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FINAL DEBT/EQUITY RULES ON DISTRIBUTIONS: NO CHANGES; STILL CONCERNS

The IRS has had a long-standing concern about taxpayers who try to use debt rather than stock (especially for foreign-parent companies of US corporations) to gain a tax advantage: a deductible interest expense versus a non-deductible dividend distribution. This has resulted in various attempts (some abandoned after a period of time) to write regulations governing the rules for debt versus equity.

ARE YOU REQUIRED TO FILE A FATCA CERTIFICATION?

A FATCA certification consists of one or more series of questions that the Responsible Officers (RO) of certain Foreign Financial Institutions (FFIs) must answer and submit to the IRS to confirm the entities’ compliance with the requirements of FATCA.  There are two general types of certifications: 

  • one that relates to an entity’s preexisting accounts (COPA) and
  • another that relates to the entity’s compliance with various FATCA requirements (periodic certification). 

MANDATORY NON-TAX REPORTING OBLIGATIONS FOR INTERNATIONAL BUSINESSES

The US Bureau of Economic Analysis (‘BEA’), an agency of the US Department of Commerce, monitors inbound and outbound US investments as part of its regulatory mission of tracking international commerce.
To help fulfill this mission, the BEA conducts ‘benchmark’ surveys every five years.  A benchmark survey of interests abroad held by US persons is due by May 29, 2020.  The BEA imposes mandatory reporting obligations upon:
  1. US persons and businesses holding a (direct or indirect) 10% or greater interest in a foreign business enterprise; and
  2. US business enterprises that are themselves (directly or indirectly) 10% or more foreign owned.

ELECTION MANIFESTO RELIEF FOR US SHAREHOLDERS OF UK CONTROLLED FOREIGN CORPORATIONS

Before the Tax Cuts and Jobs Act (TCJA) 2017, Subpart F income of a Controlled Foreign Corporation (CFC) was deemed distributed to the US Shareholders and taxed at the highest marginal rate. In turn,  this caused a mismatch between the US and the foreign jurisdiction taxation of dividends from a CFC, cash flow issues, and complex US reporting. Since TCJA, US Shareholders of CFCs with Subpart F income have had some light relief because they in are eligible to make an election of the Subpart F high-tax exception. This had made the UK corporate income tax rate very important.

NEGATIVE BASIS REPORTING FOR US PARTNERS OF FOREIGN PARTNERSHIP-FORM 8865

If you are a US person who has a direct ownership in a foreign partnership controlled by US persons (e.g., where the allocated income from the Form 8865 flows directly into your US tax return), then you are covered by the requirements of Notice 2019-20 and need to comply by sending the information to Ogden, UT for 2018 and must include the negative tax basis information on the Form 8865 for 2019.
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