Tag Archives: Income Tax

Podcast – Foreign Investments and U.S. Income Tax? | LEGAL THOUGHTS

Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published September 02, 2020.

Foreign Investments and U.S. Income Tax

Legal Thoughts is a podcast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, litigation, and immigration legal matters.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Mayra Torres, the Public Relations Associate of Coleman Jackson, P.C.   The topic of discussion is “Foreign Investments and U.S. Income Tax?” You can listen to this podcast by clicking here:

You can also listen to this episode and subscribe to Coleman Jackson, P.C.’s Legal Thoughts podcast on Apple Podcast, Google Podcast, Spotify, Cashbox or wherever you may listen to your podcast.

TRANSCRIPT:
ATTORNEY:  Coleman Jackson
LEGAL THOUGHTS
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY:  Coleman Jackson

Welcome to Tax Thoughts

  • My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation, and immigration law firm based in Dallas, Texas
  • Our topic for today is: “Foreign Investments and U.S. Income Tax?”
  • Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz,Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
  • On this “Legal Thoughts” podcast our public relations associate, Mayra Torres will be asking the questions and I will be responding to her questions on this important tax topic: “Foreign Investments and U.S. Income Tax”

Interviewer:  Mayra Torres, Public Relations Associate

  • Good morning everyone. My name is Mayra Torres and I am the public relations associate at Coleman Jackson, P.C. Coleman Jackson, P.C. is a taxation, litigation and immigration law firm based right here in Dallas, Texas. We help businesses, individuals and everyone with sales taxes,income taxes, gift and estate taxes and contracts drafting and negotiations and disputes and immigrants on a variety of business and family immigration matters from around the world.
  • Today Attorney we are discussing foreign investments and U.S. Income Tax Law. My first question is basic:

Question 1:

Are foreign corporations ever subject to U.S. income tax laws?

Attorney Answers Question 1:

Mayra, the simple answer is YES, SOMETIMES FOREIGN CORPORATIONS ARE SUBJECT TO U.S.INCOME TAX LAWS!

Interviewer:  Mayra Torres, Public Relations Associate

QUESTION 2:

  • Okay then, let me just change my question a little.
  • When are foreign corporations subject to U.S. income tax?

Attorney Answers Question 2:

A foreign corporation is taxed on its taxable income which is effectively connected with the conduct of a trade or business within the United States under Internal Revenue Code Section 882.

Interviewer:  Mayra Torres, Public Relations Associate

Question 3:

  • Attorney what do you mean by the term “effectively connected with the conduct of a trade or business within the U.S.”?

Attorney Answers Question 3:

  • That is a very astute question! Think in terms of source of the increment or decrement of wealth of the foreign entity. What I mean is the term effectively connected with a trade or business in the United States means income, gain or loss incurred during a tax year from sources within the United States. The key to understanding the meaning of this term is the source of the income, gain or loss incurred by the foreign corporation. If the source of the income, gain or loss for the year is in the U.S., then the foreign corporation is engaged in a trade or business effectively connected with the conduct of a trade or business within the U.S. and are subject to federal income taxation under Internal Revenue Code Section 882.
  • The application of this Code Section does not mean that the income, gain or loss have to come from a trade or business being conducted in the U.S. If the source of the income, gain or loss is in the U.S., Code Section 882 applies and the income, gain or loss is taxable.

Interviewer:  Mayra Torres, Public Relations Associate

Question 4:

  • Does the foreign corporation have to operate a business within the United States during the tax year in order for these rules to apply to income, gains or losses under Code Section 882?

Attorney Answers Question 4:

  • Yes, that is exactly right. In order for Code Section 882 to apply, the foreign corporation must be engaged in a trade or business within the United States during the particular tax year where the determination is being made whether income, gain or loss is effectively connected with the conduct of a trade or business within the United States under Internal Revenue Code Section 882.
  • The Code Section 882 determination is made at the close of each tax year. If a foreign corporation has income, gain or loss at any time during a tax year from a source within the U.S. and its engaged in a trade or business within the U.S. whether it be in a joint venture or partnership or limited liability company or similar affiliation with a U.S. entity, it is taxable income effectively connected with the conduct of a trade or business within the U.S. under IRC 882.

