Follow by Email

Sunday, July 17, 2016

An Overview of Important International Taxation Considerations

My article "An Overview of Important International Taxation Considerations" appears on page 20 

The Goods (July 2016):
https://issuu.com/kam2014/docs/july2016goods/20

The latest digital issue of the Kentucky Association of Manufacturers' publication "The Goods"

Friday, June 17, 2016

Don’t Forget to Report Certain Foreign Accounts to Treasury by the June 30 Deadline

Don’t Forget to Report Certain Foreign Accounts to Treasury by the June 30 Deadline



In general, the filing requirement applies to anyone who had an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2015. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them.

Wednesday, June 15, 2016

Ready to create your own Tennessee LLC? At the end of our seminar you will have a completely formed company.

Check out "Form Your Own Company - A Guided LLC Formation Seminar" REGISTER AT EVENTBRITE

Form Your Own Company - A Guided LLC Formation Seminar
Don't want to spend your valuable startup capital on your own attorney?  Thought about using a legal website to form your company?  Don't zoom through your company formation just to save a buck!  

Are you ready to form your own company?  
Get it done in two hours during this unique hands-on seminar where two attorneys will walk you through the online process of organizing your own Tennessee Limited Liability Company.

Here's what to expect

At the end of the seminar, you'll have:
  1. A formed company
  2. Filed Articles of Organization
  3. A basic, Member Managed Operating Agreement
  4. An Employer Identification Number with the IRS
  5. Instructions for Recording the Articles of Organization with the Recorder of Deeds
  6. A completed workbook with all of the relevant information about your company
  7. New entrepreneur friends who have just formed their own companies with you

Before the seminar, you'll need:
  1. To do some research to determine whether a limited liability company is the right legal form for your business
  2. To complete some short homework about your business that you'll use to form your company
  3. To select a few options for your business name

At the seminar, you'll need:
  1. A wifi enabled laptop
  2. Your completed homework questionaire
  3. A debit card or credit card to pay the $300 Secretary of State filing fee 
  4. A few choices for business names
  5. Enthusiasm?

During class, you'll use your laptop to:
  1. Organize your company on the Tennessee Secretary of State's website
  2. Register your Employer Identification Number on the IRS website

What the seminar is not:
  1. You won't receive legal advice or be represented by an attorney; we're just there to walk you through the organization process
  2. You won't receive tax or legal advice about the type of entity to form; you should do some research to make sure that you want to form an LLC as opposed to a corporation, nonprofit corporation, partnership or other type of entity

We hope you'll join us! 

BECAUSE WE'RE ATTORNEY'S, WE HAVE TO TELL YOU THIS IS AN ADVERTISEMENT


WHEN
WHERE
Stites & Harbison, PLLC - 401 Commerce Street, Suite 800, Nashville, TENNESSEE 37219 

