Few days ago Senate Finance Committee approved a Bill that would modify the FIRPTA – Foreign Investment in Real Property Tax Act. The affected foreign investors are primarily the shareholders of REIT – Real Estate Investment Trusts, however, the changes would also encompass other foreign investors in US real property.
Among other things the Bill if enacted would increase the FIRPA withholding tax under IRC 1445 from 10% to 15%. It would also impose additional reporting requirements than those exist now. For example, real estate brokers may also have a reporting requirements when they sell property owned by foreign investors!
It is important to monitor the development as it would significantly increase the burden on the withholding agents and buyers of the properties.
We at CPA Global Tax & Accounting are monitoring the developments and will post an update as soon as the Bill is finalized in its present form or with any changes. Please contact us (email@example.com) if you need additional information about the provisions of the Bill.
IRS announced that it intends to issue regulations under Code Sec. 304(b)(5)(B), Code Sec. 367 , Code Sec. 7701(l), and Code Sec. 7874 with respect to corporate inversion transactions.
Among others, the regulations will prevent inverted companies from accessing a foreign subsidiary’s earnings while deferring U.S. tax through the use of creative loans, which are known as “hopscotch” loans (under section 956(e) of the code).
In general, the forthcoming regulations will prevent inverted companies from using certain techniques to access the overseas earnings of the U.S. company’s foreign subsidiaries without being subject to US tax. This would close a loophole to prevent inverted companies from transferring cash or property from a controlled foreign corporation to a new parent to completely avoid U.S. tax, and make it more difficult for U.S. entities to invert.
Notice 2014-52 further added that regulations will generally apply to transactions completed on or after Sept. 22, 2014.
In Osvaldo Rodriguez et ux V. Commissioner, the fifth circuit recently upheld the decision in a transaction involving inclusion of IRC 956 income with respect to the taxpayers’ Controlled Foreign Corporation (CFC) in Mexico.
Osvaldo and Ana Rodriguez, husband and wife, were citizens of Mexico and permanent residents of the U.S. They were the sole shareholders of Editora Paso del Norte, S.A. de C.V. (Editora). Editora had been incorporated in 1976 under Mexican law, and in 2001 it had established operations in the U.S. as a branch under the name Editora Paso del Norte, S.A. de C.V., Inc.—a controlled foreign corporation (CFC). On their amended 2003 and original 2004 U.S. federal income tax returns, the taxpayers included in gross income $1,585,527 and $1,478,202, respectively, for amounts of Editora’s earnings invested in U.S. property and taxable directly under IRC 951(a)(1)(B) and IRC 956.
Taxpayers treated the IRC 951 inclusions as qualified dividend income subject to preferential qualified dividend rates. IRS determined that the Code Sec. 951 inclusions were taxable at ordinary income rates.
The fifth circuit upheld the decision and ruled that the amounts included in the Rodriguez’s gross income under IRC 951(a)(1)(B) and IRC 956 with respect to their CFC’s investments in U.S. property were not qualified dividend income under IRC 1(h)(11).