2010 06-17 - sf international taxation committee of cal cpa - firpta for cp-as-backwards

FIRPTA for CPAs (Backwards. In Less Than One Hour) Phil Hodgen • 626-437-2500 17 June 2010 • San Francisco

Real estate, forward • Buy • Hold • Sell

The moment of truth • “Whose name do I put on the grant deed as the owner?”

Real estate, backwards • Sale • Hold • Buy

Part I. The Sale

1. Get stuff signed

When Mama’s happy... • Broker (listing agreement) • Escrow ofﬁcer • Title ofﬁcer

Recommended • Limited power of attorney • Pre-approved by title ofﬁcer • Will be recorded

2. Withholding

Two problems • Not enough cash in the deal • Delay in getting refund

Refund delay • Time value of money problem • Interest income lost on expected refund?

Federal withholding • 10% of sale price • Reduce with Form 8288-B • IRS processing time: 5 months • 30 day escrow

California withholding • 3 1/3% of sale price • Form 597-W • I don’t generally bother (cost/beneﬁt)

3. Final tax returns

Final tax returns • Estimated payments needed? • Final tax returns required

Foreign corporations • Form 1120-F • Branch proﬁts tax (Form 1120-F, Part III) • Eliminate with Form 8848

Part 2: Ownership

Issues • Personal use assets: what is deductible? • Land: capitalize carrying costs? • Rental property: how is income taxed?

Personal use • Form 1040-NR: no Schedule A • No investment or business expense • No deductions

Investment property • No income • No deduction of carrying costs • No capitalization of carrying costs

Rental property • Default Federal tax is 30% of gross rent • Make “net election” to force taxation of net income • Normal Schedule E behavior

Special problem

Foreign corp

Branch proﬁts tax • Normal corporate income tax • Plus 30% of after-tax proﬁt

Foreign corp US corp

Part 3. Buy

Who is the owner? • Type of taxpayer (rate of income tax) • Withholding on sale? • Estate tax? • Transfer on death problems?

Foreign corp

Foreign corporation • Branch proﬁts tax on rent • Higher tax on capital gains • Expensive estate tax protection

Foreign corporation • Higher tax on capital gains • Branch proﬁts tax on rent • Estate tax protection

US Corp

W.o.A.P.W • High capital gains tax • No estate tax protection

US Corp

Options • The “no plan” plan • Term life insurance • Foreign corporation • Irrevocable trust

Irrevocable Trust

Takeaway • Withholding reduction if the deal needs it • Make the net election • Corporate structures bad

Thanks! Phil Hodgen hodgen.com | ﬁrpta.com phil@hodgen.com | cell 626-437-2500

by Phil Hodgen on Jul 19, 2010

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