1. International Tax Issues Chapter 13 pp. 535-550
2019 National Income
Tax Workbook™

2. International Tax Issues p. 535
Foreign Investment in Real Property Tax Act (FIRPTA)
Delinquent FBAR Filings and Streamlined Offshore Filing Procedures
Gifts or Bequests from a Foreign Person
US Shareholders of Foreign Corporations

3. Foreign Investment in Real Property Act (FIRPTA)
Issue 1
Foreign Investment in Real Property Act (FIRPTA)

4. FIRPTA pp
Tax withholding may be required on a non-US person’s disposition of a US real property interest (USRPI).
Topics covered:
General Withholding Requirements
Entity Withholding Requirements
Reporting US Real Property Dispositions
Exceptions from FIRPTA Withholding
FIRPTA Withholding Certificate

5. General W/H Requirements p. 536
Disposition of US property by foreign person
General W/H = 15% of gross amount realized
10% if amount realized < $1 million and meet other criteria
Special rules for entities
Transferee is withholding agent
Transferee who fails to withhold and remit may be liable for transferor tax liability, penalties, and interest

6. Disposition: Disposition for any IRC purpose. Commonly a sale
Definitions pp
Disposition: Disposition for any IRC purpose. Commonly a sale
Foreign Person: Nonresident alien individual, foreign corp. w/o 897(i) election, foreign p’ship, trust, or estate
NOT resident alien individual

7. Definitions, Cont. pp
Transferor: Any person that disposes of a USRPI
Owner of disregarded entity
Transferee: Any person that acquires a USRPI by purchase, exchange, gift or other
Amount Realized: Sum of cash + FMV of property + liability assumed by transferee
USRP Holding Corp (USRPHC): Corporation if USRPI FMV > sum of all RP interests + certain fixed assets

8. Definitions, Cont. p. 537
USRP Interest (USRPI): Interest in RP located in US or USVI. Includes:
Growing crops & timber
Natural resources (mine, well, deposit)
Certain personal property assoc. w/use of RP
E.g. farm machinery, hotel property
Equity interest in USRPHC

9. Entity Withholding Requirements p. 538
Corporations:
Corp. distribution of USRPI: 21% of distribution gain
Unless elect to be treated as domestic
Domestic USRPHC distribution to foreign person: 15% of FMV if:
Foreign person’s interest in corp. is USRPI, and
Redemption or liquidating distribution

10. Entity Withholding Requirements, Cont. p. 538
Partnerships:
Domestic & Not PTP: May be subject to IRC 1446 withholding and not FIRPTA (IRC 1445). Otherwise, withhold 21% of gain allocated to foreign partner
Domestic Trusts & Estates w/ > 1 foreign beneficiary:
Gain allocated to foreign beneficiary 21% withholding
Transferee of beneficial interest withhold 15% of amount realized
Domestically Controlled REITs & RICs:
Sale of interest in entity is NOT sale of USPRI
W/H on distributions to foreign persons may be required

11. Reporting US Real Property Dispositions pp. 538-539
Form 8288 (Withholding Tax Return):
Due with funds paid 20th day after date of transfer
Form 8288-A (Statement of Withholding):
Prepared for each person from whom tax withheld
Must be attached to Form 8288
Copy B stamped by IRS and returned to foreign person to file with income tax return
Other Reporting: FIRPTA ≠ substitute for other reporting (Form 1099-S, Form 1040NR)

12. Exceptions from FIRPTA Withholding pp. 539-540
FIRPTA Withholding Generally Not Required: 1)
Transferee is individual
price < $300K
Used as residence 2)
Property disposed is interest in domestic corp. w/ at least 1 class publicly-traded stock 3)
Property disposed is interest in domestic corp. that certifies interest ≠ USPRI 4)
Transferor certifies ≠ foreign person 5)
Transferor provides certificate ≠ foreign person to a “qualified substitute” 6)
Transferor receives W/H certificate eliminating W/H 7)
Transferor provides notice of no gain b/c nonrecognition applies 8)
Transferor’s amount realized is zero 9)
USPRI acquired by federal or state government
10)
Amount realized relates to grant or lapse of option to acquire USPRI
11)
Property disposed = interest in publicly traded p’ship or trust
Treas. Reg. section

13. FIRPTA Withholding Certificate pp. 540-541
Form 8288-B
Reduces or eliminates required withholding
Transferors obtain
Required Information (Reg ):
1) Calculation of maximum tax on disposition
5) Explanation of why no depreciation (if depreciation schedules not submitted)
2) Transferor signed statement that the calculation and supporting evidence is correct
6) Explanation of recapture amounts (i.e., depreciation, investment tax credits)
3) Evidence of amount realized by transferor
7) Evidence of increase or reduction of tax to transferor (i.e., through treaty)
4) Evidence of transferor’s adjusted basis in property
8) Statement listing non-FIRPTA personal property transferred (if any)

14. Delinquent FBAR Filings and streamlined offshore filing procedures
Issue 2
Delinquent FBAR Filings and streamlined offshore filing procedures

