previously non-creditable French Contribution Sociale Generalisee (CSG) and Contribution au Remboursement de la Dette Sociate (CRDS) taxes withheld or otherwise paid on behalf of their employees. IRS has also clarified how individuals can claim FTCs in prior years related to the CSG and CRDS taxes. 

IRC Sec. 901 generally permits taxpayers to claim an FTC for income, war profits, and excess profits taxes paid or accrued during the tax year to any foreign country or to any U.S. possession.

Taxes paid to a foreign country in accordance with a social security totalization agreement aren't eligible for the FTC.

FTC applies to CSG and CRDS. The IRS has stated that the US and France memorialized through diplomatic communications an understanding that the CSG and CRDS taxes are not social security taxes covered by the Totalization Agreement. Accordingly, the IRS will not challenge FTCs for CSG and CRDS payments on the basis that the Totalization Agreement applies to those taxes.

IRS reminded taxpayers of the 10-year period to file a claim for a refund with respect to a FTC.

IRS has clarified that US employers may not file for refunds claiming a foreign tax credit for CSG/CRDS taxes withheld or otherwise paid on behalf of their employees.

It has also noted that individuals may file amended returns, using Form 1040X to include accompanying Form 1116, Foreign Tax Credit, going back to tax year 2009.

The individuals should write “French CSG/CRDS Taxes” in red at the top of Forms 1040-X, and file them with accompanying Forms 1116.

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IRS To Focus on US Individuals' Foreign Income With New Campaigns

According to Law360, The IRS has announced six new compliance campaigns focused on issues affecting U.S. nationals' overseas income, capital gains taxes for some pass-through businesses and certain forms of deferred compensation for services.

A statement from the Internal Revenue Service's Large Business and International division didn't include a launch date for the campaigns, but their adoption brings the total number of LB&I compliance initiatives to 59.

The latest campaigns were decided through data analysis by the division, which oversees corporations, subchapter S corporations under the U.S. tax code and partnerships with assets of over $10 million, as well as suggestions from IRS employees, according to the statement.

LB&I said the campaigns would further its goals of improving decisions on which corporate tax returns require scrutiny, identifying potential sources of noncompliance and making efficient use of resources.

Four of the campaigns involve LB&I's regulatory role in the international operations of corporate and individual U.S. taxpayers, namely, transfer pricing and compliance with foreign tax authorities. These campaigns are:

1. Post-OVDP, or Offshore Voluntary Disclosure Program, Compliance;
2. Expatriation;
3. High-Income Nonfilers; and
4. U.S. Territories, Erroneous Refundable Credits.

All four efforts will be led by John Cardone, director of withholding and international individual compliance for LB&I.

The two other campaigns are:

1. S Corporations' Built-in Gains Tax and
2. Section 457A Deferred Compensation Attributable to Services Performed Before Jan. 1, 2009.

The campaign on post-OVDP compliance is meant to provide U.S. taxpayers a way to voluntarily resolve returns deemed noncompliant because of past unreported foreign financial assets and a failure to file foreign-information returns. The IRS last September officially ended the OVDP after nine years of existence, though it said taxpayers would still be able to come forward with noncompliance matters for the next several years.

The IRS said it would address post-OVDP tax noncompliance through soft letters and examinations. In a memo last November, two months after the program's end, the agency detailed a new process for delinquent taxpayers who may wish to avoid criminal prosecution by divulging assets they had willfully failed to report in the past.

The process requires taxpayers to request “pre-clearance” for participation from the IRS Criminal Investigation Division, after which civil examiners determine tax liabilities and penalties. The civil penalties, which may be assessed for fraud or the fraudulent failure to file income tax returns, could be higher than what would have been assessed under the OVDP.

The Expatriation campaign affects U.S. citizens and “long-term residents,” defined as lawful permanent residents in eight out of the past 15 taxable years, who settled abroad on or after June 17, 2008, and may not have met their filing requirements or tax obligations. For such individuals, the IRS said it would address noncompliance through a mix of outreach, soft letters and examinations.

The High-Income Nonfiler campaign will use an examination-based treatment stream to bring into compliance U.S. citizens and resident aliens who have income from abroad but haven't filed returns here.

The fourth international campaign, U.S. Territories, Erroneous Refundable Credits, will use outreach and traditional examinations to bring into compliance bona fide residents of U.S. territories who mistakenly claim refundable tax credits on Form 1040 for individual U.S. filers.

LB&I's operations are also divided among six domestic sectors:

1. communications, technology and media;
2. financial services;
3. heavy manufacturing and pharmaceuticals;
4. natural resources and construction;
5. retail, food, transportation and health care; and
6. global high wealth.

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Senate OKs Tax Treaties With Spain, Japan, Switzerland & Luxembourg

According to Law360, The U.S. Senate on July 17, 2019 approved three bilateral tax treaties with Switzerland, Luxembourg and Japan, one day after approving a treaty with Spain.

