Professional Tax Articles

Proposed foreign tax credit regulations

In light of the Tax Cuts and Jobs Act passed last December, the IRS has issued proposed regulations for both businesses and individuals in regards to foreign tax credits.  The TCJA includes several significant changes on how the government taxes foreign activities. The proposed regulation issued earlier this week includes information and rules to help taxpayers and tax preparers determine taxable income from offshore sources.

The changes in the taxation of foreign activities includes the repeal of rules for determining foreign tax credits on dividends on the basis of foreign subsidiaries’ aggregate earnings and foreign taxes.  Additionally, the changes include the addition foreign tax credit limitation categories for foreign branch income.

Within the proposed regulations, there is a rule that marks some assets as partially exempt for expense allocation. There are also set rules on how to apply the new foreign tax credit changes under certain categories, while providing an elective transition rule, favorable to taxpayers, on the carrying over of foreign tax credits.

The TCJA has also changed how taxable income is figured for the foreign tax credit limitation; it disregards some expenses related to income eligible for the dividends-received deduction, while repealing the fair market value method of allocating interest expense.

Furthermore, the IRS and the Treasury Department are asking for public comments on these proposed rules and others.  The agency has begun making an active effort to engage the public through social media platform, Instagram. On the IRS taking these steps, Mitch Elbarki, CEO of Sigma Tax Pro states that this “…should signify more regulations…and it’s great to see the IRS finally stepping into the 21st century by involving the public in a proactive and much more modern manner.”

The new foreign tax credit rules apply to this year and future years. More information about the proposed rules can be found on the IRS website.

Professional Tax Articles

Guidance for income tax withholding

After deciding to delay changes to Form W-4 until 2020, the Internal Revenue Service released Notice 2018-92, which offers interim guidance on income tax withholding for 2019.  The IRS did release a draft version of a new Form W-4 earlier this year, however it was received with heavy criticism from accountants and professional tax preparers alike.

Groups such as the American Institute of CPAs raised concerns in relation to the draft version of the new W-4.  Concerns raised included: privacy, risk of underwithholding, and the issue of taxpayers predicting tax-items that have been known to be quite difficult to forecast.  Due to these criticisms, the IRS and Treasury Department have decided to postpone changes in the withholding form.

The notice released by the IRS also asks for comments from taxpayers on the new withholding rules and procedures.  Mitch Elbarki, CEO of Sigma Tax Pro states “…the IRS asking for public comments on new withholding procedures should signify that they plan on more regulations to withholding rules in relation to changes made by the Tax Cuts and Jobs Act.”  Elbarki also went on to clarify that “…this is significant in that further regulation means taxpayers and tax preparers need to stay tuned on developments until 2020, where form rules and procedures are expected to be solidified.”

In terms of its features, the new 2019 Form W-4 will be quite similar to the  2018 Form W-4. The new “withholding allowance” terminology in the tax law is also addressed in the new W-4.  Additionally, the new notice states that for 2019, the default rule when an employee does not provide a Form W-4, will continue to be single with zero withholding allowances.

The notice also allows taxpayers to take the qualified business income deduction into account.  This deduction, under section 199A, reduces withholding under section 3402(m) of the tax code. The IRS and the Treasury plan to update the regulations to specifically allow taxpayers’ use of the online withholding calculator instead of the worksheets to Form W-4.

The news site hosting this press release is not associated with Sigma Tax Pro. It is merely re-publishing a press release announcement submitted by a company, without any stated or implied endorsement of the product or service. Please always consult with a tax professional.