Prospects for Senate deal on ‘Build Back Better’ upended

This blog discusses the latest issues in the Senate with reaching consensus on an iteration of “Build Back Better” legislation.

On June 21, 2022, The U.S. Supreme Court agreed to resolve a dispute concerning the maximum applicable penalty for non-willful violations of the foreign bank account reporting statute. The Ninth and Fifth circuit courts are split on whether a $10,000 non-willful penalty applies “per-form” or “per account.”

The Organisation for Economic Co-operation and Development (OECD) held its annual tax conference in Washington, DC at the end of June. Discussions at the conference focused on developments with respect to the Base Erosion and Profit Shifting (BEPS) Pillars One and Two project.

A product of the IRS Tax Code, an IC-DISC is a tax-exempt corporation deemed to function as a sales agent for a company’s export sales. The tax benefit of an IC-DISC (“Interest Charge Domestic International Sales Corporation”) is based on realizing the arbitrage between tax rates.

The Internal Revenue Service Large Business and International Division has recently published a Practice Unit related to country-by-country (CbC) reporting in the transfer pricing area. The CbC Report is intended to be used by tax administrations only for the purpose of assessment of high-level transfer pricing risks and other BEPS related risks, but not as the basis for computing tax liabilities.

More taxpayers and their CPAs are beginning to realize that there are serious requirements to divulge the existence and status of their financial investments held overseas. The introduction ten years ago of IRS Form 8938, Statement of Specified Foreign Assets, along with the long-standing Report of Foreign Bank and Financial Accounts (now commonly referred to as “FBAR”) are increasingly in the news as the IRS has stepped up its enforcement efforts.

The U.S. Department of the Treasury and the Internal Review Service published final regulations addressing several issues central to foreign tax credits. The Final Regulations generally adopted the proposed foreign tax credit regulations released in November 2020. Specifically, the new rules will limit foreign tax credits for foreign taxes that were clearly creditable under prior law and will raise practical and interpretive issues for taxpayers.

The U.S. Department of the Treasury and the Internal Review Service published final regulations addressing several issues central to foreign tax credits. The Final Regulations generally adopted the proposed foreign tax credit regulations released in November 2020. Specifically, the new rules will limit foreign tax credits for foreign taxes that were clearly creditable under prior law and will raise practical and interpretive issues for taxpayers.

The Large Business and International (“LB&I”) division of the IRS has several active campaigns to address taxpayer noncompliance related to unreported income, undisclosed assets or any other tax avoidance scheme. Specifically, the LB&I division is currently focusing on Forms 1042/1042-S compliance, which is often overlooked by CPAs when payments are made to foreign persons.

Dominating the current news cycle is the war in Ukraine and the sanctions various countries have adopted against Russia. Specifically, to date there have been five sanction packages passed and a sixth which has been proposed.