a. No book, just materials on website in pdf
i. It is set up to print back and front
ii. There will be periodic updates
b. The Code is relied on heavily
i. International sections are deleted from our code
ii. THERE IS ONE POSTED ON THE WEBSITE, he may copy it for us.
iii. 2-commercial versions of the code, CCH, Golden Gate
c. General problem w/ int tax is all the preferences to businesses we want to give
i. They run for too short a period
ii. Pay as you go was repealed by the republicans so we had huge deficits and now it is back
iii. Regs are very important and rarely overturned
iv. Download regs as we go
d. Planning Problems
i. We will do a fair amount of them
ii. They show us how to do this and apply what we know
iii. We may have to research for these
iv. We mostly cover the 8 and 9 hundreds of the code
v. There are alot, they are very important
e. The syllabus just gives an idea of the order we will cover topics
i. Topics may be added or deleted
ii. The order
1. two big issues
a. how US taxes Americans operating abroad
b. how foreigners are taxed in the US
i. These are very different issues with different answers
ii. Some of the answers are common
1. Create subsidiary and report profits through subsidiary
a. we have rules to stop this though
2. Other issues only cover TP’s operating abroad
a. Foreign tax credit when profits are repatriated
b. The credit rules don’t apply to foreigners operating in the US
3. There are jurisdictional issues on where a TP is taxed
4. There are issues on taxing foreigners
a. We will focus mostly on companies and a little on individuals
i. We focus mostly on the IRC, but there is an overly for treaties that we will only touch on
i. 3 hours
ii. Some multiple choice, some short answer on planning
iii. Multiple choice is used to ensure broad coverage
2. Jurisdiction to Tax
a. The term used is nexus. You must have some ‘nexus’ to tax. ‘Nexus’ is used b/c it is a vague term of art meaning some kind of relationship
b. 2 broad categories of Nexus
i. Nexus w/ income (source jurisdiction)
1. relationship to the country to the income that authorizes the tax
a. i.e. income earned in the US
ii. Nexus w/ the person
1. resident jurisdiction b/c it only applies to residents
2. we will spend time on what it means to be a resident.
3. source jurisdiction is a limited form of jurisdition b/c we only tax the income w/ the US nexus, whereas residence jurisdiction is worldwide and we tax US citizens on all of their income
c. Always remember the tax is voluntary and if you don’t want to pay it you can just give up your citizenship
i. There are now rules to deal w/ this problem after the Stanley Tools case. Stanley tools tried to be a resident of barbados incorporated in the bahamas. The rules are called the “inversion” rules because of the inverted relationship where there is a foreign parent and US sub.
d. If you are a US citizen and give up citizenship you are still taxed for 10 years on some types of income
i. We also did this for long term permanent residents (green card)
3. Principles of Taxation
i. Hard in the international context w/ foreigners b/c we only see a portion of their income.
ii. W/ americans we would like to tax them on worldwide income as if all income was earned in US, but we can’t do that b/c of taxes imposed by foreign governments.
iii. Also, we tax a lot of corporations, but what is ‘fair’ to a corporation? We usually base fairness on treatment of human beings (so maybe we look to fairness to shareholders).
b. Economic efficiency
i. We have to figure out who is paying the tax
c. Administrative economy (minimize burdens on TP and gov.)
i. No special problems w/ foreign
4. Cook v. Tate, “citizenship is enough to tax income earned abroad”
a. TP, US citizen, moves to Mexico. IRS demands him to pay taxes on income earned derived from property owned in Mexico (foreign source income w/ no nexus). So Cook agrees to a payment plan w/ the IRS and then brings suit challenges the tax.
i. Can IRS impose tax on Cook’s income derived from property outside the US.
c. Conclusion: YES
i. IT doesn’t matter where you are. If you are a citizen the US can tax you on worldwide income.
e. NOTE: tate was the collector. We don’t have collectors anymore, we have district directors and cases refer to the Commissioner (for a while they were all to the commissioner by name, who for a long time was Helvering).
i. There was no issue about the code here because it is clear in the
ce under the ’84 Rules
1. we covered citizenship yesterday
a. there is a new code provision last year that says that once your a citizen and once you are a resident you have to do an expatriating act to make yourself not a resident/citizen (inform homeland security). §7701(n).
2. Now we cover residence
3. residence is a harder concept than citizenship, which is black and white. If you were born here, you are. The kind of issue we have to today of someone sneaking in and having a kid is trivial and we just live w/ it. You can also be naturalized through a formal process. Citizenship is a bright line test b/c if you are a citizen you are taxed on worldwide income.
4. there are different types of residents
a. we are looking at resident aliens to see if they are subject to worldwide taxation.
b. Residency is also important for other aspects. Like controlled foreign corporations. But residence for different purposes is defined differently.
a. Facts: Park is a citizen of Korea working maybe for the Korean CIA. He has lived a lot in the US (speaks good english, has a home here, etc.). There is no issue about citizenship.
b. Issue: Is Park a US resident?
c. Rule: you are a resident if you have sufficient ties to the country
d. Test: weigh social/family/economic ties on a (mysterious) scale w/ time in the US as a major factor (if you were here all the time it was hard not to be a resident. Unless you are stuck here like Nubar). We looked at the totality of the circumstances.
e. Analysis: while he was here as a student, it is more temporary. But when is a person here permanently? Permanent means not temporary. Park works here, lives here, has social ties here, all making it look like he is a resident. On the other hand his family still live in Korea and the focus of his economic livelihood is still US rice exports to Korea (through a grant by the Korean Gov).