Disposing of a Foreign Disregarded Entity: Tax Challenges and Reporting Requirements

Calculating and reporting the gain or loss from the sale of a business is complicated. Selling a foreign entity adds additional reporting requirements and complexity. Paramount to the calculation is the nature of the business and how it is held. Like sales of U.S. businesses, whether the business is a DRE, corporation, branch, or another entity affects the calculations and tax considerations. This webinar focuses on the potential U.S. tax implications arising from a sale of foreign disregarded entity.

On top of the familiar issues like the character and source of gain, there are unique tax issues like Code Section 469 passive loss considerations, Overall Foreign Loss, reporting, election, and tax considerations practitioners should be aware of when taxpayers dispose their overseas businesses. In addition to a multitude of complex tax considerations, information reporting obligations must be considered. For example, there can be additional reporting obligations on Form 8594 to report an asset sale by category under Section 1060 or Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs). International tax practitioners need to be familiar with the numerous tax challenges surrounding the disposition of foreign holdings.

Listen as our panel of international tax reporting experts points out how to minimize the taxes paid on the disposition of a foreign entity and comply with reporting obligations for international tax advisers and taxpayers doing business abroad.

1. Dispositions of a foreign disregarded entity
2. Specific tax considerations by entity type
3. Income tax considerations
   • Section 1060 asset sales
   • Section 469 passive loss limitations
   • Foreign tax credit limitations
4. Examples

The panel will review these and other critical issues:

• The manner in which the following tax items are determined:
  • The character of the gain arising from the sale transaction, as either long-term capital gain or ordinary income,
  • The manner of bifurcating the gain between those two categories,
  • The tax rate applicable to each type of income category, and
  • The source of the resulting long-term capital gain and ordinary income for purposes of applying the foreign tax credit provisions of U.S. tax law for income taxes paid to Spain in connection with the transaction.
• The extent to which Mr. A may deduct the deferred losses from the Resort V business that have been reported on U.S. Federal income tax returns filed for each year in which Resort V was owned against the gain arising from the sale of the shares of S Co in view of the limitations imposed by the Passive Activity Loss rules under Code §469.
• The extent to which Mr. A may deduct the deferred losses from the Resort V business that have been reported on U.S. Federal income tax returns filed for each year in which Resort V was owned against the gain arising from the sale of shares of S Co in view of the limitations imposed by the foreign tax credit rules under Code §904 and its regulations.

Learning Objectives

After completing this course, you will be able to:

• Identify taxpayers that might benefit from a 338(g) election
• Determine the tax consequences of disposing of a PFIC
• Decide when a CFC could be subject to dividend treatment under Section 1248(a)
• Ascertain what additional reporting obligations might be needed for sales of foreign entities

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of international taxation including residency determination, foreign entity classifications, application of treaty benefits, as well as GILTI, Subpart F, and the related Section 250 deductions.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).