Foreign Investors Investing in U.S. Real Properties in the Opportunity Zone

Under the new Qualified Opportunity Zone (“QOZ”) tax regime, U.S. taxpayers can defer tax on capital gain on disposition of investment until 2026 if the proceeds from the disposition is invested in the qualified opportunity zone businesses or stocks (“Opportunity Fund”) within 180 days. The deferred capital gain will be taxed at a reduced rate if the investment in the Opportunity Fund is held for a minimum of five years.  Additionally, any appreciation in the Opportunity Fund investment is subject to zero tax if the investment is held for at least 10 years.

Generally, foreigners invest in U.S. real properties are subject to the Foreign Investment in Real Property Tax Act (“FIRPTA”).  The FIRPTA subjects foreign sellers of U.S. real properties or interest to a 10% withholding on the amount of gross proceeds from the disposition, and essentially treats a foreign person’s gain from the sale of a U.S. real properties or interest as effectively connected income (income subject to U.S. taxation).

According to the newly released regulations under IRC section 1400Z-2, the benefits of the Opportunity Zone program are also available to foreign persons participating in the Opportunity Zone Program – foreigners invested in the Opportunity Zone businesses or stocks can also avoid tax on any appreciation in the Opportunity Fund investment by meeting the investment holding period requirement.

U.S. Department of the Treasury provides a map showing designated qualified opportunity zones (“QOZs”).  Certain parts of the greater area of Los Angeles and San Diego have been added to the QOZs, and the program has been receiving increasing attention. To access the map, click the link below.  To view all designated QOZs, click on the “Layers” tab on the menu on the right-hand side of the screen. Select “Opportunity Zone Tract” and unselect “2011-2015 LIC Census Tract,” and zoom in to a specific area on the map. Designated QOZs will appear in blue. (Please note that if other layer options are selected, it will change the colors of the tracts.)

https://www.cims.cdfifund.gov/preparation/?config=config_nmtc.xml

The House Ways and Means Committee approved a tax bill which includes extension of various expiring tax provisions.  Under the bill, many of the provisions set to be expiring at the end of 2019 will be extended until the end of 2020.  Some of significant change being proposed are summarized below:

• Work opportunity tax credit
• Section 954(c)(6) Look-through treatment of transactions between CFCs
• New markets tax credit
• Credit for health insurance costs of eligible individuals
• Exclusion from gross income of discharge of qualified principal residence indebtedness
• Treatment of mortgage insurance premiums as qualified residence interest
• Medical expense deduction for expenses in excess of 7.5% of AGI

Additionally, under the 2017 Tax Reform the life-time gift and estate tax exemption amount has been temporary increased to $10 million until 2025 and set to be returned to $5 million.  However, the extender bill would accelerate by three years that expiration of the temporary increase and the exemption amount would revert back to $5 million after 2022.

The extender bill will need to be agreed and approved by the both Senate and House before legislation could be sent to the president.  We will continually monitor and provide updates on any developments.

주정부 세금 환급에 관한 IRS지침

Tax Cuts and Jobs Act의 일부로 채택된 세법 제 164(b)(6) 조항은 주정부 및 지방 세금에 대한 공제를 부부 합산 신고자의 경우 $10,000 로 제한한다. 이로 인하여 많은 납세자들이2018년 세금보고시에 납부하는 세금이 전년대비 증가하였다. 주정부 및 지방 세금에 대해서 환급을 받게 되면 이에 대해서 연방 세금이 발생하게 되는데, Rev. Rul. 2019-11 지침을 통하여 IRS는 주정부 및 지방세금 환급금의 과세에 이러한 제한이 어떠한 영향을 미치는지 지침을 제공하였다.

이 지침에 따르면 납세자가 이전 과세연도에 납부한 주정부 또는 지방 세금에 대해서 세금공제를 받았는데 그 세금의 일부분 또는 전체를 이번 과세연도에 환급 받는 경우, 납세자는 (1) 이전 과세연도에 실제로 사용된 항목별 공제 총액 (total itemized deduction)과 제한이 없었을 때 받을 수 있엇던 항목별 공제 총액의 차이금액 또는 (2) 이전 과세연도에 실제로 사용된 항목별 공제 총액과 납세자가 이전 과세연도에 표준 공제 (standard deduction)을 사용하는데 제한이 없었을 경우 이전 과세연도의 표준 공제 금액의 차이금액 중 낮은 금액을 과세소득에 포함시켜야 한다.

