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IRS Releases IPU Summarizing Foreign and Domestic Loss Impacts on FTCs

On March 1, 2017, the Internal Revenue Service (IRS) released a new International Practice Unit (IPU) summarizing foreign and domestic loss impacts on foreign tax credits (FTC).  The IPU provides a summary of the law regarding worldwide taxation and FTC limitations, followed by explanations and analysis for IRS agents examining FTC issues.  As we have noted previously, this high-level guidance to field examiners signals the IRS’s continued focus on international tax issues.

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IRS Issues New IPU on FICA Rules for Employees Working Abroad

The Internal Revenue Service has made available unofficial but detailed and instructive guidance on the application of Social Security and Medicare taxes (FICA) to wages paid to employees working abroad. The new November 14, 2016, International Practice Unit (IPU) makes clear that both US citizens and resident aliens (green card holders) remain subject to payment of FICA taxes despite the fact the services are performed outside of the United States, in those instances where the employer is an American employer, certain foreign affiliates thereof, or a foreign person treated as an American employer. The IPU notes that an important exception to the general rule of FICA application is where the IRS has entered into a Totalization Agreement, a type of FICA tax treaty, with the country where the services are performed and the requirements of the Totalization Agreement have been met.

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IRS Publishes IPU on Penalties for Failure to Report Transfer of Property to a Foreign Corporation

On June 14, 2016, the Internal Revenue Service (IRS) published an International Practice Unit (IPU) on the monetary penalty for failing to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation (available here).  Under IRC section 6038B(a)(1)(A), a US person who transfers property to a foreign corporation in an exchange described in IRC sections 332, 351, 354, 355 or 361 is required to file Form 926 and accompanying information with the IRS.  The Form 926 and accompanying information must be filed with the US person’s income tax return for the taxable year that includes the date of the transfer. Failure to comply with the reporting requirements (e.g., failure to timely file a Form 926 or providing false or inaccurate information) can result in a penalty equal to 10 percent of the fair market value of the transferred property for which there was a failure to comply, up to $100,000.  However, the penalty is not limited if the failure to...

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IRS Releases Practice Unit on Residual Profit Split Method

On March 7, 2016, the Internal Revenue Service (IRS) released a new International Practice Unit (IPU) on a specific transfer pricing method—the residual profit split method (RPSM).  The IPU explains to IRS examiners how to determine if the RPSM is the “best method” under Section 482, and if so, how to apply such method between a US parent and its controlled foreign corporation in a transaction where intangible property is employed.  As stated in a previous post, IPUs generally identify strategic areas of importance to the IRS but they are not official pronouncements of law or directives and cannot be used, cited or relied upon as such.  However, taxpayers should benefit from reviewing IPUs, as they reflect the current thinking of the IRS on pertinent issues, and therefore allow taxpayers to structure and document their transfer pricing arrangements in a manner that is consistent with such thinking, as noted in a prior post available here. Section 482 was...

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IRS Release IPU Materials on Transfer Pricing

As we noted in our initial post, the Internal Revenue Service (IRS) began publishing job aids and training materials developed by its International Practice Units (IPUs).  On April 6, 2016, the IRS released another IPU on section 482, available here.  The most recent IPU covers the three requirements under section 482: (1) two or more organizations, trades or business; (2) common ownership or control (direct or indirect) of the entities; and (3) the determination that an allocation is necessary either to prevent evasion of taxes, or to clearly reflect the income of any of the entities. The most recent IPU takes a broad view of the application of section 482 and looks at the substance of transactions.  Regarding the first requirement, the IPU instructs examiners that organizations can include almost any type of entity and that a trade or business means a trade or business activity of any kind, regardless of place of organization, formal organization, type of...

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