Wednesday, 1 June 2016

Delaware and Florida LLPs and LLLPs deemed corporations for Canadian Income Tax Purposes

State legislation authorizing limited liability partnerships (LLPs) and limited liability limited partnerships (“LLLPs) are more recent than the legislation authorizing limited liability companies. And in recent years LLLPs are seen more in cross-border structure including a tower structure described in CRA Ruling 2010-0386201R3. CRA however did not comment in that ruling on how the LLLP would be viewed in Canada – i.e. would it be viewed as a partnership or as a corporation. In a partnership, partners are jointly and severally liable for the partnership debts. In a limited partnership, it is the general partner that is subject to the liability of the partnership. In a limited partnership, a limited partner is shielded from another partner’s errors, omissions, negligence or malfeasance provided that the partner was not directly involved in the other partner’s activity or had knowledge of the activity at the time of occurrence. A general partner in a limited partnership however does not enjoy the same protection as a limited partner and is not shielded from the negligence of his/her partners. Partnerships in the US are governed by State law similarly to Canada where provincial legislation governs partnerships. When a limited partnership becomes an LLP or an LLLP all partners qualify for the limited liability protection. LLPs in the US have to be registered in the State under which they are formed and where such entity carries on business. LLP legislation tend to be based of the Revised Uniform Partnership Act (1994)(RUPA) however LLP legislation is not uniform from State to State. For example certain States including New York, New York and Nevada only permit professionals to use a limited liability partnership – this is similar to Canada. In other States one does not have to be a group of professionals in order to qualify as an LLP. Attempts have been made to ensure that LLP legislation is uniform across the States and in 1996 there was an attempt to unify the LLP legislation across the States by promulgating Limited Liability amendments (ULLPA) to the RUPA. However some States follow RUPA while others follow the ULLPA amendments. This lack of uniformity has resulted in some States with legislation imposing corporate characteristics on that State's LLP or LLLP. This is why CRA did not blankly deem all LLPs/LLLPs to be a corporation for Canadian income tax purposes and singled out for now the Florida and Delaware LLP/LLLPs. CRA did allow transitional provisions absent tax avoidance to allow Florida and Delaware LLPs and LLLPs to be treated as partnerships retroactively if the following conditions are met: - The partners of the LLP/LLLP are carrying on a business with a view to profit; - The Florida/Delaware LLP/LLLP was formed prior to July 2016 and the - LLP/LLLP will convert to a partnership recognizable as a partnership by the CRA before 2018.

Friday, 26 February 2016

U.S. Streamlined Foreign Offshore Procedures Certification update – IRS Form 14653

In January 2016 the IRS released a revised Form 14653 Certification by U.S. Person Residing Outside of the United States for Streamlined Foreign Offshore Procedures, which includes new directions concerning the required narrative disclosure.
A US taxpayer residing outside of the United States is eligible to file under the streamlined foreign offshore procedures if she meets (1) the non-residency requirement and (2) wilfully failed to file FBARs, report income from a foreign financial asset, or pay tax as required by US law. Non-wilful conduct is discussed in Non-Wilful Conduct and IRS Compliance. (See “Non-Wilful Conduct and IRS Compliance”, Canadian Tax Highlights August 2014). Form 14653 is crucial because it certifies that a taxpayer or an estate did not wilfully or deliberately fail to file a US return or FBAR or report income and pay tax. Revised form 14653 and the IRS Streamlined Filing Compliance Procedures for U.S. Taxpayers Residing Outside of the United States Frequently Asked Questions and Answers (question #6) now require a more robust answer that shows that the taxpayer’s conduct was not willful. Both the FAQ and form 14653 (printed in boldface) now require the following:

Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts. Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment/management decisions. Provide a complete story about your foreign financial account/asset. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. 

Revised form 14653 now also requires that a taxpayer certify whether she was out of the United States for at least 330 days in any or all of the three years for which the US tax return due date has passed.  
The comprehensive information sought by the IRS may indicate that the IRS is becoming less patient with taxpayers who have not come forward since the program began in 2009. The above disclosure regarding failure to file, report, or pay also illustrates the difficulty in establishing non-wilful conduct for failure to file a US income tax return or an FBAR or report income and pay tax. A taxpayer should also be cautioned that certification is deemed made under penalty of perjury: the IRS can seek a felony conviction, a maximum fine of $100,000, and/or up to 3 years imprisonment (Code section 7206) against a taxpayer who wilfully makes an incorrect statement. Under Code section 7207 the IRS can also impose a maximum penalty of $10,000 or up to one year’s imprisonment for wilfully providing a false statement.

Thursday, 11 February 2016

New IRS Information Return Filing Obligation for beneficiaries of a US Estate.

Beneficiaries of a US estate must now file IRS return form 8971 which can be found here:

Wednesday, 6 January 2016

Country by Country Proposed Regs Released by the US Treasury

The proposed country by country reporting regs are out. See for a good discussion on the new rules.