이 지침은 부과 된 세금의 액수를 줄이지 않는 한 전년도에 공제된 금액을 과세연도 동안 환급받는 경우 총 소득에 포함하지 않는 세법 제 111조항에 제공된 세금 혜택 규정과 일관성이 있다.

자세한 내용은 https://www.irs.gov/pub/irs-drop/rr-19-11.pdf  에서 확인할 수 있다.

IRS Guidance on Determining Amount of Taxable State Tax Refund

The IRC section 164(b)(6), adopted as part of the Tax Cuts and Jobs Act, limits an individual’s deduction for the total amount of state and local taxes paid during the calendar year to $10,000 for joint filers.  Many taxpayers have experienced the ill impact this limitation had on their 2018 personal income tax returns.  The IRS issued Rev. Rul. 2019-11 (the “Guidance”) providing guidance on how this limitation impacts when determining the amount of state and local tax refunds that are taxable on their 2019 personal income tax returns.

The Guidance provides that if a taxpayer received a tax benefit from deducting state or local taxes in a prior taxable year and the taxpayer recovers all or a portion of those taxes in the current taxable year, the taxpayer must include in current year gross income the lesser of (1) the difference between the taxpayer’s total itemized deductions taken in the prior year and the amount of itemized deductions the taxpayer would have taken in the prior year had the taxpayer paid the proper amount of state and local tax or (2) the difference between the taxpayer’s itemized deductions taken in the prior year and the standard deduction amount for the prior year, if the taxpayer was not precluded from taking the standard deduction in the prior year.  This holding applies to the recovery of any state or local tax, including state or local income tax and state or local real or personal property tax.

This holding is consistent with the tax benefit rule provided under IRC section 111 which excludes from gross income amounts attributable to the recovery during the tax year of any amount deducted in any prior year to the extent the amount did not reduce the amount of tax imposed.

Please refer to https://www.irs.gov/pub/irs-drop/rr-19-11.pdf for additional detail.

FASB’s Proposal to Simplify Accounting for Income Taxes

On May 14, 2019, the FASB proposed Accounting Standards Update (ASU) to simplify accounting for income taxes.  The proposed ASU would remove certain exceptions to the general principles in ASC Topic 740, Income Taxes, as summarized below:

• The removal of the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items.

• The removal of the exception to accounting for basis differences when there are ownership changes in foreign investments.

• The removal of the exception to asserting indefinite reinvestment on a foreign subsidiary that was converted from an equity method investment.

• The exception in recognizing tax benefit in an interim period when year-to-date losses exceed anticipated losses.

• Requiring franchise tax or other taxes attributable to income base to be recognized as income taxes under ASC 740.

• Removal of requirement to allocate consolidated current and deferred tax expense to a non-tax paying entities’ separate financial statement.

• Requiring entities to reflect tax effect of change in tax law or tax rate in the interim period that includes the enactment date as a discrete item, rather than to reflect it in the annual effective rate.

For additional information, please click on the link below:

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176172652976&acceptedDisclaimer=true

세금 관련 신분 도용

국세청 (Internal Revenue Service)은 최근 신분 도용이라는 새로운 범죄 유형에 대해 경고했다. 신분 도용은 누군가의 Social Security Number, 이름, 은행 계좌 또는 신용 카드 번호같은 “개인의 신분 정보를 권한 없이 사용하거나 사용하고자 시도하는 범죄”이다.

온라인 ID 도용은 피싱 사기 (phishing scam)라고 하며, 사기범이 의심하지 못하는 희생자들로 하여금 신용 카드 번호, 계정 아이디 및 비밀번호, Social Security Number 등의 개인 금융 정보를 공개하도록 이메일 보내는 것도 포함한다. 그리고, 일부 ID 도용은 누군가가 지갑을 훔쳐가거나, 편지를 가져가거나, 또는 읽는 것과 같은 간단한 것들로 부터 일어날수도 있다.

세금 관련 신분 도용은 두가지 방법으로 귀하에게 영향을 미칠 수 있다:

1. 누군가가 귀하의 (도난당한) 신분 정보를 사용하여 허위 세금 신고를 하고 세금 환급을 받는다.
2. 누군가가 귀하의 (도난당한) 정보를 사용하여 취업을 하고, 그로 인하여 귀하의 세금보고서안의 수익이 실제 금액보다 많은 것처럼 보이게 한다.

