Fairleigh Dickinson University s3

Fairleigh Dickinson University Silberman College of Business Administration

International Tax I FALL I, 2011 TAX 7708.91 Instructor: Marshall P. Bartlett Phone: (at FDU) (973) 443-8843 (at Home) (973) 993-5974 Email: [email protected] [email protected] Fax: (973) 993-8082

Instructor: Robert M. Wellbrock Phone: Home (908) 822-9465 Fax: phone first (908) 822-9465

COURSE DESCRIPTION: This first course in the study of the U.S. international taxation covers the basic principles of international taxation and provides a framework for continued work in international tax. Course coverage includes U.S. taxation of U.S. citizens, residents and domestic corporations abroad and of nonresident aliens and foreign corporations with activities in the U.S. This course examines the definition of residency, source rules, types of income, the branch profits tax, withholding taxes, FIRPTA, tax treaties, EXPAT basics, and taxation of foreign persons assigned to the U.S.

PREREQUISITE: Basics of U.S. tax (undergraduate course or equivalent experience).

OUTCOMES: This course will enable the student to: 1. Understand basic international tax terminology. 2. Differentiate U.S. source income from foreign source income. 3. Determine the amount of tax required to be withheld on U.S. income earned by foreign persons. 4. Determine when tax is due on effectively connected income. 5. Advise foreign clients effectively on rental or sale of U.S. real property. 6. Apply tax treaties to common fact patterns. 7. Determine when an individual is a resident of the U.S. for U.S. tax purposes 8. Calculate the foreign earned income exclusion, and foreign tax credit for expats. 9. Participate meaningfully in advising expats regarding their assignment. 10. Calculate branch profits tax and know when exceptions apply. 11. Advise foreign corporations of U.S. recordkeeping and return requirements.

COURSE TOPICS: The following topics (see below for details) will be covered:

 Basic international tax concepts  Taxation of foreign persons with U.S. income: FDAPI  Taxation of foreign persons doing business in the U.S.: ECI  Source of income  FIRPTA rules for U.S. tax on foreign-owned real property  Tax treaties 1

 Taxation of expatriates (U.S. individuals working abroad)  Inbound compliance

CONDUCT OF COURSE: The course will consist of lecture presentations by the instructor(s) and significant readings. Each student may be required to prepare a technical paper on a particular topic and also prepare a slide presentation for the class on the same topic, thus enhancing the student's oral and written presentation skills.

REQUIRED TEXT (for all 3 international tax courses): Kuntz, Joel D., and Peroni, Robert J., U.S. International Taxation, Warren, Gorham & Lamont, an imprint of RIA Thomson, Valhalla, New York, 2005 edition with cumulative supplement). {3 volume set, most recently updated through “2011 Cumulative Supplement No. 1”.} Also: Internal Revenue Code and Regulations (selected international sections are OK, but it is better to have complete sets of the Code and Regulations) IRS Publications 514, 519 and 776

COURSE REQUIREMENTS % of Grade Description 55 Final Exam 35 Mid-term Exam 10 Classroom Participation

COURSE OUTLINE & READING REQUIREMENTS: Target Note: All reading references are to Kuntz & Peroni, except as noted. Date [Where the assignment says "lightly scan," the text covers the material in more depth than the class and should be read for concepts.] Be sure to read relevant cumulative supplement pages for each text assignment.

Note: PLEASE BE SURE TO BRING THE CODE AND RELEVANT REGULATIONS TO EACH CLASS SINCE WE WILL BE DISCUSSING STATUTORY AND REGULATORY PROVISIONS IN DETAIL. References to the code in the reading assignments include the relevant regulations.

9/10 1) Basic Concepts, Overview & Administrative Matters

Overview of basic concepts in international tax, including residency, timing of income, sourcing rules, nexus to taxation, earnings & profits, and very brief introduction to outbound corporate international tax. Advance reading: None Follow-up reading: Kuntz & Peroni A1-1 thru 19; B1-50 thru 55 IRC § -- 2

9/10 2) Tax on Foreigners: W/H Tax vs. Tax on ECI

Basics of taxation of non-U.S. taxpayers, including a comparison of withholding taxes with graduated taxation on effectively connected income Advance reading: None Follow-up reading: Kuntz & Peroni A1-55 thru 68 IRC § --

9/10 3) Source of Income: Generally to 9/17 An overview of rules concerning which tax jurisdiction has a right to tax particular types of income (sourcing of income). Presentations & outlines on: Services income, rents & royalties Advance reading: Kuntz & Peroni A2-5 thru 95 Follow-up reading: IRC §§ 861-865

