Coming to America? Time to Seek International Tax Advice!
People do not like spending more money than necessary. Yet, a few times a month a new client calls with a complicated and costly tax issue, which almost certainly will result in unnecessary amounts of legal fees and tax liability. In every one of these cases, the tax bill and legal fees could have been entirely prevented and should have never existed in the first place had the client undertaken proper tax planning.
The reality is that many transactional professionals do not involve tax counsel up front. Too often we hear that our clients have received tax advice from a friend, a realtor, or simply disregarded advice to seek tax counsel because the expense of upfront tax advice was deemed to be unnecessarily expensive. Moreover, some professionals may believe that tax counsel could ruin or overly complicate their deal, resulting in lost commissions or fees to the professional. Sometimes tax is complicated, but what should be more concerning is steering a client into a tax disaster. Traps for the unwary are especially prevalent when dealing with international clients and cross-border transactions.
United States federal income tax and estate and gift tax laws are challenging and are especially difficult when working with international clients. To further complicate matters, President-elect Trump has proposed during the course of his campaign an outright elimination of the estate tax and a significant reduction of corporate tax rates. At the time of publication, these proposed changes are merely speculative. Furthermore, the world has increasingly become more transparent with 87 countries currently signed on to participate in the OECD’s Common Reporting Standard and the United States’Foreign Account Tax Compliance Act (Pub. L. 111-147), both of which require automaticexchange of certain taxpayer information between countries. Although there are numerous types of relevant transactions, this article outlines three common scenarios in which an international tax attorney should be consulted in advance.
Foreign Investment in U.S. Real Estate
For many foreign individuals, or as technically known in tax parlance as non-resident aliens (NRA),1 the most important U.S. tax consideration when considering an investment in U.S. real estate is how to prevent U.S. federal estate and gift taxes from applying. This is driven primarily by the fact that non-U.S. domiciliaries2 are allowed to exclude only the first $60,000 in value of U.S. situs assets from their U.S. estates and the remainder subject to U.S. estate tax at federal rates up to 40 percent plus applicable state estate taxes. Thus, some non-U.S. domiciliaries own U.S. real estate through a foreign corporation,3 because shares in a foreign corporation are explicitly excluded from the definition of U.S. situs assets. However, foreign corporations are subject to higher income tax rates and are also potentially subject to the so-called branch profits tax on sales of appreciated real estate. The optimal structure to hold real estate should minimize U.S. estate and gift tax exposure and provide the opportunity for the reduced 20 percent capital gains rate on future sales of real estate.
Before we discuss the least to most optimal U.S. real estate structures for NRAs, we must touch on a very important U.S. statutory regime that applies to NRAs and foreign corporations that directly or indirectly own real estate in the United States. This regime is known as the Foreign Investment in Real Property Tax Act of 19804 (FIRPTA). FIRPTA, as codified principally in Internal Revenue Code (IRC) §§897 and 1445, governs the taxation of dispositions of U.S. real property interests (USRPI) by foreign persons. I.R.C. §897(a) generally requires gain or loss from the disposition of a USRPI by a foreign person to be taken into account as if the foreign person were engaged in a trade or business within the U.S. during the taxable year and as if such gain or loss were effectively connected with such trade or business.5 As a result, recognized net gains generally are subject to U.S. federal income tax at graduated rates.6 The term “USRPI” generally means an interest (other than an interest solely as a creditor) 1) in real property located in the United States or the Virgin Islands; or 2) in a U.S. corporation that is (or, during the five-year period preceding the disposition of the interest, was) a U.S. real property holding corporation (USRPHC).7 In general, a U.S. corporation is a USRPHC if the fair market value of the corporation’s U.S. real property interests equals or exceeds 50 percent of the aggregate FMV of 1) its USRPIs; 2) its interests in real property located outside the United States; and 3) its other assets that are used or held for use in a trade or business.8
To enforce the substantive tax rules in I.R.C. §897, I.R.C. §1445 imposes on a transferee (i.e., the buyer) the obligation to withhold when 1) the transferor of the property is a foreign person; and 2) the property transferred is a USRPI.9 When withholding is required, the buyer of the USRPI generally must deduct and withhold 15 percent of the purchase price.10 In addition, an exception to the withholding requirement may apply when a taxpayer disposes of a USRPI in an exchange that qualifies for nonrecognition treatment, such as a 1031 exchange or tax-free corporate reorganization.11
• NRA Directly Owns U.S. Real Estate — NRAs commonly directly own U.S. real estate. If the NRA ever decides to sell the U.S. real estate, he or she should generally be eligible to receive the reduced capital gain rates on the sale of the real property held for longer than a year.12 However, the NRA will be subject to FIRPTA tax withholding on the sale, which will require that the buyer withhold 15 percent of the amount of the sales price. Absent an exception, FIRPTA will apply even if the real estate is sold at a loss or small amount of gain.
