Deferral - U.S. Tax Rules

Every economic event that results in a net increase in the current, overall, income tax liability drains a taxpayer of a financial resource. Loss of the resource to a tax collector, if avoidable, is a lost ability to strengthen a business enterprise because with rare exceptions deferred tax obligations do not have carrying costs.

Tax Planning involves both understanding the tax consequences of specified economic activity and achieving permanent and temporary tax reductions. For U.S. based taxpayers permanent reductions in tax are achieved principally in three ways:

  • 1. The generation of partially or fully tax exempt net income
  • 2. By claiming credits and exemptions for the undertaking of certain encouraged activities (e.g. R&D, profits repatriation, jobs creation)
  • 3. By optimizing the usage of foreign tax credits, tax attribute carry forward / carry back and state and local sourcing activities

{Special circumstances sometimes permit the legitimate claim of tax advantages that have potential over time to change from temporary to permanent tax reductions}

Achieving temporary tax reductions is a mainstay of tax planning. For a U.S. based taxpayer, the U.S. tax on foreign income is generally deferred until the income is repatriated. Such deferral can be a temporary reduction in total worldwide income tax. However, to achieve this deferral requires the proper tax structure, and foreign operating characteristics that effectively avoid the anti-deferral provisions of the U.S. “controlled foreign corporation” (Subpart F) and “passive foreign investment company (PFIC) rules.

The mission of NEOITG is not to design convolutions to transactions and structures in support of aggressive tax positions. Rather, our goal is to work with clients to so structure activities that the best reasonably supportable tax results are realized.