Interviewer:  Mayra Torres, Public Relations Associate

Question 5:

  • Wow! Attorney that is a lot to digest; can we continue this conversation in another podcast because I have a lot more questions? For example, are there any categories of income, gain or loss considered effectively connected to the United States even if its earned overseas by a foreigner?

Attorney Answers Question 5:

Yes, there are categories of foreign source income that are subject to U.S. income taxation as effectively connected with the conduct of a trade or business within the U.S. But you are right Mayra that is enough to ponder for now. We can continue this topic in a later podcast in about two weeks. Please subscribe to our podcast.

Mayra’s Concluding Remarks

  • I am looking forward to continuing this topic in about two weeks!
  • Anyone interested in hearing more about foreign investments and U.S. Taxation should subscribe to our podcast on Apple Podcast, Google Podcast, Spotify or wherever they listen to their podcast.We also have a lot of blogs going deep into the details of U.S. tax law, litigation and immigration law topics on Coleman Jackson, P.C.’s website at cjacksonlaw.com.

 Coleman Jackson, Attorney’s concluding remarks:

THIS IS THE END OF “LEGAL THOUGHTS” FOR NOW

  • Thanks for giving us the opportunity to inform you about foreign investments and U.S. taxation. If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tune! Watch for a new Legal Thoughts podcast in about two weeks.We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.

Thinking About Taxes

By:  Coleman Jackson, Attorney & Certified Public Accountant
March 07, 2020

Thinking About Taxes

Thinking about spending that money withheld from employees’ wages to take a tour of the world, pay other business expenses or house payments?  Don’t do it before reading Internal Revenue Code Section 7702!   Hear those alarm bells ringing!  Anyone required to collect, account for, and turn over to the United States Treasury and willfully fails to carry out this duty are subject to severe civil penalties and upon being found guilty of the felony of failing to collect, account for, and turn over can be fined up to $10,000 and spend up to five years in federal prison.  Payroll tax fraud is a serious crime that is commonly investigated by the IRS Criminal Investigation (CI) Division.  This unit of the IRS investigates all kinds of violations of the Internal Revenue Code.  CI along with the Financial Crimes Network investigates FBAR violations (these are U.S. persons with foreign bank accounts and other foreign assets who fail to timely and accurately disclose these holding on Form 114), money laundering (these are individuals or entities engaged in some kind of unlawful activity and endeavoring to get dirty money into the normal banking system) and other financial crimes.

 

Thinking about not filing that required income tax, gift tax or other federal tax return or providing fraudulent information the IRS?  Don’t do it before reading Internal Revenue Code Sections 7207 and 7203Hear those whistles blowing!  Anyone who intentionally gives false documents, which includes returns and any other written representation to the Internal Revenue Service and any of its employees knowing that its materially false or fraudulent is subject to civil fines and upon being found guilty of the felony of giving the Service false returns or other documents can be fined up to $10,000 (if individual) and up to $50,000 (if corporation), and spend up to one year in federal prison.  Multiples applies in that cumulative false statements, returns and documents can generate multiplication of the civil fines and additional years to the duration of the prison term.

 

Thinking about paying fewer taxes than is lawfully owed by engaging in creative accounting, leaving that or this item off the return while adding and dreaming about things that never happened? Don’t do it before reading Internal Revenue Code Section 7201Hear those gongs clanging! Anyone who intentionally attempts to evade or defeat any tax imposed under the Internal Revenue Code is subject to civil penalties up to $100,000 (if individual) and up to $500,000 (if corporation), and spend up to five years in federal prison upon conviction.

 

Thinking about taxes?  Stay away from the tumbling … lie.