If the NRA were to die owning the U.S. real estate, the U.S. real estate would be subject to U.S. federal estate tax at rates up to 40 percent of the value of the property to the extent its fair market value exceeded $60,000. The decedent’s beneficiary would be entitled to a step-up in the adjusted basis of the real estate, which would cause the adjusted basis to equal the fair market value of the real estate in the hands of the beneficiary.13 The step-up generally is a favorable result if the real estate has appreciated in value. receiving the step-up in basis, if the NRA were to turn around and immediately sell the U.S. real estate, he or she would likely have minimum gain, if at all. In contrast, if the property depreciated in value, the decedent’s beneficiary would receive a step-down, which would be a bad result.
If the NRA gifts the U.S. real estate, the NRA should be subject to U.S. federal gift tax at rates up to 40 percent of the full fair market value of the real estate.14 If the real estate has appreciated in value, the donee recipient would not receive a stepped-up adjusted basis in the real estate, but rather would take an exchanged basis in the asset, potentially further increased by the amount of gift tax paid on the transfer.15 This is often an extremely harsh result.
One additional negative aspect of direct real estate ownership is that the real estate should be subject to probate. This process can be long, tedious, and expensive. Moreover, all privacy is lost with respect to the asset because it will become subject to disclosure in public record. One method to prevent probate is for the NRA to indirectly own the U.S. real estate through a properly drafted trust.
• NRA Owns U.S. Real Estate Through a Foreign Corporation — Another common scenario is one in which an NRA owns a foreign corporation that owns U.S. real estate. Like the first scenario, the disposition of the real estate by the foreign corporation would also be subject to FIRPTA.16 However, this scenario differs from the first scenario for several reasons. First, the NRA should not be considered to own a U.S.-situs asset for U.S. federal estate or gift tax purposes. Therefore, a transfer of the foreign corporation by gift or bequest should not trigger U.S. federal estate or gift tax liability. Also, if the NRA dies, his or her interest in the foreign corporation should not be subject to probate. While these factors are certainly beneficial, this scenario contains factors that are equally, if not more, detrimental.
First, the sale of the property by the foreign corporation would be subject to higher U.S. federal corporate tax rates. Specifically, corporations are subject to U.S. federal tax at rates up to 35 percent, plus applicable corporate income tax rates, such as the Florida corporate income tax. Second, the sale of the property by the foreign corporation may additionally trigger the branch profits tax, which places the foreign corporation on the same footing as if it were a domestic corporation.17 The branch profits tax is imposed at a flat rate of 30 percent on amounts deemed repatriated out of the U.S.18 Finally, the foreign corporation will not receive a stepped-up adjusted basis in the underlying U.S. real estate upon the death of the NRA. If the beneficiary is a U.S. person, this structure can be extremely troubling because there are special anti-deferral rules that apply to U.S. persons that hold property through foreign corporations that can cause such U.S. persons to have phantom income inclusions.19
• NRA Owns U.S. Real Estate Through a Series of Corporations — Similar to the first and second scenarios, this scenario also will be subject to FIRPTA withholding tax when the foreign corporation disposes of its shares in the domestic corporation because the domestic corporation is considered to be a USRPHC. This scenario shares the two advantages in the second scenario (no U.S. federal estate or gift tax exposures and prevention of probate), but contains one additional advantage — it prevents the 30 percent branch profit tax because the property is held through a domestic corporation. Instead, a 30 percent tax (subject to reduction by treaty) will apply to fixed, determinable, annual, or periodical income, such as dividends or interest paid by the domestic corporation.20 This tax is commonly referred to as the FDAPI tax.
The main disadvantages of this structure are that the sale by the foreign corporation of the property will be subject to U.S. federal corporate tax, plus applicable state and local tax. Second, the foreign corporation would be subject to tax on current dividends paid by the domestic corporation. Finally, the decedent’s beneficiary will receive a step-up in the adjusted basis of the foreign corporation, rather than a step-up in the adjusted basis of the underlying U.S. real estate.