The Senate overwhelmingly approved the treaty protocols, which are, in part, designed to help prevent companies from being subject to double taxation. The Swiss treaty passed by a 95-2 vote, the Japanese treaty by a 95-2 vote, and Luxembourg was approved by a 93-3 vote.

The treaties were approved after years of inaction on the agreements, a development welcomed by a trade group that represents multinational corporations.

“Income tax treaties play a critical role in fostering U.S. bilateral trade and investment and protecting U.S. businesses, large and small, from double taxation of the income they earn from selling goods and services in foreign markets,” said Catherine Schultz, vice president for tax policy at the National Foreign Trade Council, which has been advocating passage of the tax treaties for years.

The treaties had been held up by Sen. Rand Paul, R-Ky., since he joined the chamber in 2011.

Speaking from the Senate floor before the vote on Spain’s treaty, Paul said that he believed the treaties’ latitude for intergovernmental information sharing was too broad and would risk the privacy rights of Americans living abroad.

Paul also said he had been engaged in productive talks with the U.S. Department of the Treasury to resolve his concerns until GOP leadership intervened in the conversation about the treaties. As a result of that intervention, Treasury lost its “zeal” to negotiate, Paul previously told Law360.

Paul was joined by Sen. Mike Lee, R-Utah, in voting against all four treaties. Sen. Dick Durbin, D-Ill., also voted against the tax treaty with Luxembourg.

Lee objected to the treaties because he's concerned with the privacy of American taxpayers, Conn Carroll, the senator’s communications director Conn Carroll, told Law360.

Durbin, meanwhile, objected to the Senate's process of considering the treaty with Luxembourg rather than its content.

The fact that the Senate voted on the treaty 10 years after it was signed "is not an example of due diligence but rather unnecessary & embarrassing delay," Durbin said on Twitter.

Durbin did not immediately return a request for comment.

Now that the Senate has voted to approve the four tax treaties, attention at the committee level may now return to three others that are still pending:

those with Poland, Hungary and Chile.

The Senate Foreign Relations Committee delayed consideration of those three because of reservations requested by Treasury regarding the base erosion and anti-abuse tax provision created by the Tax Cuts and Jobs Act.

The U.S. may need to renegotiate treaties that are approved by the Senate with reservations, a concern that the committee's ranking member, Sen. Bob Menendez, D-N.J., expressed in a recent letter to Treasury.

But lawmakers remain committed to approving those treaties as well, Sen. Ben Cardin, D-Md., who sits on the Foreign Relations Committee, told Law360.

Have an International Tax Problem?

 

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Gov't Received 39% of Projected 965 Income - Expect Increased IRS Audit of Forms 5471

According to Law360, although taxpayers have already calculated and reported their Section 965 deemed repatriation tax, Section 965 will have a continuing impact.

 

1. Taxpayers are well advised to review their approach to estimated taxes. The IRS refuses to issue refunds of overpaid income taxes to taxpayers who elected to pay Section 965 taxes in annual installments, effectively penalizing taxpayers who conservatively overpay estimated taxes. and
2. The IRS plans extensive enforcement efforts. A recent U.S. Treasury Inspector General for Tax Administration report highlights these issues, including recommendations for the IRS concerning the IRS enforcement plan.

By making the tax payable in installments, and providing that the installments increase over the eight year period, it is clear that Congress intended taxpayers to be able to plan for the potentially large Section 965 repatriation tax. Unfortunately, such cash flow planning may be frustrated by the IRS’ position that it cannot issue refunds to companies who have elected to pay the repatriation tax in installments.

 

The IRS Claims In Such Circumstances There Is No "Overpayment" Of Taxes Under Section 6402 Because, In The Case Of Taxes Payable In Installments, Section 6403 Requires The IRS To Apply An Overpayment Of An Installment

Against Future Unpaid Installments.

(IRS PMTA 2018-016, Overpayments and I.R.C. §965(h) (August 2, 2018)).

 

The deemed repatriation tax was intended to be one of the most significant revenue raisers of the Tax Cuts and Jobs Act. At the time of enactment, the Joint Committee of Taxation estimated that Section 965 would raise $338.8 billion of tax revenue during fiscal years 2018 through 2027. More than $78 billion was expected to be raised in 2018 alone. (Joint Comm. on Taxation, JCX-67-17, Estimated Budget Effects Of The Conference Agreement For H.R. 1, The “Tax Cuts And Jobs Act” at 6, available at https://www.jct.gov/publications.html?func=startdown&id=5053).

The Section 965 Revenue Actually Collected Is

Much Lower Than Expected.

 

TIGTA Reported That As Of Nov. 8, 2018, Taxpayers Reported Only $30.2 Billion (39%) In Section 965 Tax And Paid Only $11.2 Billion (Deferring $22.7 Billion).

Both TIGTA and the IRS believe these figures may be understated. The IRS said the numbers will likely change significantly because the IRS had not yet processed all the returns filed with extensions in October 2018. The lower than expected Section 965 revenue may trigger enhanced compliance efforts by the IRS.

