{"id":1830,"date":"2018-09-19T09:50:50","date_gmt":"2018-09-19T13:50:50","guid":{"rendered":"http:\/\/www.flottco.com\/doingbusinessacrossborders\/?p=1830"},"modified":"2018-09-19T09:50:50","modified_gmt":"2018-09-19T13:50:50","slug":"is-income-from-passive-foreign-investment-corporations-gross-income","status":"publish","type":"post","link":"https:\/\/www.flottco.com\/doingbusinessacrossborders\/is-income-from-passive-foreign-investment-corporations-gross-income\/","title":{"rendered":"Is Income from Passive Foreign Investment Corporations Gross Income?"},"content":{"rendered":"

The Tax Court\u2019s decision in Toso v. Commissioner<\/a>, was a mixed bag for taxpayers as it relates to Passive Foreign Investment Corporations (PFICs).\u00a0 The taxpayer argued that for purposes of extending the statute of limitations for assessment from 3 to 6 years under section 6501(e)(1)(A)(i) income taxed under section 1291 was not part of \u201cgross income\u201d.\u00a0 The taxpayer also argued that under section 1291 any PFIC gains should be offset by PFIC losses.<\/p>\n

The Tax Court ruled for the taxpayer on the primary issue of whether income included under section 1291 was gross income for purposes of section 6501(e)(1)(A)(i).\u00a0 Under section 1291 the gain on the disposition of PFIC stock is allocated ratably to each day the taxpayer owned the stock. \u00a0As such, the Tax Court delineated between \u201ccurrent-year PFIC gain\u201d and \u201cnon-current-year PFIC gain\u201d for the gain allocated to days of the taxpayer\u2019s holding period.<\/p>\n

The Tax Court reasoned that gross income refers to income defined in section 61(a), however, \u201c[g]ain from the sale of PFIC stock\u2026is taxed according to special rules.\u201d\u00a0 In particular, \u201c[s]ection 1291 expressly provides that \u2018only\u2019 current-year PFIC gains are included (as ordinary income) in gross income.\u201d\u00a0 In contrast, \u201csection 1291(a)(1)(C) provides that the \u2018the tax imposed\u2026for the current year shall be increased by the deferred tax amount\u2019.\u201d\u00a0 The deferred tax amount is computed by taking the highest ordinary income tax rate for each year of the holding period (other than the current year) multiplying that by the non-current year PFIC gain allocated to each tax year and then computing the interest on each year\u2019s tax liability and then adding this sum to the current year\u2019s tax liability.\u00a0 Because of the \u201cmethod of taxation prescribed by section 1291 for non-current-year PFIC gains does not include them in gross income for taxable year\u201d the non-current year PFIC gains are \u201cnot<\/u> included in gross income for any year.\u201d<\/p>\n

While the Tax Court ruled in favor of the taxpayer regarding the extension of the statute of limitations, the Tax Court ruled against the taxpayer regarding whether PFIC losses could offset PFIC gains.\u00a0 The Tax Court based its decision the use of singular language in section 1291(a)(2) of \u201cany gain recognized on such disposition.\u201d\u00a0 Because of the use of \u201cdisposition\u201d instead of \u201cdispositions\u201d it \u201cindicates that \u201csection 1291 applies to each disposition of PFIC stock separately.\u201d<\/p>\n

Other taxpayers who failed to file Form 8621 and report their disposition of PFIC stock in prior years will be breathing a sigh of relief since the IRS only has 3 years to assess the additional taxes (unless the non-reported current-year PFIC gain was 25% or more of the taxpayer\u2019s gross income).\u00a0 However, for taxpayers correctly reporting their PFIC gains the inability to net gains and losses from the sale of different PFIC stocks will surely be disappointing.\u00a0 Finally, it should be noted that either party may appeal the Tax Court\u2019s decision so this is not necessarily a settled case.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

The Tax Court\u2019s decision in Toso v. Commissioner, was a mixed bag for taxpayers as it relates to Passive Foreign Investment Corporations (PFICs).\u00a0 The taxpayer argued that for purposes of extending the statute of limitations for assessment from 3 to 6 years under section 6501(e)(1)(A)(i) income taxed under section 1291 was not part of \u201cgross…<\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34,17],"tags":[],"class_list":["post-1830","post","type-post","status-publish","format-standard","hentry","category-pfic","category-us-taxation"],"_links":{"self":[{"href":"https:\/\/www.flottco.com\/doingbusinessacrossborders\/wp-json\/wp\/v2\/posts\/1830","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.flottco.com\/doingbusinessacrossborders\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.flottco.com\/doingbusinessacrossborders\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.flottco.com\/doingbusinessacrossborders\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/www.flottco.com\/doingbusinessacrossborders\/wp-json\/wp\/v2\/comments?post=1830"}],"version-history":[{"count":1,"href":"https:\/\/www.flottco.com\/doingbusinessacrossborders\/wp-json\/wp\/v2\/posts\/1830\/revisions"}],"predecessor-version":[{"id":1831,"href":"https:\/\/www.flottco.com\/doingbusinessacrossborders\/wp-json\/wp\/v2\/posts\/1830\/revisions\/1831"}],"wp:attachment":[{"href":"https:\/\/www.flottco.com\/doingbusinessacrossborders\/wp-json\/wp\/v2\/media?parent=1830"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.flottco.com\/doingbusinessacrossborders\/wp-json\/wp\/v2\/categories?post=1830"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.flottco.com\/doingbusinessacrossborders\/wp-json\/wp\/v2\/tags?post=1830"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}