• NRA Owns U.S. Real Estate Through a Two-Tier Partnership Structure — Unlike the others, this structure provides both benefits of an optimal ownership structure. Essentially, the NRA will own a majority interest in a foreign partnership that owns a majority interest in a domestic partnership, which in turn owns an interest in U.S. real estate. Specifically, this method of ownership should substantially reduce the U.S. federal income tax rate that otherwise would result upon the subsequent sale of the underlying U.S. real estate. This is so because the real estate is owned through partnerships, which are transparent for U.S. federal tax purposes. The income earned by a partnership flows through to its beneficial owner, which in this case would be an NRA. So long as the U.S. real estate is held for longer than one year, the NRA should be subject to long-term capital gain rates up to 20 percent on the gain from a subsequent sale of the real estate. The Florida corporate income tax would not apply in this scenario. Second, this structure should prevent FIRPTA withholding tax if the domestic partnership sells the U.S. real estate for a gain because a different withholding tax regime would apply, which imposes tax on the gross amount of gain recognized on the sale rather than imposing withholding tax on the amount realized (i.e., sale proceeds).21 Third, the branch profits tax potentially applicable to a foreign corporate seller should not apply because there is no foreign corporation involved in the structure in which branch profits tax can be imposed. Fourth, upon the NRA’s death, the property may qualify for a “date-of-death value” because the two partnerships (unlike corporations) may be able to make a special election to step-up the basis of the underlying real estate to its then current fair market value.22 Fifth, the bequest by the NRA decedent of the foreign partnership interest may be exempt from U.S. federal estate tax.23 Finally, if the NRA gifts its interest in the foreign partnership, it should not trigger U.S. federal gift tax exposure because the partnership interest should be intangible property not subject to U.S. federal gift tax.24
Immigration Into the United States
Prior to immigration into the U.S., an NRA can enter into planning that can result in significant income and estate and gift tax benefits. Missing this opportunity may prove to be costly. From an income tax perspective, a nonresident should restructure his or her holdings to ensure that he or she owns assets in a tax efficient manner. Specifically, NRAs should eliminate investments in passive foreign investment companies (PFIC) because once the individual becomes a U.S. tax resident, such investments are subject to a punitive tax regime. Further, NRAs should ensure that interests in greater than 50 percent U.S.-owned foreign corporations would not earn so-called “subpart F” income. Finally, depending on a number of factors, such as the applicable foreign tax rates, the type of income earned, the types of assets owned, and the expected frequency of dividend payments, the NRA should decide prior to immigrating whether to operate in a corporate structure (i.e., one in which one or more foreign entity is respected as a corporation for U.S. tax purposes) or in a flow-through structure (i.e., a fiscally transparent structure).
The estate and gift tax laws also present a whole other set of considerations. Prior to obtaining domicile in the U.S., a nondomiciled individual is only subject to U.S. estate and gift tax on U.S.-situs property, such as directly owned U.S. real property interests. However, after becoming a U.S. domiciliary, the same individual would become subject to U.S. estate and gift tax on the transfer of assets owned by such individual regardless of its situs. As such, non-U.S. domiciliaries who are planning to come and stay indefinitely in the United States have significant tax planning opportunities to reduce their U.S. federal gift and estate tax liabilities prior to becoming U.S. domiciliaries.
One of the most common techniques used by non-U.S. domiciliaries coming into the U.S. is funding a preimmigration planning trust. A non-U.S. domiciliary may make completed gifts of intangible personal property into such trust prior to becoming a U.S. domiciliary. These transfers are not subject to U.S. federal gift tax and in a properly drafted trust deed the assets are sufficiently out of the individual’s control so as not to be subject to U.S. federal estate tax upon death. Thus, the assets transferred prior to immigration into the trust should not be subject to U.S. estate tax for generations to come.
Generally, preimmigration planning trusts are drafted to be domestic trusts for U.S. federal income tax purposes because for individuals planning on becoming NRAs, or for individuals whose beneficiaries are NRAs, foreign trusts can lead to adverse U.S. federal income tax consequences to a U.S. settlor or U.S. beneficiary. A trust will be considered a domestic trust if it passes a two-prong test: 1) A court within the United States is able to exercise primary supervision over the administration of the trust (the “court test”); and 2) one or more U.S. persons have the authority to control all substantial decisions of the trust (the “control test”).25 If a trust does not meet both tests, the trust will be considered a “foreign” trust.
