Tax Law Updates

IRS Formalizes Qualified Business Unit Rules Under Section 987 Businesses operating internationally often conduct activities through foreign branches or disregarded entities. When those operations qualify as a Qualified Business Unit (QBU), special foreign currency accounting rules apply under Sections 987 and 989 of the Internal Revenue Code. Over the past several years, the IRS has...

IRS Generally Declines Advance Rulings on Manufacturing Status Determinations Whether a product is considered “manufactured or produced” can have significant tax consequences under several provisions of the Internal Revenue Code. However, the IRS generally does not issue advance rulings on many manufacturing-status questions because they depend heavily on the specific facts of each case. Instead,...

IRS Limits Advance Rulings on Foreign Employee Tax Exemptions Many foreign employees working in the United States may qualify for reduced taxes or exemptions under U.S. tax treaties or specific provisions of the Internal Revenue Code. However, the IRS generally limits the availability of advance rulings on many of the questions that determine whether those...

IRS Limits Tax Benefits for Foreign Government Commercial Activities Section 892 of the Internal Revenue Code provides valuable tax benefits for qualifying foreign governments, central banks, and certain government-owned entities. However, these benefits are carefully limited and generally apply only to specific types of passive or governmental investment income. The IRS has consistently distinguished between...

IRS Tightened Foreign Tax Credit Eligibility Rules for International Taxpayers The Foreign Tax Credit (FTC) helps reduce double taxation by allowing U.S. taxpayers to claim a credit for certain income taxes paid to foreign countries. However, recent IRS regulations significantly tightened the standards for determining which foreign taxes qualify for the credit. Although temporary relief...

IRS May Reject Frivolous Tax Arguments and Certain Incomplete Ruling Requests The IRS has procedures in place to prevent taxpayers from delaying tax administration through frivolous arguments or incomplete requests. Depending on the type of IRS proceeding, a submission may be rejected without receiving the full administrative review that taxpayers normally expect. Understanding these rules...

U.S. Trade or Business Determinations Depend on the Facts for Foreign Taxpayers For foreign businesses and investors, one of the most important U.S. tax questions is whether their activities rise to the level of a U.S. trade or business. The answer can significantly affect how income is taxed and whether U.S. filing and withholding obligations...

IRS Clarifies Portfolio Interest Tax Rules for Foreign Investors The portfolio interest exemption is an important tax benefit that allows many foreign investors to receive certain U.S.-source interest income without being subject to U.S. withholding tax. However, not every foreign investor automatically qualifies. The IRS has provided additional guidance on how eligibility is determined, particularly...

IRS Applies Strict Standards for Reasonable Cause Penalty Relief Receiving an IRS penalty does not automatically mean you have to pay it. In many situations, taxpayers can request penalty relief by showing they had “reasonable cause” for failing to meet a tax obligation. However, the IRS applies strict standards when evaluating these requests, and the...

IRS Applies Strict Standards for Reasonable Cause Penalty Relief Receiving an IRS penalty does not automatically mean you have to pay it. In many situations, taxpayers can request penalty relief by showing they had “reasonable cause” for failing to meet a tax obligation. However, the IRS applies strict standards when evaluating these requests, and the...