Visiting the Committees

• Jurisdiction: United States,Federal,California
• Citation: Vol. 31 No. 2
• Publication year: 2022

VISITING THE COMMITTEES

COMMENTARY AND UPDATES BY THE COMMITTEES

CORPORATE AND PASS-THROUGH ENTITIES COMMITTEE

The Corporate and Pass-Through Entities Committee focuses on issues faced by corporate taxpayers and provides opportunities for practitioners and corporate tax counsel to maintain a level of expertise in the field of corporate tax law, expand their professional contacts, and serve the profession, the public and the legal system. Membership in the Committee offers practitioners information on developments with respect to corporate and business tax and a greater voice on developments in such legislation.

COMMITTEE ACTIVITIES

Generally, the Committee holds monthly meetings via teleconference and interested members of the Tax Section are welcome to participate. The Committee is sponsoring a four-part webinar CLE/CPE series on various partnership tax topics. In addition, members and other interested parties are welcome to submit articles for Quick Points on Corporate and/or Pass-through topics of general interest to the members of the Taxation Section. For more information regarding upcoming meetings and events should contact the Committee Co-Chairs Cameron Hess at (916) 920-5286 or chess@wkblaw.com, Asaf Kletter at asaf.kletter@ey.com

QUICK POINT

On June 18, 2019, the IRS issued final regulations (T.D. 9868), retroactively amending Treas. Reg. § 1.641(c)-1 (to December 31, 2017) to require an electing small business trust ("ESBT") to include S corporation income in the S-portion of the ESBT, reallocated from the grantor portion, if any income was allocated to a non-resident alien ("NRA")-deemed owner of a grantor ESBT, under certain circumstances described below. Any included income is taxed at the highest individual tax rate. The amended regulations addressed "abuse", the possibility that S corporation income may escape federal taxation where attributed to the grantor portion of the ESBT and received by an NRA.

As background, regulation § 1.641(c)-1 treats an ESBT as two separate trusts for tax purposes (three if it is a grantor trust): the S-portion; and, non-S portion and the grantor portion. Prior regulations provided that if the grantor is also the sole beneficiary of the grantor ESBT, all of the ESBT falls under the grantor portion and none of the ESBT is treated as the S-portion. The 2017 Tax Cuts and Jobs Act ("TCJA") allowed an NRA to become a potential current beneficiary ("PCB") of an ESBT, permitting NRAs to be indirect holders of S corporation stock (prior to the TCJA, an NRA owner would have caused S corporation status to be terminated).

Thus, where S corporation stock was deemed held by the grantor portion of the ESBT, the S corporation's ordinary income would be taxed to the NRA under IRC § 1. The S corporation's capital gains (if NRA was present in the U.S. for 183 days or more) would be taxed per § 871(a). Both ordinary income and capital gains would be reported on the NRA's form 1040-NR. If the NRA was not present in the U.S. for less than 183 days, capital gains of the S corporation would not be taxed. If there were no S corporation, the NRA would be taxed in a similar fashion.

Following amendment, capital gains of NRAs (present in the U.S. for 183 days or less) are no longer tax-free

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under IRC § 871, but are now the ESBT's taxable income, changing § 871(a) treatment of capital gains to NRAs. The new treatment under the regulations to prevent avoidance is concerning: the TCJA Senate Report specifically states that the "Committee believes that allowing a nonresident alien individual to be a potential current beneficiary of an ESBT presents little risk of tax avoidance."

—Michael Tajima San Diego

ESTATE AND GIFT TAX COMMITTEE

The Estate and Gift Tax Committee is comprised of attorneys throughout the State of California who devote a significant portion of their practice to understanding the evolving areas of estate and gift tax planning, drafting, compliance, and controversy work. One of the primary functions of the Committee is to provide valuable, informative, high quality continuing education programs on behalf of the Taxation Section. Throughout the year, the Estate and Gift Tax Committee also hosts quarterly conference calls to organize committee activities.

If you are interested in becoming a member, submitting a topic on which to speak or write, please, would like join the conference calls, or of if you are interested in joining the leadership, please contact the Estate and Gift Tax Committee Chair, Eric A. Baggett at eric.baggett@bofa.com, or David Oh, Vice-Chair, at david.oh@schab.com.

COMMITTEE ACTIVITIES

Throughout the year, the Estate and Gift Tax Committee hosts other quarterly conference calls to organize committee activities. If you would like to join the conference calls of if you are interested in joining the leadership of the Estate and Gift Tax Committee please contact Eric A. Baggett at eric.baggett@bofa.com.

INCOME AND OTHER TAXES COMMITTEE

The Income and Other Taxes Committee provides an outlet for its members to actively participate in the Taxation Section with respect to issues relating primarily to federal income taxation. The Committee's mission is to: (i) promote dialogue and maintain the expertise of its members through the annual provision of continuing education with respect to recent developments on various income (and other) tax issues; and (ii) provide a networking forum for members to expand their professional contacts. The Committee also holds monthly meetings by teleconference on an ad hoc basis, so please reach out to the Committee Chair, Matthew Carlson, at mcarlson@boutinjones.com to confirm the date and time of the next Committee meeting if you are interested in participating.

COMMITTEE ACTIVITIES

Please contact the Committee Chair, Matthew Carlson, at mcarlson@boutinjones.com for information on joining the Income and Other Taxes Committee, participating in the 2022 Annual Income Tax Seminar, or participating in future Income and Other Taxes Committee submissions and projects. The Committee holds monthly meetings by teleconference on an ad hoc basis, so please reach out to the Committee Chair at mcarlson@boutinjones.com to confirm the date and time of the next Committee meeting if you are interested in participating.

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INTERNATIONAL TAX COMMITTEE

The International Tax Committee is an integral part of California's international tax practice, providing a unifying forum in which to address the tax considerations of individuals, trusts, and business enterprises, whose members and activities cross international borders. The Committee works with the AICPA foreign trust task force and international tax technical resource panel to liaise with the IRS for various projects, including comments for regulations, modifying tax forms and developing new forms, and easing administrative burden while increasing compliance.

COMMITTEE ACTIVITIES

On October 6, 2021, members of the International Tax Committee hosted a Webinar entitled "All You Need to Know About Cryptocurrency Before October 15th." The Webinar provided a basic understanding of cryptocurrency and new reporting requirements. The Webinar was presented by James Creech and moderated by Paloma Armella Alvarez and John Miles.

On November 18, 2021, William Norman and Alexander Lee presented the Webinar "Tax Aspects of Cross Border Mergers, Acquisitions and Restructurings of Closely Held Business Enterprises-Part Two". The webinar was moderated by Thomas Giordano.

The International Tax Committee generally holds meetings at least quarterly via video conference (i.e., Zoom, Microsoft Teams). We always welcome members to submit articles for Quick Points on international tax topics.

If you would like to participate in our quarterly conference calls, submit articles for a future Quick Points, or just want information on current committee activities, please contact the International Tax Committee Chair, Raúl Villarreal Garza, at raul.villarrealgarza@procopio.com or (619) 525-3874.

QUICK POINTS THE FIRST YEAR OF INTERNATIONAL REPORTING ON THE NEW SCHEDULES K-2 AND K-3 FOR PASS-THROUGHS

For tax years beginning in 2021, the IRS will generally require new Schedules K-2, Partners' Distributive Share Items-International, and K-3, Partner's Share of Income, Deductions, Credits, etc.-International, for persons filing Forms 1065...