Even the simplest of tax forms can be complicated, depending on circumstances. In Dai & Associates, our tax lawyers can provide you with accurate, effective legal advice that will help you and your business meet your tax obligations without paying more than necessary. Through taxation planning and management, we work to minimize the tax liabilities of your businesses. We negotiate tax collection settlements. If negotiations are not productive, we litigate tax disputes.
Our cross-border tax practice assists clients with reducing tax, especially U.S. income tax, on their worldwide income. By focusing on global tax strategies, we help clients minimize their tax costs and maximize their net-of-tax financial returns. We regularly advise our multi-national clients in structuring acquisitions and foreign operations so as to lessen worldwide taxes and facilitate the tax-efficient repatriation and reinvestment of earnings. With our extensive cross-border transactional experience, our lawyers help clients develop cross-border sales and financing strategies that minimize Subpart F income and maximize foreign tax credit relief for non-U.S. activities, including hybrid debt/equity capital structures.
International Tax Matters
A significant portion of our tax practice is advising non-U.S. clients, both individuals and foreign corporations that are planning investments or business activities in the United States. In these cases, we help clients create business entities and structure transactions that comply with applicable federal and state requirements while minimizing the aggregate tax burden imposed under applicable statutes and tax treaties.
We regularly help clients form tax-efficient non-U.S. holding companies and U.S. blocker companies with sales, service and distribution affiliates in multiple foreign countries, including offshore jurisdictions that offer tax-incentives and opportunities for implementing appropriate tax minimization strategies. In addition, we help clients to structure cross-border mergers and acquisitions, including forming special acquisition companies and utilizing tax-advantaged strategies.
In support of many of our privately held U.S. business clients, we counsel companies wishing to develop or expand operations abroad. We provide advice on a myriad of business and legal issues related to foreign commerce, including tax incentives and trade grants. In addition, we assist clients with both in-bound and out-bound investment in negotiating third-party manufacturing, distribution, and licensing agreements, and we help clients develop a tax-efficient strategy for integrating their expanding foreign operations with their existing domestic business enterprise.
Pre-Immigration Tax Planning
The United States ("US") immigration laws are constantly changing and foreign nationals seeking to become US residents, whether on a temporary or permanent basis, rarely handle the complex process without the advice of US immigration counsel to ensure proper and efficient compliance with such laws. Although, almost all foreign nationals realize the necessity of engaging an immigration lawyer, consulting with US tax counsel prior to becoming a US resident generally is not considered a priority. However, for high-net worth foreign nationals, like many of Dai & Associate clients, the tax implications of becoming a US resident can carry with it a heavy tax burden that may be avoided with the proper pre-immigration, cross- border tax planning.
Like the US immigration landscape, the US federal, state and local income, estate and gift tax rules are continually changing as a result of new legislation, judicial decisions, administrative guidance and similar pronouncements. The Internal Revenue Service ("IRS"), the US federal taxing authority and the largest bureau of the Treasury Department, issues tax compliance guidance daily, including IRS pronouncements, proposed, temporary and final regulations and other administrative interpretations of the US Internal Revenue Code ("IRC"). Almost all states, as well as municipalities and/or localities, also have income, estate and gift tax procedures in place with certain laws that differ from those imposed at the federal level.
In addition to the burden of having to navigate the complex US income tax laws, a non-US resident may also find that the overall US taxing regime is quite unfamiliar, since most countries have a "territorial" taxing regime, not a worldwide taxation system, such as that found, generally, in the US (although under recent US tax law reform the US has moved to a quasi-territorial corporate regime). A territorial tax system in general, is one in which the country limits the scope of its income taxation only to income that is earned in, or received from a business operated, or investments made within the country. Unlike such territorial taxing jurisdictions, the US has a worldwide taxation system, which subjects US Citizens and US residents, as that term is defined for US income tax purposes below, to tax on a worldwide income basis, regardless of the country from which such income is sourced. The US is also one of the only countries that tax the worldwide income of US non-residents who are US Citizens and, in general, permanent legal residents (also known as a "Green Card" holder, a historic reference derived from a time when certificates of permanent residency cards were actually green).
Similar to the US immigration system, given the intricacies and broad reach of the US taxation system, we strongly suggest that foreign nationals with significant assets, who wish to reduce their tax burden prior to relocating to the US, should consult with US tax counsel (as well as Non-US tax counsel in the foreign nationals home country) specializing in cross-border income, estate and gift tax planning, such as Dai & Associates. Prior to becoming a US resident there are certain pre-immigration planning techniques that can be used to effectively reduce the income tax rate for such individuals (or avoid having assets subject to the US estate and/or gift tax rules).