In recent years, there has been a growing use of domestic asset protection trusts in pre-immigration trust planning. In 1997, Alaska and Delaware were the first states to enact legislation that provided for asset protection and currently, more than 15 states allow for the formation of asset-protection trusts. Such asset protection trusts provide non-U.S. domiciliaries the gift and estate tax planning opportunities discussed above, with the additional benefit that the settlor may be a discretionary beneficiary of such trust without causing the assets to be includible in the settlor’s taxable estate. Moreover, another important benefit of asset protection trusts is to protect the assets of the settlor from future creditors. Hence, asset protection trusts provide the unique ability for the settlor to continue to benefit from the trust assets and their income during the settlor’s lifetime, while shielding those assets from the settlor’s creditors and the U.S. federal estate tax.
Foreign Trusts with U.S. Citizen or Resident Beneficiaries
For NRA’s, establishing and funding a foreign trust with non-U.S.-situs assets generally does not trigger any U.S. federal income tax consequences. It is not uncommon for a nonresident patriarch or matriarch to create a foreign trust to benefit his or her descendants. However, this common scenario is likely troublesome when those beneficiary descendants are U.S. tax residents or citizens (U.S. beneficiaries). Foreign trusts with U.S. beneficiaries trigger certain U.S. reporting obligations that may result in costly penalties for failure of compliance. Moreover, a foreign trust that is treated as a nongrantor trust for U.S. federal tax purposes may expose U.S. beneficiaries to certain negative U.S. federal income tax consequences. As such, when dealing with U.S. beneficiaries of foreign trusts, it is important to be aware of these punitive U.S. tax consequences.
In general, a nongrantor trust is a separate taxable entity for U.S. federal income tax purposes.26 This is to be contrasted with a grantor trust, a trust in which income is deemed to be earned directly by its settlor. A trust with a settlor who is an NRA will generally be treated as a grantor trust only if one of the following applies: 1) The settlor has the power to revest absolutely the title to the trust property for himself; or 2) the only amounts distributable from the trust during the lifetime of the settlor are distributable to the settlor or to the settlor’s spouse.27 A trust that does not qualify under either of the foregoing two requirements is a nongrantor trust. Due to the narrow situations in which a foreign-settled trust is treated as a grantor trust, most foreign trusts are treated as nongrantor trusts.
The U.S. tax rules for nongrantor trusts with U.S. beneficiaries are designed to 1) allocate the taxable income of the trust between the trust and its beneficiaries; and 2) ensure that such income is taxed only once. The principal mechanism for achieving these objectives is the concept of distributable net income (DNI). Generally, DNI is the taxable income of the trust for U.S. federal income tax purposes without taking into account certain deductions.28 A U.S. beneficiary who receives a distribution from a foreign nongrantor trust will generally include in his or her taxable income the amount of the trust’s DNI that is distributed to such beneficiary (or required to be distributed to such beneficiary, in the case of a simple trust). Further, the character of the DNI received by the trust (such as interest, dividends, or capital gains) carries over to the U.S. beneficiary.29
If and to the extent that a foreign nongrantor trust does not distribute (and is not required to distribute) DNI to its beneficiaries, such that the DNI is accumulated in the trust, it will become undistributed net income (UNI).30 U.S. beneficiaries who receive distributions of UNI from a foreign nongrantor trust may be subject to onerous U.S. income tax treatment on the distribution, which is designed to throwback the income distribution to the year in which the income was earned. These throwback rules may penalize the U.S. beneficiary in two ways. First, the distribution of UNI is taxed to the U.S. beneficiary as ordinary income (taxable at rates up to 39.6 percent), even if the UNI represents gains accumulated in a prior year that might have otherwise been subject to preferential long-term capital gains rates. Second, the U.S. income tax on the distribution is subject to an interest charge,31 calculated on a compounding basis, that is intended (in a punitive manner) to charge the U.S. beneficiary as if he or she had owed the U.S. tax for the prior year in which the UNI was earned in the foreign trust.32 The combination can result in a tax as large as the distribution itself because the longer UNI accumulates in a trust, the higher the interest charge. Generally, when a distribution is made from a foreign nongrantor trust, current income and gains (DNI) are deemed to come out first (to the extent available), and then UNI. Distributions in excess of current year DNI and all UNI are not taxable to a U.S. beneficiary (such distributions are effectively treated as a distribution of nontaxable corpus).33
The IRC includes a number of anti-abuse rules, applicable to foreign trusts. First, the rent-free use of real estate owned by a foreign nongrantor trust by a U.S. beneficiary could be treated as a taxable distribution of the rental value of the property. Such issue is prevented if the U.S. beneficiary pays market-value rent for the use of the property. Additionally, if a foreign trust lends money (including foreign currencies and cash equivalents) or marketable securities to a U.S. grantor, a U.S. beneficiary, or a U.S. person related to a U.S. grantor or U.S. beneficiary, then, except in the case of a qualified obligation,34 the full amount of the loan is treated as distributed to the grantor or beneficiary.35
Conclusion
As the world becomes more global, the frequency of international transactions has increased. This article discusses merely a few examples of common inbound transactions that provide the potential to provide significant tax planning benefits to clients. An upfront discussion with tax counsel is recommended to prevent steering clients down an expensive path.
