FATCA: Revisions to Frequently Asked Questions on IRS Website

The IRS has FAQ sections on its Foreign Account Tax Compliance Act (FATCA) website that respond to issues a taxpayer might have in attempting to comply with the various requirements.  This includes a section that covers general issues as well as a section that covers issues faced by a Qualified Intermediary (QI), Withholding Foreign Partnership (WP) and Withholding Foreign Trusts (WT).  Some of these have been revised or updated recently and may have an impact on foreign taxpayers who deal with financial and non-financial transactions with US source payor.  The following are some of the pertinent changes:

Guidance on the US - Switzerland Protocol

In April 2019, 80 of the world’s largest and most powerful companies called on the Senate Foreign Relations Committee to expedite the approval of pending bilateral income tax treaties and protocols.  On 16 July 2019, the Senate approved the pending bipartisan protocol amending the US Tax Treaty Convention with Spain. The next day the Senate approved pending bilateral income tax treaties and protocols including the pending protocols with Switzerland, Japan, and Luxembourg.

Guidance on the PFIC Income and Asset Tests

After over 30 years from the issuance of Notice 88-22, promised guidance in the form of proposed regulations related to the Income and Asset Tests were finally issued.  It is interesting that this basic PFIC guidance on when a foreign corporation is a PFIC has taken over three decades since the PFIC law was enacted to be issued.  While there were no major surprises, there were a number of clarifying points contained in the proposed regulations.

IRS Finalizes FATCA Regulations on Requirements for Sponsoring Entities

The IRS recently issued final regulations regarding the Foreign Account Tax Compliance Act (FATCA). The final regulations provide compliance requirements and verification procedures for sponsoring entities of foreign financial institutions (FFIs) and certain nonfinancial foreign entities (NFFEs).  Sponsoring entities are normally FFIs themselves and perform the various FATCA compliance requirements for the sponsored entity.

Foreign Royalties and the New Foreign-Derived Intangible Income Deduction

Part of the TCJA of 2017 was an incentive for retaining intangibles in the US rather than transferring them overseas (or even for bringing them back).  There is a 37.5% deduction for a domestic corporation that has foreign-derived intangible income (FDII).  The deduction is based on the income derived from the sale of property or from services provided to a non-US person.  This provision is similar to the GILTI provisions that look at income in excess of a 10% return on qualified business asset investments (QBAI).

Finalized Transition Tax Regulations: An Overview

The IRS has issued highly anticipated final regulations under Internal Revenue Code Section 965, the Transition Tax (TT) provision added by the Tax Cuts and Jobs Act (TCJA). Sec. 965 generally requires U.S. shareholders to pay a “transition tax” on the untaxed foreign earnings of certain specified foreign corporations (SFC) as if those earnings had been repatriated to the United States.

Do You Qualify for the Section 199A Tax Deduction?

With the Tax Cuts and Jobs Act of 2017 (TCJA) Congress enacted the Section 199A deduction that is available for tax years beginning after December 31, 2017. It is set to expire for tax years beginning after December 31, 2025.
Individuals, trusts and estates with qualified business income, qualified real estate investment trust (REIT) dividends or qualified publicly traded partnership (PTP) income may qualify for the deduction.
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