세금 관련 신분 도용의 피해자인지 어떻게 알 수 있는가?

세금 환급을 신청하거나 세금 계정에 관하여 IRS 통지서를 받기 시작할 때 신분 도용의 피해자임을 알 수 있다.

가장 일반적인 현상은 다음과 같다:

• 세금 신고서를 전자 방식으로 제출(Electronically Filing) 하려고 시도하지만 IRS 는 귀하의 Social Security Number를 사용한 또다른 세금 신고서를 받았기에 귀하의 신고를 받지 않는다.
• 귀하가 근무하지 않는 곳에서 임금을 받았다는 IRS통지서를 받는다.
• 귀하의 Social Security Number를 사용한 세금 신고서들이 하나 이상 제출 되었음을 나타내는 IRS 통지서를 받는다; 또는
• 신고하지 않았거나 세금 환급을 받지 않은 과세 연도에 대한 징수 조치, 환급 차감(offset) 통지서, 또는 세금 미납 통지서를 받는다.

이러한 문제가 발생하면 CPA에게 문의하십시오. 더 자세한 내용은 다음의 링크에서 확인할 수 있습니다:

https://www.irs.gov/newsroom/tax-scams-consumer-alerts

https://www.irs.gov/newsroom/phishing-identity-theft-and-scams

https://www.irs.gov/newsroom/taxpayer-guide-to-identity-theft

Tax-related Identity Theft

The Internal Revenue Service (IRS) recently issued a warning about a new twist on the Tax-related Identity Theft.  Identity (ID) theft is “a fraud that is committed or attempted, using a person’s identifying information without authority.” ID theft may involve stealing someone’s Social Security number (SSN), name, bank account, or credit card numbers, and using that information without permission.

Online ID theft is called phishing. A phishing scam involves fraudsters sending email messages to trick unsuspecting victims into revealing personal and financial information such as credit card numbers, account usernames and passwords, SSNs, etc.. Some ID theft starts with something as simple as someone stealing a wallet or taking or reading your mail.

Tax-related ID theft can affect you in two main ways:  

1. Someone uses your (stolen) identification information to file a fraudulent tax return and get a refund.
2. Someone uses your (stolen) information to obtain employment, which can make it seem like you had more income than you actually earned.

How will you know if you are a victim of tax-related ID theft?

You may find out you're a victim of tax-related ID theft when you try to file your tax return or start getting IRS notices about your tax account.

The most common indicators are:

• You try to file your tax return electronically, but the IRS rejects your return because it has already received another return using your SSN;
• You receive an IRS notice showing you received wages from somewhere you never worked;
• You receive an IRS letter indicating one or more tax returns have been filed using your SSN; or
• You receive a balance due notice, refund offset notice, or have collection actions taken against you for a tax year when you didn’t file a return or receive a refund.

If you encounter these issues, please contact your CPA.  For additional information, please click on the links below:

https://www.irs.gov/newsroom/tax-scams-consumer-alerts

https://www.irs.gov/newsroom/phishing-identity-theft-and-scams

https://www.irs.gov/newsroom/taxpayer-guide-to-identity-theft

제조업 vs 서비스업

이익과 부담(“benefits and burdens” 혹은 “B&B”)은 판례로 정립된 연방세법의 원리로써, 미국세법에 전반적으로 적용된다. 국내 생산 활동 공제(Domestic Production Activity Deduction), 주택 모기지에 대한 이자비용 공제, 주택 양도소득 공제, 통일 자본화 규정 (263A UNICAP), 리스와 판매, Subpart F규정, 유/무형자산의 감가상각, 및 기타 세금공제 등, 미 국세청이 소유권에 대한 이익과 부담이라는 원리를 사용하여 세무상 소유권을 판단한 사례들은 무수히 많다. 이와 같이 세무상 소유권이 쟁점이 되는 경우, IRS는 겉으로 보이는 형식 및 계약서가 아닌, 실질적인 내용과 사실관계에 중점을 두어 소유권에 대한 이익과 부담이 누구에게 있는지를 판단하게 된다.

