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Understanding the Recent Foreign Tax Credit Developments

May 20, 2024

This session covered the new foreign tax credit regulations and how it applies to clients.   


Ayelet Duskis: Hello, everybody can hear me? We're all good? Awesome. Hi, guys. It is so nice to be back together with everyone. We were just saying we can't believe our last Israel-US CPA-oriented class was in January, and we're already halfway through the year. How did that happen? I have no idea. I always find it really interesting when I look at the attendee list for who signed up for this class. So in general, we've been focusing on these CPE webinars for the US CPA sitting in Israel, but there always seems to be some other group that finds this class interesting, and then we kind of can understand who these issues are affecting, and who has questions about them, and who needs to learn more about them.

So this class is marketed for the external US CPA sitting in Israel who I know and love dearly, all of you. And then I look and see at the register, and many, many, many people in the class are actually internal EisnerAmper employees who also find this subject matter really important. So I start thinking a little bit about foreign tax credits and the whole issue or situation with them. I'm going to move from Brooke and my picture. Sorry.

Brooke Bodziner: We're live. You could look at us here.

Ayelet Duskis: I know, exactly. And I realize that foreign tax credits is not a buzzword. I don't know if you feel that way about it, Brooke. But foreign tax credits is not a buzzword. Everybody here is now CFC, GILTI, PFIC. Every article you read about expats and how to make investments, you're going to hear about avoiding PFICs, and every startup, you're going to hear them talking about CFCs or 83(b) elections, all these kind of buzzwords that we hear a lot. And foreign tax credits, in a lot of ways, we all take it for granted, and our software does a lot of the computations for us, and so we kind of just hope that we're getting it right. We don't spend enough time really sitting and learning it and discussing it, and then we get to a point where there's one little hiccup and we're like, What happens now? I don't really know.

So what I learned while putting together this class was that there was even more that I didn't know about foreign tax credits than I thought. And what I'm very, very glad and happy to introduce Brooke is that Brooke is an international tax director in our United States offices, and she's phenomenal. And a lot of the places where I found that I didn't know things, Brooke really was able to fill in, and we were practicing together, and I was listening to her explain something, and I'm like, I understand that now. So it's definitely a very exciting feeling to be able to say, I know why the software is doing X, Y, and Z. I can check the software. I don't have to now rely on what is the software doing and not understand it myself or not be able to explain it, or hope that it's right and say, well, we pay CCH Axcess a lot of money, so they must have gotten it right.

So I think that that's a very important sort of aspect of what today's lesson has been teaching me. On that note, what we're going to do is we're going to go back to the basics a little bit. I'm going to talk about some of the basics and some of the setting the stage for foreign tax credit, and then we'll flip over to Brooke, who will bring us into all the new regulations and how the new regulations change those basics as we know it. So hopefully, and then we'll have some practical examples. And of course, at the end, we'll talk a little bit about the net investment income tax, foreign tax credit situation. But hopefully, you'll come out of here feeling empowered, feeling a little bit stronger. Again, that you understand what the software's doing instead of just allowing the software to do it, which is a great and exciting thing.

So again, the beginning, I'm going back to the basics a little, so bear with us, but I'm sure a lot of you're familiar with this already, but it's still very important that everybody knows, and we say it out there. Every single U.S. person, U.S. citizen, regardless of where they live, is taxed on their worldwide income. It doesn't matter if it was earned in the United States, it doesn't matter if it was earned in Timbuktu, if they're a U.S. citizen, wherever they're sitting, wherever they live, that income has to go on their U.S. tax return. That being said, it would be completely and utterly unfair for the United States not to pay attention to the fact that income that is earned outside of the United States and possibly has taxes being paid on it outside of the United States can't and shouldn't be taxed again, it wouldn't make sense. Double taxation again is one of these issues that we all face a lot, but it could be a situation where a person has no money left at the end.

