Type A reorganization. In a Type A reorganization, the assets and liabilities of a target corporation are transferred to an acquiring corporation in a statutory merger or consolidation, and the target corporation is dissolved. The consideration received by the target’s shareholders is determined by the merger agreement. Internal Revenue Code Section 368(a)(1)(A) does not expressly limit the permissible consideration in a merger or consolidation. The IRS requires that at least 50% of the consideration paid must consist of stock. In the context of international corporate acquisitions, tax-free ..read more

U.S. corporations are routinely acquired by foreign corporations. Once a U.S. corporation is acquired by a foreign corporation, the ultimate disposition of the U.S. corporation’s appreciated property may occur outside the U.S. taxing jurisdiction. Section 367 was enacted to prevent tax-free transfers by U.S. taxpayers of appreciated property to foreign corporations that could then sell the property free of U.S. tax. Section 367 stands sentinel to ensure that (with certain exceptions) a U.S. tax liability (sometimes called a “toll charge”) is imposed when property with untaxed appreciation is t ..read more

Internal Revenue Code Section 911 was enacted to mitigate U.S. federal income tax and other economic burdens imposed on U.S. persons working outside the U.S. by providing for an exclusion from U.S. taxation of up to a specified amount of foreign earned income and housing costs. Internal Revenue Code Section 911(a)(1) permits a U.S. citizen who has his or her “tax home” in a foreign country and who meets either of two foreign residence-based eligibility requirements to elect to exclude a certain amount of foreign source income from U.S. taxable income. The foreign source income that can be excl ..read more

The United States Court of Federal Claims has issued an opinion in Christensen v. United States, No. 20-935T (2024) holding that U.S. citizens living outside the United States can claim a foreign tax credit against their Net Investment Income Tax (“NIIT”) under the U.S.- France income tax treaty. The Court of Claims opinion contradicts a 2021 decision Tax Court decision in Toulouse v. Commissioner, 157 T.C. 49 (2021). In Toulouse, the Tax Court reached an opposite conclusion. In Toulouse, a U.S. citizen residing in France claimed a foreign tax credit to offset Net Investment Income Tax (“NIIT ..read more

Some tax professionals such as lawyers, accountants, and enrolled agents are well known for taking aggressive positions on tax returns that seem to reduce federal income tax liability for their clients. Tax professionals who take aggressive positions may find themselves criminally investigated by the Internal Revenue Service (“IRS”). A criminal investigation may ultimately result in the tax professional being charged with specific offenses (contained in the Internal Revenue Code) and with general federal criminal offenses. The tendency in these types of cases is for the prosecutions to pile up ..read more

An individual involved in a criminal tax investigation may find himself or herself ultimately charged with specific offenses (contained in the Internal Revenue Code) and with general federal criminal offenses. The tendency in criminal tax prosecutions is to pile up charges, indicting the targeted individual for multiple years with a combination of offenses contained in the Internal Revenue Code and other federal criminal offenses as the situation warrants. Anyone under investigation for tax evasion or a tax crime should understand something about commonly prosecuted crimes that may result from ..read more

The building of a criminal tax evasion against a criminal defendant often takes months or even years. The process of building a tax evasion case often involves a careful examination of a criminal defendant’s finances. This article examines the methods that the IRS uses to build a criminal tax evasion case. The most common forms of methods of proving criminal tax evasion is the net worth plus non deductible expenditures method and the bank deposit method. These methods can be used in a single year; different methods can be used in different years in the same case; any of these methods can be co ..read more

In determining whether a U.S. person meets the Section 951(a) definition of a U.S. shareholder and whether a foreign corporation meets the Section 957(a) definition of a controlled foreign corporation (“CFC”), Section 958 applies direct, indirect, and constructive ownership rules to determine stock ownership in the foreign corporation. Stock ownership under all three types of rules counts for purposes of determining whether a shareholder is a “U.S. shareholder” and whether a foreign corporation is a “controlled foreign corporation.” Section 958(a)(1) provides the direct ownership rules for de ..read more

Form 5471 is used by certain U.S. persons who are officers, directors, or shareholders in respect of certain foreign entities that are classified as corporations for U.S. tax purposes. The Form 5471 and schedules are used to satisfy the reporting requirements of Internal Revenue Code Section 6038 and 6046 along with the applicable regulations. Substantively, it backstops various international sections of the Internal Revenue Code including Sections 901/904 (Code Section 901 and 904 provide rules governing foreign tax credits), Section 951(a) (Section 951a provide rules governing Subpart F inc ..read more

Schedule R is used to report basic information pertaining to distributions from foreign corporations. According to the instructions for Schedule R, the information reported on the schedule is required by Sections 245A, 959, and 986(c) of the Internal Revenue Code. Form 5471 filers that are classified as Category 3 and Category 4 filers must complete and attach Schedule R to their Form 5471. The Schedule R consists of four columns. Below, we will discuss the meaning of each column. (a) Description of Distribution Each filer required to complete Schedule R will be required to state whether it ..read more