제조업에 있어, 제 3자와의 계약을 통해 계약생산을 하는 일은 일반적인 일이다. 계약생산 약정에 따라 다르겠지만, 일반적으로 발주인은 일정한 디자인 혹은 세부사항을 요청하고, 수주인은 발주인의 요구에 따라 생산을 완성하고 이 생산품을 인도하며 보수를 지급받는다. 이에 따라, 수주인은 발주인이 요청한 상품/제품에 대한 보관, 제조, 또한 운송까지의 일련의 공정을 발주인을 대리하여 수행하게 된다. 이 때, 수주인은 계약에 따라서 제조업을 한다고 볼 수 있겠지만, 실질적 사실관계에 대한 해석에 따라, 세무상으로는 서비스업으로 분류될 수 있다.

앞서 말했던 IRS규정들에서는, 일반적으로 한명의 납세자만 세무상 공제를 받을 수 있다. 어떠한 업체가 세무상 공제를 받을수 있는지가 쟁점이 될 경우, 어떠한 업체가 세무상 소유권에 대한 이익과 부담을 갖고 있는지에 대한 분석이 필요한 것이다. 마찬가지로, 세무상 소유권을 수주인이 갖고 있다고 판단되면 수주인의 영업활동은 제조업으로 분류되겠지만, 세무상 소유권을 발주인이 갖고 있다고 판단되면 수주인의 영업활동은 서비스업으로 분류되게 된다. 이와 같은 계약생산에 있어서도, 계약서 상의 내용뿐만 아니라 실질적인 거래의 성격 및 사실관계를 분석하여 세무상 소유권을 갖고 있는지에 따라 수주인과 발주인의 영업활동 성격이 결정된다.

Service Provider or Manufacturer?

 Benefits and burdens (“B&B”), a judicially developed federal income tax principle, plays a significant role in various Internal Revenue Code (“IRC”) provisions, including the domestic production activity deduction, interest deductions on home mortgage loans, home sale exclusion, section 263A UNICAP, lease vs. sales, Subpart F provisions, allowance for depreciation and amortization, and various tax credits and grants to determine tax owner of the underlying property or asset.  Under this principle, the tax authorities generally characterize the transaction by analyzing the economic effect of the arrangement based on all facts and circumstances, rather than the labels or forms used by the contracting parties.

Taxpayers often enter into contract manufacturing arrangements with independent third parties to manufacture components or products on behalf of the taxpayers.  Under these contract manufacturing arrangements, the taxpayer generally approaches the contract manufacturer with a formula or design.  The contract manufacturer will quote the parts based on material and labor costs, processes, and tooling.  For an agreed-upon price, the contract manufacturer essentially acts as the taxpayer’s factory, producing and shipping components or products on behalf of the taxpayer.

For various afore-mentioned IRC provisions, only one taxpayer may claim the applicable deductions or credits.  In order to determine whether the taxpayer or the contract manufacturer is entitled to the deductions or credits, an analysis of which party in a contract manufacturing relationship has the B&B under the judicially developed federal income tax principles.   The party in a contract manufacturing arrangement with B&B will be treated as a tax owner of the underlying property or asset, and accordingly is a manufacturer, while the party without the B&B, by default, is treated as a mere service provider for the relevant IRC provisions. In order to determine whether a contracting party is a service provider or a manufacturer, the contract as a whole needs to be carefully analyzed.

Proposed Changes to The Income Tax Disclosure

The Financial Accounting Standards Board (FASB) proposed to change the income tax disclosure requirements.  The amendments in this proposed update (see the link below) would modify the current disclosure requirements for income taxes for all entities required to account for income taxes under Topic 740.

The following additional proposed disclosures would be required for all entities:

1. Income (or loss) from continuing operations before income tax expense (or benefit) and before intra-entity eliminations disaggregated between domestic and foreign;
2. Income tax expense (or benefit) from continuing operations disaggregated between federal, state, and foreign; and
3. Income taxes paid disaggregated between federal, state, and foreign.

The following proposed disclosures would be required for public business entities:

1. The line items in the statement of financial position in which the unrecognized tax benefits are presented and the related amounts of such unrecognized tax benefits;
2. The amount and explanation of the valuation allowance recognized and/or released during the reporting period; and
3. The total amount of unrecognized tax benefits that offsets the deferred tax assets and carryforwards.

The amendments in this proposed update would be applied prospectively.  Comments must be submitted to FASB by May 31, 2019.

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176172382198&acceptedDisclaimer=true