Monday, April 25, 2016

Tennessee Series LLC Basics: Liability Separation with a Single Entity

What is a “Series LLC”?  It's a limited liability company that has elected to allow the creation of separate series.  According to the statute:
  • Notwithstanding anything to the contrary set forth in this chapter, or under other applicable law, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing, with respect to a particular series established . . . shall be enforceable against the assets of such series only, and not against the assets of the LLC generally, or any other series of the LLC . . .
T.C.A. § 48-249-309.  This broad provision allows for the segregation of liabilities into each series, without having to form separate LLCs. As stated above, the segregation is allowed notwithstanding other provisions of the Revised Limited Liability Company act, and it's even allowed regardless of other applicable law.
The main attraction of a Series LLC is this: separation of liability using only one entity and paying only one annual fee.  This easily creates and dissolves “series” without having to create new companies.
Although there are requirements as to how to establish a series, none of those requirements include having to file again with the Secretary of State. Thus, the ultimate benefit to utilizing a Series LLC is that it allows a business entity to form separate ‘‘series’’ between which an internal liability shield can be established.  It also minimizes legal, regulatory, accounting, transfer and recordation fees that might otherwise result when forming a new LLC or transferring assets between or among two or more LLCs.  Accordingly, the benefit of the use of a Series LLC in the context of real estate transactions is that it will allow an owner to segregate liabilities among its various properties.
Until 2013 there was some uncertainty as to Tennessee franchise and excise taxes, but this was resolved with guidance issued in 2013, which essentially treats each series separately for franchise and excise tax purposes. Significantly, this will allow each series to apply for the Family Owned Non-Corporate Entity exception if applicable residential real estate is held by a series and thereby avoid the franchise and excise tax.  This makes this structure ideal for someone holding a number of residential real estate properties.  The specific requirements of this exception are outside the scope of this update, but should be explored for family owned residential rental property.
What are the downsides?  Series LLC may not be a great choice if the LLC is going to have business in states (or countries) that do not explicitly recognize Series LLCs, since there would be too much uncertainty of law.  Another downside is that the Tennessee law, unlike Delaware’s Series LLC act, does not specifically state that each series can in and of itself hold real estate, so some title insurance companies will not insure property held that way.  A possible workaround is to hold the property in the name of the LLC but on behalf of a series, since the Tennessee Series LLC law allows the “LLC documents” to establish separate series with “specified property or obligations of the LLC”.  If certainty of law is of particular concern, one might consider using Delaware’s law, or simply using separate LLCs.  However, for many deals the Tennessee Series LLC will be better than simply holding everything in one LLC, when separate LLCs are not practical or economical.  
What are the requirements for the Series LLC? In addition to the notice requirement in the articles of organization filed with the Secretary of State and the requirements that the LLC documents establish a series, the LLC member also must make sure that:
  1. “Separate and distinct records are maintained for any such series”, and
  2. “the assets associated with any such series are reflected and held in such separate and distinct records, directly or indirectly, including through a nominee or otherwise”, and
  3.  the assets are accounted for in “separate and distinct records separately from the other assets of the LLC and the assets of any other series of the LLC”.  
Therefore, a Series LLC is only appropriate for a person willing to keep the proper records. 

Co-authored with J. David Wicker

Monday, March 28, 2016

Reporting Foreign Income: Eight Tax Tips from the IRS

Reporting Foreign Income: Eight Tax Tips from the IRS

https://content.govdelivery.com/accounts/USIRS/bulletins/13f2f30?reqfrom=share

Tuesday, March 22, 2016

Succession Planning for an International Business Upcoming Event

Our next meeting for Chattanooga Succession Planning Professionals will be at 8am to 8:50am on May 19, 2016 at Olsen Law Firm.  This event will be at Olsen Law Firm's brand new office in the James Building, 735 Broad St #708, Chattanooga, TN 37402

Terry Olsen will be speaking on "Succession Planning for an International Business".  In this presentation Terry will discuss the steps he has taken to help a new generation open a branch of a family business in the US as part of their plans for succession, modernization, and expansion in to the United States.  Included in this presentation will be actual case studies and warnings regarding traps for the unwary, particularly with increased and unpredictable regulation.  Special focus will be on how immigration issues control financial, tax, banking, and business law issues, and the penalties for failures to comply.

Please RSVP to mgoode5407@me.com and let me know if you will attend.

If anyone who like to host/present for a meeting, please let me know.


https://www.facebook.com/events/1145790955454414/

Monday, March 14, 2016

What to Do with an Estate with Foreign Assets (Even that “Little” Bank Account in Europe)