 

TIGTA stated that “[i]t is essential that the IRS develop a service-wide compliance strategy to ensure compliance with Section 965 of the Act.” TIGTA recommended that the comprehensive plan include:

• A strategy to identify taxpayers that did not properly comply with Section 965;
• An assessment of the benefit of issuing notices to those taxpayers that may be subject to Section 965 filing requirements;
• Procedures to monitor taxpayers that elected to defer the tax;
• Validation of Section 965 data reported by the taxpayer; and
• Steps to ensure that taxpayers did not violate anti-abuse rules.

TIGTA also suggested that the IRS use Form 5471, Information Return of U.S. Person With Respect to Certain Foreign Corporations, to identify taxpayers who should have reported the Section 965 tax but did not.

Based on the number of returns filed with Forms 5471, TIGTA estimates that more than 51,000 filers may be subject to the Section 965 tax, which is significantly more than the approximately 31,000 filers (61%) who reported the Section 965 tax.

Have an International Tax Problem?

 

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Marini & Associates, P.A. 

 

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www.TaxAid.com or www.OVDPLaw.com

or Toll Free at 888-8TaxAid (888 882-9243). 

 

 

 

EB-5 Investment - New Regulations Increase Minimum Investment of $500,000

On June 27, 2019 the Office of Management & Budget (OMB) reported on its website that it has finished its review of the Obama-era regulations that would significant changes to the minimum investment amount, as well as other consequential changes. The regulations where proposed to have increased the minimum investment of $500,000 to $1.35 million, and the $1 million investment to $1.8 million (See actual minimum investment below). Upon the regulation’s publishing in the Federal Register, the final effective date may be between 30 to 60 days.  

Now as of November 21, 2019, the new EB-5 Immigrant Investor Program Modernization Regulations are effective. Although there are many changes to the EB-5 program that are included in the new regulations, the biggest changes are:

1. Increased minimum investment amounts,
2. New targeted employment area (TEA) definitions, and
3. Designating authority of TEAs is taken away from the State and the United States Citizenship and Immigration Services (USCIS), will now be directly responsible for verifying the project is located in a qualified TEA.

The EB-5 investment amounts have increased from $500,000 to $900,000 

if the project is located in a TEA, and from $1 million to $1.8 million for a project not located in a TEA. Since the investment amounts have not changed since the program’s inception an inflation study was conducted by the Department of Homeland Security (DHS) consulting with the Departments of State and Labor. The federal agencies determined that the increase will reflect the present-day dollar value of the original investment amount set in 1990 by the U.S. Congress. They have also added that every fifth year there will be an inflation correction to the dollar amount.

Additionally, the new regulations outline what is required to qualify a project as a TEA and requires that the USCIS will make the determination, not the individual states. Prior to the new regulations, a regional center could simply request a TEA letter from the state, county or city government where the project was located (depending on the state). This will not be the process anymore, since the USCIS will adjudicate all TEA requests. This will improve integrity within the EB-5 program since the regional center operators will not be able to gerrymander their projects into qualifying as a TEA when they do not.



 E-2 Investor Visa Alternative
 

Alternatively, potential investors seeking an EB-5 should also consider an E-2 investor visa. They are an appealing options for foreign business persons, investors, managers, and employees who wish to stay in the United States for extended periods of time to oversee:

1. an enterprise that is engaged in trade between the United States and a foreign country; or 
2. a major investment in the United States.

The E visa isn’t for just anyone who has a trade or investment. This visa class is exclusively for what the USCIS terms “treaty traders and investors”. This means that all applicants must be nationals of a country that holds a treaty of trade and commerce with the United States.

 

If you’re wondering if your country is a treaty country, you can look for it on the comprehensive list provided by the Department of State.

 

The regulations state that you must be a national of one of these countries, but you do not necessarily need to be currently living there. 

 

Treaty Investor (E-2) Visa

Treaty investor applicants must meet specific requirements to qualify for a treaty investor (E-2) visa under immigration law. The consular officer will determine whether a treaty investor applicant qualifies for a visa.

• The investor, either a real or corporate person, must be a national of a treaty country.
• The investment must be substantial. (Usually $100,000 in a corporate bank account) It must be sufficient to ensure the successful operation of the enterprise. The percentage of investment for a low-cost business enterprise must be higher than the percentage of investment in a high-cost enterprise.
• The investment must be a real operating enterprise. Speculative or idle investment does not qualify. Uncommitted funds in a bank account or similar security are not considered an investment.
• The investment may not be marginal. It must generate significantly more income than just to provide a living to the investor and family, or it must have a significant economic impact in the U.S.
• The investor must have control of the funds, and the investment must be at risk in the commercial sense. Loans secured with the assets of the investment enterprise are not allowed.
• The investor must be coming to the U.S. to develop and direct the enterprise. If the applicant is not the principal investor, he or she must be employed in a supervisory, executive, or highly specialized skill capacity. Ordinary skilled and unskilled workers do not qualify. 

Coming to America?

 

 

Need Pre-Immigration Tax Advice?  

 

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Marini & Associates, P.A. 

 

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or Toll Free at 888-8TaxAid (888 882-9243).