News

COVID PROCEDURES AFFECTING THE FOREIGN EARNED INCOME EXCLUSION

In response to the pandemic, the IRS has waived the residency and presence tests that apply for purposes of the 2019 and 2020 foreign earned income and foreign housing cost exclusions. The waiver generally applies to certain U.S. individuals who were in China as of December 1, 2019 or were otherwise outside the United States as of February 1, 2020. This should be considered as you undertake your year-end planning.

YEAR-END TAX PLANNING FOR NONRESIDENT ALIENS AND FOREIGN CORPORATIONS “STUCK” IN THE US DUE TO COVID

The IRS provided relief to nonresident aliens and foreign corporations affected by the novel coronavirus (COVID-19) pandemic. More specifically, the relief applies to eligible parties who normally would not conduct business in the United States but have done so because they could not leave the country during the COVID-19 crisis. These issues should be considered as part of your year-end planning.

FINAL DEBT/EQUITY RULES ON DISTRIBUTIONS: NO CHANGES; STILL CONCERNS

The IRS has had a long-standing concern about taxpayers who try to use debt rather than stock (especially for foreign-parent companies of US corporations) to gain a tax advantage: a deductible interest expense versus a non-deductible dividend distribution. This has resulted in various attempts (some abandoned after a period of time) to write regulations governing the rules for debt versus equity.

ARE YOU REQUIRED TO FILE A FATCA CERTIFICATION?

A FATCA certification consists of one or more series of questions that the Responsible Officers (RO) of certain Foreign Financial Institutions (FFIs) must answer and submit to the IRS to confirm the entities’ compliance with the requirements of FATCA.  There are two general types of certifications: 
  • one that relates to an entity’s preexisting accounts (COPA) and
  • another that relates to the entity’s compliance with various FATCA requirements (periodic certification). 

MANDATORY NON-TAX REPORTING OBLIGATIONS FOR INTERNATIONAL BUSINESSES

The US Bureau of Economic Analysis (‘BEA’), an agency of the US Department of Commerce, monitors inbound and outbound US investments as part of its regulatory mission of tracking international commerce.

To help fulfill this mission, the BEA conducts ‘benchmark’ surveys every five years.  A benchmark survey of interests abroad held by US persons is due by May 29, 2020.  The BEA imposes mandatory reporting obligations upon:
  1. US persons and businesses holding a (direct or indirect) 10% or greater interest in a foreign business enterprise; and
  2. US business enterprises that are themselves (directly or indirectly) 10% or more foreign owned.

NEGATIVE BASIS REPORTING FOR US PARTNERS OF FOREIGN PARTNERSHIP-FORM 8865

If you are a US person who has a direct ownership in a foreign partnership controlled by US persons (e.g., where the allocated income from the Form 8865 flows directly into your US tax return), then you are covered by the requirements of Notice 2019-20 and need to comply by sending the information to Ogden, UT for 2018 and must include the negative tax basis information on the Form 8865 for 2019.

TIMING OF REVENUE RECOGNITION: CHANGES UNDER THE TAX CUTS AND JOBS ACT (TCJA)

The IRS just released regulations related to two code section changes that were enacted under the TCJA.  The purpose was to accelerate (or at least not continue to allow deferral on) the recognition of income for tax purposes.
  1. For an accrual basis taxpayer, the all-events test for revenue recognition is met no later than when it is reported on an applicable financial statement (AFS).
  2. For taxpayers who receive advanced payments, the change basically codified prior IRS revenue procedures and provided more specific guidance.
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