This article regards estates of decedents who owned foreign assets and the tax and reporting requirements.  Many people are quite shocked to learn about the reporting requirements for foreign bank accounts, in particular.  After all, tax is typically being paid in the foreign jurisdiction, or perhaps the foreign bank accounts generate little to no income that is taxable anyway.  There are, however, two categories to be concerned with, first, of course is taxation.  Second is reporting in and of itself.  How does this all relate to estates?  Well, if the estate has foreign assets and the proper reports are not made, then the personal representative of the estate could be liable.
One of the main reporting obligations is actually not an IRS form at all, it’s a treasury department Form FinCen 114, commonly called an FBAR (Foreign Bank Account Report). It’s part of the financial crime enforcement network, and if the foreign bank accounts in the aggregate exceed $10,000 at any point during the year (even very briefly) then this report must be electronically filed.  The penalties for failure to file can be quite draconian, including willful penalties of 50% or more of what is not reported.  Again, note that this filing has nothing to do with the amount of tax owed, if any.  If a person has signature authority of foreign financial accounts then there can also be a reporting requirement, even if there is no financial interest in the account.  As such, one should be careful about the accounts that a person has signature authority over.  Similarly, one should be careful about having a power of attorney over one’s parents who have a foreign account, as there could be a reporting requirement.
As for tax reporting, several years ago an act of Congress commonly called FATCA added Form 8938, Statement of Specified Foreign Financial Assets.  It is very important that this form is filed, since the statute of limitations never runs if it is not – meaning that there could be a potential tax problem forever.  The IRS recently released regulations requiring this form to be filed by certain domestic entities as well.
Foreign mutual funds held in an estate of a United States citizen or resident are particularly problematic. A United States citizen or resident should never own foreign mutual funds due to the extensive reporting under Form 8621, PFIC shareholder filings and the often very unfavorable tax treatment and the difficulties in obtaining information from often very reluctant foreign financial institutions (FATCA and PFICs are two of the main reasons it’s often hard for United States citizens and residents to open accounts overseas). Although there may be some elections available to alleviate some of the tax burden, foreign financial companies often refuse to supply the needed information.
Of course, some will wonder how the IRS would ever know about these accounts.  Well, FATCA requires foreign financial institutions to identify and report US holders of non-US financial accounts.  The US already has agreements with most countries for this reporting.
The major forms to be concerned with are set forth in the list below.  This is not an exhaustive list and not every form is needed in every circumstance.  The form number is listed with its title in parenthesis:
  • FinCen 114 (Foreign Bank Account Report),
  • Form 926 (Transfers to Foreign Corporations),
  • Form 1042 (Payments to Foreign Taxpayers),
  • Form 3520, 3520A (Foreign Trusts),
  • Form 5471 (US Owned Foreign Companies),
  • Form 5472 (Foreign Owned US Companies),
  • Form 8233 (Independent Personal Services by Nonresident),
  • Form 8621 (Passive Foreign Investment Corporations),
  • Form 8833 (Treaty Based Disclosure Form),
  • Form 8840 (Closer Connections Form),
  • Form 8858 (Foreign Disregarded Entities),
  • Form 8865 (Foreign Partnerships),
  • Form 8938 (Specified Foreign Financial Assets),
  • Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding).
Now, back to the subject of personal representative liability.  Pursuant to Title 31 U.S.C.§3713(b) any personal representative who pays “any part of a debt of the . . . estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government.” Therefore, the personal representative may be liable for taxes, interest and penalties if the distribution leaves the estate unable to pay the government and the personal representative had notice of the government’s claim.  In terms of notice “the executor must have knowledge of the debt owed by the estate to the United States or notice of facts that would lead a reasonably prudent person to inquire as to the existence of the debt owed before making the challenged distribution or payment.” United States v. Coppola, 85 F.3d 1015, 1020 (2d Cir.1996). Therefore, there is a duty of inquiry regarding the existence of these obligations, and as such important that the proper reporting is done and taxes paid.
The good news, however, is that much of the reporting, aside from the PFIC reporting of course, is actually not very difficult.  Moreover, there are generally tax credits that can be used due to foreign tax paid, meaning that the US tax liability is often quite small.  If there are past years that have not been reported, the government currently offers several different programs to settle the tax and reporting obligations for reduced penalties (provided that a person comes forward prior to receiving IRS notice).  Considering the severity of the penalties, proper reporting is obviously very advisable.