9/17 4) Source of Income: Sale of Tangibles

Income sourcing rules applicable to sale of tangible personal property, including inventory. Advance reading: Kuntz & Peroni A2-95 thru 140 IRC §§ 861-865

9/24 5) Withholding Taxes Except FIRPTA

Detailed coverage of taxes withheld from U.S. source income of foreign taxpayers, including both withholding and taxation provisions. Presentations & outlines on: Agency, Interest and Dividends, and Partnership Withholding Advance reading: Lightly scan Kuntz & Peroni C1-6 thru 49 and Kuntz & Peroni C2-7 thru 90 (skip footnotes) Follow-up reading: Scan Kuntz & Peroni C2-159 thru 180 IRC §§ 1441-1446, 871, 881

9/24 6) New Treasury Rules on Compliance for offshore accounts of US persons

Review W-8 Series of Forms, W-9 Form and related ‘new’ withholding regulations Reporting by US investors with respect to accounts located outside US, including FBAR rules; FACTA Foreign Account Tax Compliance; forcing foreign banks to be “qualified intermediaries”; Central Withholding Agreements; series of IRS Amnesty Programs

9/24 7) ECI

Taxation of effectively connected income of foreign taxpayers. Rules for determining what constitutes ECI. Presentations & outlines on: Trade or business within the U.S.: Effectively Connected Income:

Advance reading: Kuntz & Peroni C1-74 thru 114 Follow-up reading: None IRC §§ 864(c), 871(b), 882

10/01 8) Rentals

Taxation of rental income of foreign persons. Advance reading: Kuntz & Peroni C1-46, 47 and C1-70 thru 74 IRC §§ 897(i), 871(d)

10/01 9) FIRPTA - Foreign Investment In Real Property Tax Act

Basics of taxation of gains from U.S. realty disposed of by foreign persons, including withholding and compliance provisions. Advance reading: Kuntz & Peroni C1-232 thru 265; Kuntz & Per. C2-134 thru 139 Follow-up reading: Kuntz & Peroni C2-109 thru 134; C3-74 thru 79 IRC § 897

10/01 10) Residency Under Law & Treaties

Definitions of "resident" under U.S. domestic law and under U.S. tax treaties Advance reading: Kuntz & Per. C4-19 thru 23, Scan C4-29 thru 40; B1-27 thru 50 Follow-up reading: U.K. Treaty as example IRC §§ 7701(a)(4), (5); 7701(b) Reg. § 301.7701(b)-0 thru 9

10/08 11) Effect of Treaties

Other effects of tax treaties on U.S. taxation of foreign persons and foreign taxation of U.S. persons. Thorough Discussion of US/UK Tax Treaty Advance reading: OECD Commentary: Permanent Establishments IRC § 894

10/08 MID-TERM EXAM (covering topics 1 through 10)

10/15 12) Deductions

U.S. statutory and regulatory provisions limiting deductions by foreign persons or foreign controlled U.S. persons, including intercompany charges and rules limiting or deferring deduction of interest expense. Discussion on Limits on Interest: § 163(j) and Intercompany charges Advance reading: Regulations under below-cited sections; Kuntz & Peroni C3-30 thru 40; Kuntz & Peroni SC3-7 thru 10 Follow-up reading: Tate & Lyle (optional) IRC § 163(j), 267, 263A, 168(g)

10/15 13) Allocation & Apportionment for Foreigners, Incl. Interest

Allocation and apportionment of deductions to U.S. source taxable income, but only as the rules apply to foreign persons. (Outbound provisions are covered in Foreign Tax II) - Brief overview. Discussion on Reg. § 1.882-5 Advance reading: A2-188 thru 202; A2-250 thru 255 Follow-up reading: None IRC § 882 Reg. § 1.882-5

10/22 14) Expat Basics

Basics of taxation of expatriates, including the exclusions of foreign source earned income and basics of foreign tax credit for expatriates. Tax home defined. Progressive basis of US taxation - with rate fixed by inclusion of exempted income Presentations & outlines on: § 911 Exclusion: Basic Requirements and impact on Foreign Tax Credit Advance reading: IRS Publication 54 (in Publication 776) Follow-up reading: Balance of Publication 776; Publication 514 IRC § 911

10/22 15) Expat Compensation & Reimbursement and Non-Tax Issues (If time available)

