Section 882: How Foreign Corps. That Miss a Filing Can Avoid Losing U.S. Tax Deductions

WG&L Journal of International Taxation, 2013

12 Pages Posted: 14 Nov 2015

See all articles by Megan L. Brackney

Megan L. Brackney

Kostelanetz & Fink, LLP

Joseph Septimus

Kostelanetz & Fink LLP

Date Written: July 1, 2013

Abstract

Generally, a foreign corporation that conducts a trade or business within the United States is taxed on its income that is effectively connected to that trade or business. The effectively connected income is subject to tax at the same graduated tax rates that apply to the income of a U.S. corporation. The tax is imposed on a “net basis,” which means that the foreign corporation may use deductions that are connected to its effectively connected income. As a prerequisite for allowing a foreign corporation to use its deductions, the Internal Revenue Code (“IRC”) requires the filing of a "true and accurate" tax return, which Treasury has interpreted to mean that the foreign corporation must "timely" file to benefit from deductions. IRC § 882 and Treasury Regulation § 1.882-4 provide the rules for when a foreign corporation will be prohibited from claiming deductions on a late-filed return. This article discusses these provisions and how a foreign corporation can avoid this hidden penalty.

Suggested Citation

Brackney, Megan L. and Septimus, Joseph, Section 882: How Foreign Corps. That Miss a Filing Can Avoid Losing U.S. Tax Deductions (July 1, 2013). WG&L Journal of International Taxation, 2013, Available at SSRN: https://ssrn.com/abstract=2689224

Megan L. Brackney (Contact Author)

Kostelanetz & Fink, LLP ( email )

7 World Trade Center
34th Floor
New York, NY 10007
United States

HOME PAGE: http://www.kflaw.com

Joseph Septimus

Kostelanetz & Fink LLP ( email )

7 World Trade Center
34th Floor
New York City, NY 10007
United States

HOME PAGE: http://www.kflaw.com

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