A US resident for federal income tax purposes is either a US Citizen or generally a Green Card holder. For such income tax purposes, a resident of another country may also be treated as a US resident in circumstances, and potentially subject to double taxation, where such foreign national is present in the US a certain number of days under a physical presence test, especially if the non-US resident’s home country does not have an existing income tax treaty with the US.
For the physical presence test to apply, generally a non-US resident must be in the US at least 183 days during the current calendar year, or if not in the US for 183 days, then at least 31 days during the current year, and a total of 183 days, including the days 31 or more days during the current calendar year plus the total number of days present in the US in the immediate prior first and second year, multiplied by 1/3 or 1/6, respectively. There are certain exceptions to this rule that should be discussed with US tax counsel.
For federal estate and gift tax purposes, US residency is determined differently than US residency for income tax purposes, which means that you could be a US resident for income tax purposes, but a nonresident/non-U.S. domiciliary for estate and gift tax purposes. Also, unlike the substantial presence test, the US domiciliary test, is subjective in nature, and as a result, it can be difficult to determine with a degree of certainty whether an individual’s domicile will be treated as in the US for estate and gift tax purposes. As a result, to reduce the risk to foreign nationals of potential estate tax risks, we strongly urge such high-net worth individuals with residential real estate in the US (or a US residential lease) to consult with US tax counsel experienced in cross-border US estate and income tax planning in order to assess such potential exposure and mitigate such risks by effectuating certain suitable tax planning techniques prior to becoming a US resident.
In today’s corporate governance and tax compliance environment, it is imperative that upper management have a precise understanding of complicated tax rules and how they are applied to business transactions. Early involvement of experienced tax litigation counsel with access to specialists is a prudent step to minimize risk, develop the issues under examination, prevent unintended waiver of privilege, and determine the best strategy for resolution.
The Firm’s tax lawyers are recognized as authoritative advocates for our clients. Our lawyers handle complex federal and state audit issues before the IRS and the New York State Taxing Authority and guide clients through administrative appeals and litigation when necessary.
Our effectiveness in the tax controversy field is enhanced by our tax litigators’ collaboration with expert tax specialists and experienced business litigators.
Our tax ltigation representations include diverse industries involving a wide array of domestic and international substantive tax issues in the areas of income, estate and gift, excise, and employment tax, as well as in the tax-exempt arena. We often are required to apply complex provisions of the tax law to facts arising out of highly specialized areas such as transfer pricing, business valuation, oil and coal production, corporate finance, foreign law, financial and regulatory accounting, and insurance. In preparing cases, we work closely with in-house specialists as well as with private sector and academic consultants and expert witnesses. We work in a fully integrated fashion with our clients' in-house counsel and tax directors, and take pride in understanding and achieving our clients' goals in tax disputes.
In addition to representing clients in tax litigation, we frequently counsel clients regarding tax procedures, such as reporting and disclosure requirements, the avoidance or abatement of tax penalties, privileges, summons enforcement, and domestic and foreign discovery. We have been involved extensively in representing professional firms and investor/clients facing scrutiny in connection with transactions deemed tax shelters by the Internal Revenue Service. We also represent clients involved in criminal tax investigations advising at the entity, senior management, or outside advisor level during the grand jury process, at indictment and post-indictment.
Trust and Estate Tax Planning
At Dai & Associates we act in an advisory capacity to many of our high-net-worth clients, multigenerational families, family offices and closely-held businesses, both domestically and abroad, in connection with their US and cross-border estate and gift tax planning. As trusted life and legacy counsel we provide our private clients practical guidance throughout the different cycles of their lives to achieve their personal, family and business goals.
In working with our clients to minimize the erosion of their individual net worth, as well as with their family offices to ensure overall multigenerational family wealth, our focus has shifted our the years to include income tax planning, along with estate and gift tax planning, since the increased federal estate and gift tax exemptions, coupled with increases in the top individual income tax rates now require our private client advisors to consider the impact of such taxing regimes.
For US federal estate and gift tax purposes US citizens and domiciliaries are taxed on their worldwide assets and for US federal income tax purposes they are taxed on their worldwide income. In contrast, however, non-resident aliens are only subject to estate tax on assets located in the US (known as US situs property), and for US federal income tax purposes, they are taxed only on what is known as their US source income. For gift tax purposes, non-resident aliens are only subject to US gift tax only on transfers of tangible property located in the US.