15. Delinquent FBAR filings and Streamlined Offshore Filing Procedures pp
Programs for taxpayers to comply with delinquent foreign filings
Topics Covered
Delinquent FBAR Submission Procedures
Delinquent International Information Return Procedures
Streamlined Domestic Offshore Filing Procedures
Streamlined Foreign Offshore Filing Procedures

16. Delinquent FBAR Submission Procedures pp. 542-543
Reasons for late filing
Forgot to file
Account statement lost (& replacement requested)
Did not know of obligation
Late receipt of missing info
Thought account below threshold
Unable to timely obtain joint spouse signature
Did not know account was foreign
Unable to access filing system
Account statement received late
Other (provide explanation)
FBAR: Report of Foreign Bank and Financial Accounts required under Bank Secrecy Act
Delinquent Filing Procedures:
File electronically through FinCEN network
Reason for late filing required
Quiet disclosure =
no penalty protection

17. Delinquent International Information Return Submission Procedures pp
Reasonable Cause Statement:
Establish reasonable cause for filing delay
Certify entity not evading tax
Failure to attach results in penalty
Refer to I.R.M. for guidance
Procedures:
1) Attach delinquent form to properly filed amended returns
2) Also Attach Reasonable Cause Statement

18. Streamlined Domestic Offshore Filing Procedures pp. 544-545
1) File 3 years of amended returns
5) Sign and submit Form (for residents) certifying taxpayer is eligible, filings made, conduct nonwillful, and misc. offshore penalty correct
2) Include header in red
“Streamlined Domestic Offshore”
6) Attach copy of Form to amended return
3) File original or amended FBARs for last 6 years
7) Send paper forms, returns and payments to designated address
4) Submit narrative explaining failure, pay all tax, submit all info returns
Who qualifies:
Individual taxpayers (including estates) if:
US resident
Filed most recent required US tax returns
Failed to report foreign income & file foreign info returns
Failures were nonwillful
Not under IRS examination

19. Streamlined Domestic Offshore Filing Procedures p. 545
Title 26 Penalty:
5% of US resident’s highest aggregate value of undisclosed foreign assets in the covered tax return and FBAR period
Penalty DOES NOT apply to:
Canadian registered retirement savings plans
Accounts with signature authority only

20. Streamlined Foreign Offshore Filing Procedures p. 546
Requirements:
1) Nonresidency requirements met
2) Failed to report income from foreign financial asset & pay US tax, and/or failure to file FBAR & foreign info returns
3) Failures were nonwillful
4) Not under IRS Examination
Allows nonresident US taxpayers to comply w/ US tax filing
Procedures eliminate most penalties (failure-to-file, failure-to-pay, accuracy-related, info return, FBAR)

21. Gifts or bequests from a foreign person
Issue 3
Gifts or bequests from a foreign person

22. Gifts or Bequests from a Foreign Person pp. 547-548
A taxpayer may have to report foreign gifts or bequests I.R.C. § 6039F
Topics covered:
Foreign Gift or Bequest
Filing Procedures
Penalties

23. Foreign Gift or Bequest p. 547
I.R.C. § 6039F:
US resident or citizen must report large gifts / bequests from foreign person
Form 3520
Foreign gift / bequest
$/property received by a foreign person / decedent
Excluded from gross income as gift / bequest
Does not include tuition or medical payments

24. Foreign Gifts p. 547
Reporting Threshold: US person must file Form 3520 if:
Gifts / bequests from foreign individual or estate > $100,000 FMV
Gifts > $16,388 (in 2019) from foreign corporations / partnerships

25. Foreign Gifts pp. 547-548 Filing Procedures:
US person completes Form 3520 p. 1 and Part IV identifying gifts / bequests. Report date, description, and FMV of each gift / bequest.
Penalties:
Assessed if Form 3520 not filed, incomplete or incorrect
$10,000 initial penalty
Failure to report foreign gifts = 5% of amount of foreign gift each month until form filed (up to 25%)
No penalty if reasonable cause and not willful neglect

26. US Shareholders of foreign Corporations
Issue 4
US Shareholders of foreign Corporations

27. US Shareholders of Foreign Corporations pp. 549-550
New taxes and disclosure obligations apply to US shareholders of foreign corporations
Topics Covered
Ownership
Transition Tax
Global Intangible Low-Taxed Income (GILTI) Tax

28. Ownership p. 549 US shareholder ownership (direct or indirect):
> 10%: Likely have a filing requirement
<10%: Generally do not have filing requirement
>50%: Foreign corporation is a controlled foreign corporation (CFC)

29. Transition Tax pp
I.R.C. § 965 (revised): US shareholders pay a transition tax on untaxed foreign earnings of “specified foreign corporations” as if those earnings had been repatriated
One time tax
Different rates for corporations and individuals (p. 550)

30. Section 962 Election pp
Individuals may elect to be treated as a corporate shareholder
May result in lower rate and obtain an offset for corporate foreign taxes paid

31. GILTI Tax p. 550
I.R.C. § 951A: Global Intangible Low-Taxed Income (GILTI)
Annual extension of one-time transition tax: Discourage taxpayers from shifting income from intangible assets to low or no-tax jurisdictions
Applies regardless of distributions
Different rates for corporate shareholders and noncorporate shareholders
962 election is available

32. Questions?