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Although a discussion of this waiver is beyond the scope of today's blog, we understand that the IRS has set the bar quite high and such waivers are difficult to obtain, despite the reasonable and good faith language in the regulations.Īs noted above, Code section 882(c)(2), itself, does not contain a timely filing requirement because the plain meaning of the statute does not include a timing element. In June 2020, the IRS reissued a memorandum that provides guidelines for handling requests for a waiver. This waiver would allow a foreign corporation to claim deductions and credits. The 1990 regulations permit the IRS to waive the filing deadline if the foreign corporation can establish based on the facts and circumstances that it acted reasonably and in good faith in failing to timely file a return. The Preamble to the 1990 regulations incorrectly stated that, "the statute clearly provides for the denial of deductions and credits if returns are not filed in a timely manner." " The 1990 regulations then provide that the timely basis for filing a tax return is eighteen months after the return's statutory due date. In 1990, the regulations were amended to specify that a foreign corporation may only take deductions and credits "if it timely files" a return "in the manner prescribed in subtitle F. Treasury and the IRS first issued regulations interpreting Section 882 in 1957, and these regulations did not require a tax return to be filed within a certain period. " The plain language of this statutory provision does not specify that the tax return must be filed within a certain time. business.Ĭode section 882(c)(2) provides that a foreign corporation is allowed deductions and credits only if it files a "true and accurate return, in the manner prescribed in subtitle F. federal income tax on gross income attributed to its U.S. tax law imposes the most draconian rule in the world on that foreign corporation-all deductions and credits are denied and the foreign corporation must pay U.S.
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tax return, then, unlike a domestic corporation, U.S. If the foreign corporation fails to file its U.S. corporation, the foreign corporation would be required to file a U.S. If the foreign corporation were to have a U.S. As such, it’s not always clear whether a foreign corporation is conducting some or all of its business in the United States. As the Supreme Court stated in Groetzinger, the phrase "trade or business" has been in the tax code "in over 50 sections and 800 subsections and in hundreds of places in proposed and final income tax regulations has never contained a definition of the words 'trade or business.'"). trade or business and income effectively connected with that U.S. federal income tax on a net basis if such corporation has a U.S. United States tax law subjects a foreign corporation to U.S. In addition, we examine a recent United States Tax Court case where the court upheld this draconian rule against a UK company, Adams Challenge (UK) Ltd. In today's blog, we look at the most draconian tax rule in the world and examine whether the rule is valid.
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This article is the first installment in the 2-part post focusing on the Adams Challenge case. Today, the Tax Trotter is pleased to present an article by her international tax partner Douglas S.