Issues relating to compensation of expatriates for services, reimbursement of additional expenses, and timing of compensation, including issues relating to tax by the foreign jurisdiction. Counseling expatriates before their overseas trip: non-tax issues that must be considered, including work permits, family issues, etc. Advance reading: Scan B1-64 thru 139 (skip footnotes) Follow-up reading: Regulations under § 911 IRC § 911

10/29 16) Inpat Planning – for foreign nationals inbound to U.S. (If time available)

U.S. tax and compensation planning for foreign persons assigned to U.S. and employment planning for return to their home country. Advance reading: IRS Publication 519 Follow-up reading: None IRC § 7701(b)

10/29 17) Sale or Leasing of Residence on International Assignment (If time available) U.S. and foreign tax issues relating to disposal or retention of principal residence for international assignees. Includes FIRPTA considerations for inpats and treatment of rental income and gain on eventual disposal. Advance reading: Kuntz & Peroni B1-143 thru 151 Follow-up reading: 47 NYU Institute on Federal Taxation § 15 IRC §§ 1034, 897

10/29 18) Compensation Withholding Issues (If time available)

Tax treatment of foreign employers and foreign employees, including payroll withholding tax liabilities. Totalization agreements for social security Advance reading: None Follow-up reading: Code, Regs. Under § 3401 IRC §§ 3102, 3121(a) thru (d) and (h), 3301, 3306, 3401, 3402(a)

11/05 19) State & Local Issues in Inbound International Tax

State and local income tax issues for international assignees, and nexus and multistate issues for corporations. Advance reading: None Follow-up reading: None IRS § --

11/05 20) Branch Profits Tax

The U.S. branch profits tax imposed on U.S. branches of foreign corporations. Presentations & outlines on: Dividend Equivalent Amount Qualified Resident Rule Terminations & Liquidations Advance Reading: Kuntz & Peroni C1-133 thru 210, SUPPLEMENT Follow-up reading: Scan Regulations under § 884 IRC § 884

11/05 21) § 6038A & § 6114

U.S. information reporting & recordkeeping requirements applicable to foreign controlled U.S. corporations & foreign taxpayers. IRS Form 5472 Presentations & outlines on § 6038A on:

Persons Subject to Reporting Reporting Rules Advance reading: BDO Seidman Publication; Kuntz & Peroni C3-143 thru 148 Follow-up reading: Regulations under § 6038A IRC § 6038A

11/12 FINAL EXAM

Supplemental Resources:

Rhoades, Rufus von Thülen, and Langer, Marshall, J. Income Taxation of Foreign Related Transactions, Lexus Nexus Matthew Bender, Albany New York. {This is a multi-volume professional tax service updated by regular subscription; no single-volume edition.}

Moore, Michael L., CPA, PhD,.and Outslay, Edmund, CPA, PhD U.S. Tax Aspects of Doing Business Abroad, Sixth Edition, American Institute of CPAs, New York, 2004. {One Volume Digest for AICPA professionals -Revised through American Jobs Creation Act of 2004 to cover ‘new’ foreign tax credit rules and replacement of ‘old’ export incentives with ‘new’ tax deduction for domestic manufacturing; not current for later changes in taxation of expatriate U.S. residents.}

McIntyre, Michael J., The International Income Tax Rules of the United States, Second Edition. Butterworth Legal Publishers, Salem, NH, 1992 (Student Edition). {The Second Edition is the latest revision per the publisher, so status of updates for current changes in tax law should be investigated before use.}

Bittker, Boris I., and Lokken, Lawrence, Fundamentals of International Taxation: U.S. Taxation of Foreign Income and Foreign Taxpayers, Warren, Gorham & Lamont, New York, Seventh Edition, 2002.

Foreign Income Portfolio Series, Bureau of National Affairs, Washington, D.C. (current edition). {This is a multi-volume professional tax service updated by regular subscription; excellent source on each issue covered by any specific BNA volume but coverage of BNA service is not entirely comprehensive in respect of other matters not focused upon by specific portfolios. Care must be exercised to check the periodic updates for legal changes / developments, which may be uneven from one portfolio to the next.}

Publications of the Internal Revenue Service, Washington, DC (annual); generally available for download from IRS website: “www.irs.gov” listing forms and publications:

Publication 54: Tax Guide for U.S. Citizens and Resident aliens Abroad Publication 514: Foreign Tax Credit for Individuals Publication 515: Withholding of Tax on Nonresident Aliens and Foreign Corporations Publication 519: U.S. Tax Guide for Aliens