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Purpose of foreign transactions under scrutiny by IRS

On Behalf of | Mar 8, 2016 | Corporate & Business Tax |

If your company conducts business in the U.S. and at least one other country, you should be aware of the issues with paying foreign taxes. In some cases, you will have to pay both U.S. and foreign taxes, but in the U.S. you can recoup some of this money by seeking foreign tax credits.

These credits can be available to companies that are taxed two times on the same income. However, the Internal Revenue Service will review the requests for these credits and does not always grant them. 

In order for the IRS to grant these tax credits, it will scrutinize the foreign taxes imposed and those that your company has accrued or paid. Should these taxes stem from legitimate transactions and meet other eligibility requirements, you could receive tax credits that decrease your liabilities.

However, the IRS has come up against serious problems with companies abusing these foreign tax credits. Most notably, the agency has found that companies conduct unnecessary or illegitimate transactions in an attempt to then recover more tax credits. Most recently, the U.S. Supreme Court reviewed bids by three companies seeking “hundreds of millions of dollars” in foreign tax credits and ultimately determined that they stemmed from abusive practices.

While there are ways that businesses can minimize tax liabilities and seek exemptions, it is crucial that this be done legitimately and in accordance with U.S. laws. Failure to do so can lead to serious penalties and a damaged reputation in the eyes of consumers. 

Because of all that is at stake when it comes to business and corporate taxes, it is crucial that business owners seek the support and counsel of an attorney familiar with this complex legal environment should questions or concerns arise. Doing so can help employers all across Georgia protect their company, their reputation and their financial bottom line.

Source: CNBC, “U.S. top court rejects challenge to IRS denying foreign tax credits,” March 7, 2016

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