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Other Anti-Deferral Provisions Tx 8300. Learning Objectives. Explain the reason for FPHCs, PFICs, and QEFs Identify PFICs Calculate the tax and ________ charges resulting from PFIC status Explain the benefits of _____ Define FPHCs Explain how the FPHC provisions curb tax _________.

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learning objectives
Learning Objectives
  • Explain the reason for FPHCs, PFICs, and QEFs
  • Identify PFICs
  • Calculate the tax and ________ charges resulting from PFIC status
  • Explain the benefits of _____
  • Define FPHCs
  • Explain how the FPHC provisions curb tax _________

You should be able to:

barriers to tax deferral
Barriers to Tax Deferral
  • Controlled foreign corporations
    • ____________ ownership can avoid CFC status
    • _____________ abroad avoids Subpart F
    • __ _______ activity avoids Subpart F
  • _______ foreign investment companies
  • Foreign personal ______ companies
pfic defined
PFIC: Defined

Foreign corporation

if

Foreign __________ companies usually are PFICs. Also, foreign _________ companies are vulnerable when they:

or

Experience operating ______

Possess ___ business assets

Raise _______

________ large holdings

example pfic status
Example: PFIC Status

Three NRAs and ___ U.S. citizens own equal amounts of TourCo. Sixty percent of TourCo’s assets earn passive income, and ___% of TourCo’s income is passive. Under what conditions does TourCo avoid PFIC status?

pfic results
PFIC: Results
  • U.S. persons owning PFIC stock
  • Pay ________ charge when they:
    • Receive ________ or
    • Realize ____ from selling stock
  • Differs from CFC regime
    • No __________ dividends
    • U.S. persons owning < ___% pay interest charge
pfic excess distributions
PFIC: Excess Distributions

Non-Excess Portion is _______ Gross Income

Distribution

Total

______

Distribution

Current

Aggregate

Distributions

Average Distributions

in Prior __ Years

=

- ____% x

Gross income if allocable to:

Allocated Over _______ Period

Current year,

Pre-19___ years, or

Days before ____ status

Used to calculate ________ ___ ______

pfic deferred tax amount
PFIC: Deferred Tax Amount

______ distribution allocable to post-1986 PFIC years other than _______ year times ___ statutory rates

Aggregate Increases in _____

Deferred Tax Amount

Interest on “aggregate increases in taxes” using rate _____ points higher than Federal _____-term rate

Aggregate Amount of ________

example deferred tax amount
Example: Deferred Tax Amount

On 1/1/01, DomCo bought all shares in a PFIC. The PFIC paid cash dividends to DomCo as follows:

$10,000 on 12/31/01

$10,000 on 12/31/02

$11,000 on 12/31/03

$12,000 on 12/31/04

$______ on 12/31/05

Assume the top corporate tax rate is ___% and the applicable interest rate is ___%. Calculate the deferred tax amount in 2005.

pfic problems and solutions
PFIC: Problems and Solutions
  • Negative aspects of PFIC regime
    • Retroactive loss of ________
    • ___ statutory rates
    • No _______ gain treatment
  • Mark-to-______ elections
  • Qualified ________ funds
mark to market election
Mark-to-Market Election
  • Available only if PFIC stock has clearly-established ______ value
    • ________ gain or loss recognized ____ year
    • _____ of shares adjusted
  • Benefits
    • No interest charge
    • Otherwise unrealized losses __________
    • ____ applicable rather than ___ statutory rates
qualified electing fund
Qualified Electing Fund
  • Election applies to ___________, not PFIC
  • _____ treatment for income (not ______)
  • Benefits
    • No interest charge
    • ____ applicable rather than ___ statutory rates
    • _______ gains flow through from QEF to owner
    • Selling QEF stock can result in _______ gain
fphc defined
FPHC: Defined
  • Foreign corporation
  • Five or fewer ___ individuals directly, indirectly, or constructively own __ ___% of voting _____ or stock value
  • FPHC income ≥ ___% of gross income (or ___% in later years)
fphc results
FPHC: Results
  • Constructive dividend to U.S. _______ owning stock
  • Pro rata portion of _____________ FPHC income
  • Increase stock _____
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