Strategic Coordination of Accounting and Tax for the Family Office and Dynasty Trust

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Tax implications often determine how certain types of investors will invest in a fund.  There are various categories of investors that have competing tax implications so it is important that the fund can accommodate the competing tax interests of the investors.  One category of investors are tax-exempt investors and planning for unrelated business income tax (“UBIT”). 

A common planning strategy for tax-exempt investors to avoid UBIT is having a blocking corporation between the fund and the tax-exempt investors.  The blocker corporation is not tax-exempt and the income that flows through to the blocker corporation will be subject to corporate income tax reducing the return to the tax-exempt investors by the amount of the corporate income tax. […]

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Structuring for Tax-Exempt Investors

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Tax implications often determine how certain types of investors will invest in a fund.  There are various categories of investors that have competing tax implications so it is important that the fund can accommodate the competing tax interests of the investors.  One category of investors are tax-exempt investors and planning for unrelated business income tax (“UBIT”). 

A common planning strategy for tax-exempt investors to avoid UBIT is having a blocking corporation between the fund and the tax-exempt investors.  The blocker corporation is not tax-exempt and the income that flows through to the blocker corporation will be subject to corporate income tax reducing the return to the tax-exempt investors by the amount of the corporate income tax. […]

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U.S. Taxation of U.S. Citizens and U.S. Tax Residents Residing Overseas – Taxation and Reporting of Certain Foreign Assets

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or U.S. Persons with investments and income outside the U.S., the U.S. taxation can be unfavorable and there are enhanced informational reporting obligations.  For example, a non-U.S. pension that is taxed deferred in the country where the U.S. Person is a resident may or may not be taxed currently in the U.S. and the U.S. tax treatment will be based on U.S. pension rules.  Also, the non-U.S. pension plan will likely be considered a foreign trust which could require additional informational reporting. […]

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U.S. Taxation of U.S. Citizens and U.S. Tax Residents Residing Overseas – Foreign Bank Accounts

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The government does not annually tax wealth.  However, the IRS wants to know about funds U.S. Persons have in foreign bank accounts.  There are now two different reporting requirements for foreign bank accounts, the Foreign Bank Account Report (“FBAR”) and the individual reporting requirement under the Foreign Account Tax Compliance Act (“FATCA”). […]

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U.S. Taxation of U.S. Citizens and U.S. Tax Residents Residing Overseas – Mitigation of Double Taxation

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There are two methods that a U.S. Person living abroad can use to reduce their U.S. tax liability.  The two methods are the Foreign Earned Income Exclusion (“FEIE”) and the Foreign Tax Credit (“FTC”).  Even if one of these methods were to eliminate the U.S. Person’s U.S. tax liability, the U.S. Person is still required to file their U.S. tax return if their income exceeds the filing thresholds for the tax year.  […]

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U.S. Taxation of U.S. Citizens and U.S. Tax Residents Residing Overseas

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U.S. citizens and U.S. tax residents (“U.S. Persons”) are taxed in the United States on their worldwide income no matter where in the world they reside. The U.S. taxes based on citizenship, which is different than almost all other countries in the world that tax based on residence.
This often catches U.S. Persons who have never lived in the U.S. or have lived abroad for a number years by surprise. Any U.S. Person living abroad with income for tax year 2023 above the following thresholds must file a U.S. tax return: […]

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Tax Filings for the International Executive

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Recently we were transitioning to take over the tax filing for an executive who was a U.S. tax resident because he had a green card but resided outside the U.S.  This executive has considerable income and the country that he resided in also taxed at higher rates than the U.S. federal income tax rates. Our review of the executive’s tax return not only found there were informational reporting errors, but that the income of the executive had been over reported by more than $160,000 […]

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PFIC Testing for Foreign Portfolio Companies

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Funds with U.S. investors, U.S. family offices, and individual U.S. investors (collectively, “U.S. Investors”) must be cognizant of whether their foreign investment in private companies is an investment in a passive foreign investment company (“PFIC”). Typically, a foreign portfolio company would be classified as a corporation for U.S. income tax purposes unless an election was made to have it taxed otherwise. The issue with PFICs is that unless certain elections are made, distributions from a PFIC may be subject to an excess distribution regime resulting in a punitive tax and interest charge. In certain bad circumstances, the punitive tax and interest charge can be the amount of the distribution. […]

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Importance of Semiannual and Annual OZ Testing

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Fund managers must ensure their qualified opportunity funds (“QOF”) meet the requirement that 90 percent of the QOF’s assets are held in qualified opportunity zone (“QOZ”) property. Failure to meet the test can result in significant penalties to the QOF that can have a significant impact on the investment return to its investors. […]

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FATCA Compliance for Offshore Funds

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It is important that fund managers understand their responsibilities under the Foreign Account Tax Compliance Act (“FATCA”). FATCA imposes a 30% withholding tax on U.S. source payments to foreign financial institutions (“FFI”) that do not comply with requirements to identify their U.S. account holders, as well as to non-financial foreign entities that do not identify their substantial U.S. owners, unless an exception applies. For offshore funds, understanding their FATCA reporting requirements is of the utmost importance to avoid withholding tax. […]

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