International “Double Trouble” Taxation
The Problem A double taxation problem arises when a taxpayer who has a personal relationship with one country (home country) derives income from sources within another country (host country). The host country usually will assert jurisdiction on the basis of its economic relationship with the taxpayer. The home country may assert jurisdiction over the income […]
Understanding the Foreign Tax Credit Limitation
a. Purpose of Limitation The purpose of the foreign tax credit limitation is to confine the effects of the credit to mitigating double taxation of foreign-source taxable income. The limitation accomplishes this by preventing U.S. persons operating in high tax foreign countries from offsetting those higher foreign taxes against the U.S. tax on U.S.-source taxable […]
Calculating the Foreign Tax Credit In Three Easy Steps
The U.S. taxes U.S. persons on all of their income, regardless of its source. This creates a double taxation problem with respect to a U.S. person’s foreign-source income, since foreign countries usually tax all the income earned within their borders, including that derived by U.S. persons. If the U.S. did nothing to mitigate international double […]
Rippling Effect of Simple Source of Interest Rule & How It Can Produce Surprisingly Gratifying Results for Foreign Persons
How It Can Produce Surprisingly Gratifying Results For Foreign Persons The simple rule for the source of interest paid by individuals has become an international tax shelter for tax-averse foreign persons. The active ingredient in virtually all international tax haven operations is the deduction of interest from a stream of business income otherwise subject to […]
The Civil Fraud Penalty
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Failure to File a Tax Return Penalty
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The Accuracy-related Penalty
Under Section 6662(a), the accuracy-related penalty is “20% of the underpayment.”[i] It applies both inside and outside of the OVDP regime. The penalty applies whenever any one of five conditions is present. The two most common are: (1) “negligent or intentional disregard of tax rules” and (2) “substantial understatement of income tax.”[ii] Has the statute […]
A Primer on The Foreign Earned Income Exclusion
Ordinarily, the United States taxes U.S. citizens and resident aliens on their worldwide income, even when they live and work abroad for an extended period of time. To provide some relief, a U.S. citizen or resident who meets certain requirements can elect to exclude from U.S. taxation a limited amount of foreign earned income plus […]
Proven Strategies For Eliminating Excess Credits
There are three proven strategies for eliminating excess credits: 1. Foreign tax reduction planning, 2. Increasing the limitation, and 3. Cross-crediting. Part I of this blog will cover the first two. Part II will cover the third, Cross-crediting. A. Foreign Tax Reduction Planning For U.S. persons in excess limitation positions, foreign tax reduction planning has […]
Beyond the FBAR: Other IRS International Reporting Forms And Their Related Penalties Lying In Wait for the Taxpayer With Foreign Assets
With all of the focus on FBARs and Form 8938 these days, it’s sometimes easy to forget about the other IRS international reporting forms. Below is a discussion of all of the other IRS international reporting forms and their corresponding penalties. (1) Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain […]