Tax News

CCH (cch.taxgroup.com) reports:

  The IRS properly determined withholding tax deficiencies and additions to tax with respect to a U.S. corporation. The burden of proof to overcome the presumption that the IRS's determinations of tax liability were correct remained with the taxpayer corporation. Although interest paid by the taxpayer to a corporation wholly owned and operated by the People's Republic of China was incorrectly included in the IRS's notice of deficiency, the IRS's determination was not arbitrary. In fact, the IRS had relied on information reported by the taxpayer in its Forms 5472, Information Return of a 25 Percent Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Consequently, the burden to prove the correct amount of taxes owed did not shift to the government.

  The U.S.-China tax treaty did not exempt the taxpayer corporation from the requirement to withhold tax on its interest payments to a Hong Kong-based subsidiary of the Chinese corporation. The treaty was inapplicable because the subsidiary principally conducted its business in and filed its returns as a resident of Hong Kong, prior to its acquisition by the People's Republic of China. A loan from the Hong Kong subsidiary was not in substance a loan from the Chinese corporation. Moreover, the loan agreement did not mention an agency relationship or that the Chinese corporation guaranteed the debt or controlled the loan in any way.

  The taxpayer was liable for additions to tax for failure to file Forms 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, because it did not establish reasonable cause for such failure. The corporation's reliance on incorrect advice from its president did not absolve it from its duty to file returns. Even if the advice it received regarding withholding had been correct, it was still required to file the returns. The taxpayer did not show that it sought professional advice regarding filing.

  Affirming the Tax Court, 95 TCM 1228, Dec. 57,367(M), TC Memo. 2008-62.

New York Guangdong Finance Inc., CA-5, 2009-2 USTC ¶50,757

Other References:

 
Code Sec. 894

  CCH Reference - 2009FED ¶2300.57

  CCH Reference - 2009FED ¶26,870.20

 
Code Sec. 1442

  CCH Reference - 2009FED ¶32,723.198

 
Code Sec. 1461

  CCH Reference - 2009FED ¶32,828.20

 
Code Sec. 6203

  CCH Reference - 2009FED ¶37,514.27

 
Code Sec. 6651

  CCH Reference - 2009FED ¶39,475.23

  CCH Reference - 2009FED ¶39,475.355

  CCH Reference - 2009FED ¶39,475.42

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 3,060.55
CCH Reference - TRC EXPAT: 15,052.15
CCH Reference - TRC EXPAT: 15,102.10
CCH Reference -
TRC INTL: 18,250
CCH Reference - TRC IRS: 27,210.05