1 All references are to the Internal Revenue Code of 1986, as amended. A nonresident alien individual is one who is not a U.S. citizen, green card holder, or does not spend a significant amount of days per year in the U.S. See I.R.C. §7701(b).
2 A domiciliary for U.S. federal estate and gift tax purposes is an individual who at the time of his or her death or when a gift is made had or has domicile in the U.S. U.S. citizens are considered U.S. domiciliaries. U.S. domiciliaries may also include nonresident individuals for U.S. federal income tax purposes. Therefore, a non-U.S. domiciliary means an individual that is neither a U.S. citizen nor considered to have his or her domicile in the United States at the time of death. The determination of whether a nonresident individual is a domiciliary of the United States is subjective in nature, requiring an examination of the surrounding facts and circumstances.Specifically, to be a U.S. domiciliary requires the individual to be physically present in the United States with the intent to remain there indefinitely. See Treas. Reg. §25.2501-1(b); see also Estate of Jack v. U.S., 54 Fed. Cl. 590 (2002), citing Mitchell v. U.S., 88 U.S. 350 (1874).
3 See Treas. Reg. §20.2105-1(f).
4 Omnibus Reconciliation Act of 1980, Pub. L. No. 96-499.
5 I.R.C. §897(a)(1). Gain or loss from the disposition of a USRPI is determined under the general rules in §1001. Treas. Reg. §1.897-1(h).
6 See I.R.C.§§871(b), 882(a)(1).
7 I.R.C. §897(c)(1)(A); Treas. Reg. §1.897-1(c)(1). See also Treas. Reg. §§1.897-1(b) (defining “real property”) and 1.897-1(d) (defining “interest other than an interest solely as a creditor”); see I.R.C. §897(c)(1)(A)(ii) (providing that the term USRPI includes an interest in a USRPHC).
8 I.R.C. §897(c)(2); Treas. Reg. §1.897-2(b)(1).
9 I.R.C. §1445(a).
10 I.R.C. §1445(a). See also Treas. Reg. §1.1445-1(g)(5) (defining the term “amount realized” for purposes of §1445). On December 18, 2015, Congress passed the Protecting Americans from Tax Hikes Act of 2015 (Pub. L. 114-113) (PATH Act), which increased the FIRPTA withholding tax to 15 percent. Special withholding rules may apply in certain situations. See §§1445(e), 1446.
11 See Treas. Reg. §§1.1445-2(d)(2), 1.1445-5(b)(2). See also I.R.C. §897(e) and Treas. Reg. §1.897-6T for rules regarding the applicability of nonrecognition provisions to USRPI dispositions.
12 Income from capital gains is subject to U.S. federal income tax at federal tax rates up to 20 percent. I.R.C. §1(h).
13 I.R.C. §§1014(a)(1), (b)(1). For U.S. federal income tax purposes, the tax basis of an asset for purposes of determining the gain or loss upon a sale or taxable exchange of the asset is usually the amount paid by the owner for the asset, i.e., cost basis. In contrast, the tax basis of an asset acquired from a decedent by bequest, devise, or inheritance is generally adjusted to be equal to the asset’s fair market value on the date of the decedent’s death. stepping up the tax basis of an appreciated asset to its value on the date of the settlor’s death, the amount of gain realized by the trust on a later sale of the asset will be reduced.
14 See I.R.C. §§2501(a) and 2511(a).
15 See generally I.R.C. §1015.
16 If the NRA were to sell the shares of the foreign corporation, then the sale generally would not be subject to FIRPTA. However, as a practical matter, an NRA would have an extremely difficult time selling to a buyer the shares of a foreign corporation that holds appreciated property.
