TAX 9869 Lecture Notes - Lecture 43: Fungibility, Withholding Tax
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Example:
• Called a blocker because the income gets stopped, so instead of foreign
person being engaged in USTB, the blocker corp is engaged in USTB
rather than the partnership
• Blocker picks up income thru k-1 and files a US tax return and no longer
the foreign indiv
• Could be US or foreign blocker
• Blocker structures are expensive for investor bc income is taxed @ blocker level
and then if US blocker that makes distribution, would be US sourced dividend
subject to 30% withholding tax or something under treaty
• When $ flows up, the blocker will make a distribution to foreign person, it will cost
them $
• Not necessarily cheaper, but reason why foreign persons like them is because
they don’t want to have anything with U.S.; therefore, they block the income
• ECI^
• US sourced/foreign sourced
• Also allocate and apportion expenses- certain expenses go to certain classes of
income
• Selling inventory- COGS allocated based on income
• If 50% of your sales are US sourced income/50% foreign, you can
reasonably say that the COGS will be allocated 50% to US source
income and 50% to foreign source= net foreign source or net US
source income amount
• Sourcing:
• Important for FTC and ECI
• For ECI, know which income is ECI: US source income from
USTB is generally ECI/foreign source, perhaps not unless one of
the exceptions we mentioned where it would be
• Once you know your income, take expenses
• You can have a foreign corp that has a lot of activity and
not only engages in a USTB, but also has a lot of activity
across a large span of countries all over the world
• Some in US that is ECI/some not