This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432     

The Earned Income Tax Credit Two Year Band

By Coleman Jackson, Attorney, Certified Public Accountant
September 10, 2019

 

The Earned Income Tax Credit

The Earned Income Tax Credit or EITC is designed to assist working class families with children by putting money in their pockets.  The EITC is a tax credit, not, a tax deduction.  The difference is huge!   A tax credit is a dollar for dollar reduction in the taxes owed.  Tax credits generally will result in refunds and money in the taxpayers’ pockets. EITC often results in refunds to the taxpayer; although the IRS cannot issue refund checks for the Earned Income Tax Credit before mid-February.

 

The Earned Income Tax Credit

 

The rules for qualifying and claiming the Earned Income Tax Credit are complicated.  An excerpt from IRS Publication 596 reads as follows:

 

Table 1. Earned Income Credit in a Nutshell:  First, you must meet all the rules in this column.
Chapter 1. Rules for Everyone
1. Your adjusted gross income (AGI) must be less than: • $49,194 ($54,884 for married filing jointly) if you have three or more qualifying children, • $45,802 ($51,492 for married filing jointly) if you have two qualifying children, • $40,320 ($46,010 for married filing jointly) if you have one qualifying child, or • $15,270 ($20,950 for married filing jointly) if you don’t have a qualifying child. 2. You must have a valid social security number by the due date of your 2018 return (including extensions).

3.Your filing status can’t be married filing separately.

4. You must be a U.S. citizen or resident alien all year.

5. You can’t file Form 2555 or Form 2555-EZ (relating to foreign earned income).

6. Your investment income must be $3,500 or less. 7.You must have earned income.

Second, you must meet all the rules in one of these columns, whichever applies.
Chapter 2. Rules If You Have a Qualifying Child Chapter 3. Rules If You Do Not Have a Qualifying Child
8. Your child must meet the relationship, age, residency, and joint return tests.

9. Your qualifying child can’t be used by more than one person to claim the EIC.

10. You can’t be a qualifying child of another person.

11. You must be at least age 25 but under age 65.

12. You can’t be the dependent of another person.

13. You can’t be a qualifying child of another person.

14. You must have lived in the United States more than half of the year.

Third, you must meet the rule in this column.
Chapter 4.Figuring and Claiming the EIC
15. Your earned income must be less than: • $49,194 ($54,884 for married filing jointly) if you have three or more qualifying children, • $45,802 ($51,492 for married filing jointly) if you have two qualifying children, • $40,320 ($46,010 for married filing jointly) if you have one qualifying child, or • $15,270 ($20,950 for married filing jointly) if you don’t have a qualifying child.

 

If a taxpayer claims the Earned Income Tax Credit, the IRS may send a letter to them asking that they send the IRS information to verify the EITC claim.  An appropriate and timely response to the request for substantiation of the EITC is very important because failure to do so could prohibit the taxpayer from claiming the Earned Income Tax Credit (EITC) for subsequent tax periods.  The EITC substantiation may be in the form of the child’s birth certificate, health records, school records and other evidence in substantiation that the taxpayers’ meet all of the qualifications listed above to claim the EITC.  In the event the taxpayers improperly claim the EITC, the taxpayer is banded for two years from claiming the credit.  Internal Revenue Code Section 32(k)(1) permits the IRS to enforce the rules regulating the Earned Income Tax Credit by banding violators from claiming the EITC up to two years.  Recently the IRS Office of Chief Counsel issued an advisement that essentially states that where a taxpayer improperly claim (or fail to substantiate) their EITC claim for one child and continues to claim the EITC in subsequent years for that child, the taxpayers are prohibited from claiming the EITC for that child and all other children even though they may qualify for the EITC in subsequent years.  Claiming the child tax credit when under the two year band for any child has grave consequences.

 

Taxpayers can use the EITC Assistant on the IRS website to see if they qualify for the EITC.  Again claiming the EITC improperly has grave financial consequences.  Working people with low to moderate incomes must follow all the EITC rules so that they don’t run afoul of them and be stopped from claiming the Earned Income Tax Credit even when they otherwise qualify for this working family tax benefit.

 

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432