17 A domestic corporation would be subject to U.S. federal corporate tax on sale (the first layer of tax). Subsequently, when the corporation distributes the proceeds from the sale to its shareholder, the shareholder would be subject to U.S. federal income tax on the distribution (the second layer of tax). If the branch profits tax did not apply, then the second layer of tax would be avoided because, generally, distributions from foreign corporations to foreign shareholders are generally not subject to U.S. federal tax. But see I.R.C. §861(a)(2)(B) (requiring certain dividends from foreign corporations that are effectively connected to a U.S. trade or business to be subject to U.S. federal tax).
18 See I.R.C. §884. The 30 percent branch profits tax rate can be substantially reduced pursuant to the terms of an applicable income tax treaty.
19 Under subpart F of the Code, certain types of income earned by a controlled foreign corporation (CFC) are taxable to the CFC’s U.S. shareholders in the year earned, even if the CFC does not distribute the income to its shareholders in that year. Subpart F operates by treating a U.S. shareholder as if the shareholder had actually received the income from the CFC. The income of a CFC that is currently taxable to its U.S. shareholders under the subpart F rules is referred to as “subpart F income.” A foreign corporation is a CFC if more than 50 percent of its stock (by vote or value) is owned by U.S. persons (as defined in I.R.C. §7701(a)(30)), each owning or deemed to own at least 10 percent or more of the stock (by vote or value). See I.R.C. §957. If the CFC rules apply, the U.S. person is treated as receiving annually a deemed distribution of his pro rata share of the net “subpart F income” (e.g., passive investment-type income and certain other types of income) of the foreign corporation, whether or not those earnings are actually distributed to him. See §951. He or she must pay tax at ordinary income tax rates (up to 39.6 percent) on such deemed distribution. Thus, if a U.S. person owns an interest in a CFC, and the CFC earns certain passive income, such as interest, dividends, rents, and royalties, the U.S. person would be subject to tax on his pro rata share of such income earned during the calendar year.
20 This includes interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income. See I.R.C. §871(a)(1)(A). FDAP income typically is subject to a flat 30 percent withholding tax rate (absent an applicable U.S. income tax treaty), without allocable deductions, depending on the type of U.S.-source income.
21 See Treas. Reg. §1.1446-3(c)(2). If the U.S. real property is sold for a loss, then §1445 withholding should be applicable.
22 I.R.C. §§743(a) and 754 election.
23 See Robert F. Hudson, Jr., The U.S. Tax Effects of Choice of Entities for Foreign Investment in U.S. Real Estate and Businesses and the Taxation of Dispositions of U.S. Partnership Interests (2006), available at http://www.iirusa.com/upload/wysiwyg/U1986/IIR_U1986_Hudson.pdf.
24 I.R.C. §2501(a)(2).
25 I.R.C. §7701(a)(30)(E).
26 See generally I.R.C. §§641(a), 661, 662.
27 I.R.C. §672(f)(2)(A).
28 I.R.C. §643(a).
29 I.R.C. §662(b).
30 I.R.C. §665(a); Treas. Reg. §1.665(a)-1A(b).
31 I.R.C. §668.
32 I.R.C. §667.
33 I.R.C. §665(b); I.R.C. §666.
34 The requirements for a loan to be treated as a qualified obligation are set forth in IRS Notice 97-34. Generally, it is any obligation that is 1) in writing; 2) has a maturity that does not exceed five years (and cannot be extended); 3) all payments are made only in U.S. dollars; and 4) the yield to maturity is between 100 and 130 percent of the applicable adjusted federal rate.
35 I.R.C. §643(i).
Pratiksha R. Patel is an associate in Baker & McKenzie’s tax practice group. She focuses her practice on international tax, with special emphasis on trust and estate planning, preimmigration tax planning, and structuring investments of foreign individuals and companies in the United States.
Steven Hadjilogiou is a partner in the firm’s tax practice group. He focuses his practice on inbound and outbound international tax issues, with emphasis on transfer pricing, intellectual property, subpart F, foreign investment in U.S. real property, the taxation of partnerships, corporations, international corporate reorganizations, and high-net-worth clients, and state and local tax.
Michael J. Bruno is an associate in the firm’s tax practice group. He focuses his practice on international tax planning, wealth management, and general corporate and partnership taxation. Bruno advises clients on mergers, acquisitions, restructurings and divestitures in a variety of business contexts, including with respect to investments in U.S. real estate.
This column is submitted on behalf of the Tax Law Section, William Roy Lane, Jr., chair, and Christine Concepcion, Michael Miller, and Benjamin Jablow, editors.