Given that the US has different federal estate, gift and income tax rules and that the application of these rules depends on whether a person is a US citizen or resident, or a non-resident alien, to best serve our private clients’ needs, in addition to considering the interplay between income, estate and gift tax planning, we also must keep in mind the interconnection of our clients’ personal and family lives, their business activities and their financial goals.
As for the personal realm, to ensure tax-efficient life and legacy planning, which would include pre-immigration planning, in connection with the US federal estate, gift and income tax rules, we must understand, for example, whether a client is a US and/or dual citizen, a permanent legal resident (“Green Card” holder), a resident alien or a non-resident alien. We must further question whether a client travels regularly to the US, and if so, whether the client is on an exempt visa, such as an F1 student visa or a special exempt visa for non-US athletes, actors and government officials. If the client is working in the US, regardless of whether the client is on an exempt visa for students or teachers, or on a work visa, such as an H1B, L1 or similar business visa, we must also consider whether the client intends to work in the US only for a set period of time, ultimately returning to his or her home country, or whether the client plans to relocate to the US with his or her family on a permanent basis, either by becoming a US Citizen or a US permanent resident (“Green Card” holder).
In today’s interrelated world, we at Dai & Associates recognize that as trusted estate, gift and income tax advisors to our private, high-net worth clients, we must understand the complexities of their lives, as well as their business and financial arrangements. We appreciate that there are culturally differences for example between clients from China and the US, and that such diversity often may cause counsel to be hesitant in asking questions about our clients’ personal lives. However, if as trusted tax advisors, we fail to understand the nature of our clients, often complex, business and financial transactions, then we cannot properly engage in drafting even the most basic estate tax planning documents, such as a will or a living will, let alone devise more complex, cross-border estate, gift and income tax strategies that allow us to provide our private clients with the benefit of cross-border and/or worldwide tax-efficient planning advice, techniques and structures.
For example, we must consider whether a client owns real property in any state in the US and/or in any foreign jurisdictions and have a sense of such assets fair market value, the way in which such real estate is titled, if there is a mortgage on the property, etc. to determine whether it makes sense for a client to set up a grantor trust, often used for asset protection purposes, as well as to avoid state probate laws and/or to take advantage of the different US federal income and gift tax rules. We also must determine whether either spouse is a non-US citizen, which is a requirement for a client to benefit from the estate tax marital deduction. If one or both spouses are non-US citizens, then generally, we would strongly advise our client to set up a qualified domestic trust (“QDOT”) to defer US federal (and often state) estate tax on the first spouse to die, when leaving significant assets to be taxed in the other spouse’s estate. We also need to know whether our client has underage children. If this is the case, we may recommend that the client set up an irrevocable life insurance trust (“ILET”), which would allow the insurance proceeds to be paid directly to the decedent’s beneficiaries upon death, which avoids having to pay any estate tax on such death benefit that is not shielded by the US federal (and often state) exemption amount.
In addition to our clients’ personal matters, we must keep our client’s business operations in mind in analyzing the way in which such activities may affect our overall income, gift and estate tax planning advice, especially when most of our private clients not only have US connections, but ties to one, if not several jurisdictions, requiring sophisticated, cross-border or multi-jurisdictional income, gift and estate tax planning, for which we would highly recommend that our client engage (or preferably have us engage on our client’s behalf) local tax counsel in countries where the client has sufficient nexus to be subject to tax. For example the intersection between income, gift and estate tax planning may become most important where a client, who has no US contacts, explores the possibility of setting up US business operations, or where a US citizen or resident invests overseas via a trust with a US beneficiary in what is known under the US anti-income tax deferral rules as a CFC (“Controlled Foreign Corporation”) or a PFIC (“Passive Foreign Investment Company”).
In advising private clients with such estate, gift and income tax planning matters, we are often asked, in addition, to provide our clients with legal advice as to succession planning with respect to their family businesses, the formation of a new business venture, buying/selling or merging and/or the spinning off of a domestic or non-US company, acquiring real estate directly or via a joint venture, addressing an employment or other business related issue or representing a private client, the client’s family office or the client’s closely-held company in a complex commercial or other business litigation related matter. In such instances, the boutique size of our firm allows us to work seamlessly across all firm practice areas, such as corporate, real estate, employment, immigration and litigation, making the Dai & Associates legal experience seamless for our clients.