We know we have a lot of tax treaties, especially for those of us that are sitting in Israel. We look at the US-Israel Tax Treaty all the time. The tax treaty is really, really great for people that are not US citizens because it'll say, okay, Israel gets the first bite, or the U.S. gets the first bite and the US gets to tax this and Israel gets to tax that. Great. But if you're a US citizen, everything's going on your tax return. So that who gets the first bite business really is, can you source it to the United States or to outside of the United States, and then it's the, can you take a foreign tax credit for it? And the foreign tax credit is really the way that we make sure that people are not paying twice taxes in two different jurisdictions on the same income.

Interestingly enough, and I'm sure we've all been in situations like this, there are times where the taxable events in one country and the taxable events in the other country are not the same. And even though Israel might be the one that is really entitled to the taxes because the taxable event happens in the United States first, the United States is actually going to get taxes, and the person actually is going to be double taxed. We all face that. It is definitely a struggle. It's not a perfect system. And obviously, this gets very confusing as things go, but there is a system in place that prevents a US person from having to pay taxes twice on the same income. That's kind of the basic understanding. Now the taxes can be paid or accrued. So we will talk a little bit about that soon, but it's not just the amount of cash I actually gave.

And in addition to that, you can take indirect foreign taxes, which we'll talk about soon too. But that means that if you're a corporation and you have a subsidiary, and maybe it's a disregarded entity or something like that, or a branch, if the disregarded entity is paying taxes in their jurisdiction and you are picking up that income on your tax return as a corporation, then you can take those tax credits as well. There's also the option to deduct the foreign taxes paid instead of taking a foreign tax credit.

Now the thing about the deduction is that the deduction is a foreign tax credit is going to be dollar for dollar against the taxes you've paid. So if I owe $10 on all foreign source income and I have $10 of credit, I would pay zero. If I was to deduct $10, my taxable, let's say if I deduct $10. So I would reduce, I'd only save whatever 37% of that $10 from my taxes because it's a deduction. But it is there. And sometimes there's planning that, for some reason, the deduction can help. So it's just important that you're aware of that as well.

Brooke Bodziner: So I've seen the deduction help in situations where I had a multinational corporation and they had [inaudible 00:10:42] losses and I think they had one branch and that was also in a loss position. So in that year, it just made more sense to deduct the taxes because you weren't going to get the credit carry-forward. I think they had a big carry-forward in their branch basket anyway. So there's certain times it's a year-to-year election, but I think we might even touch, we touch on a lot of this stuff in more detail later on.

Ayelet Duskis: Do you know if it's also a basket-by-basket election or?

Brooke Bodziner: No, it's all or nothing. So everything is deducted, or everything is credited. There's never a situation in which you're going to take some deduction and some credit in different places. It's all or nothing.

Ayelet Duskis: Okay, so somebody just asked a really interesting question. They said, when you have those timing differences, can you calculate what the foreign taxes will be in the future and check that box accrued and take the taxes then? So in a situation like that, you can check the box accrued for taxes that you're going to pay up to two years from now. So you can't accrue more than, so if you're in a situation where the biggest one that we have here in Israel where we have a timing difference is stock options or RSUs, where in the United States, the vesting is a taxable event.

And in Israel when it's in a 102 plan, there's no taxable event until the sale and the vesting could happen many, many years before the sale happens. And you don't know what the taxes are going to be on the sale because you don't know what the gain's going to be. So yes, theoretically, if the timing is differences by one year and you're electing to accrue your taxes instead of what's paid for your foreign tax credit, you could check the box accrued and accrue your taxes. But a lot of times that doesn't work. So there's still a lot.

Brooke Bodziner: There's a lot to be said about that because if an individual is going to elect to accrue their taxes, that's an irrevocable election. So they will always have to be on the accrued method going forward, whereas a corporation should always be on the accrued method. And I think we're going to talk a bit about that also going forward. So we're going to be talking a bit about the timing differences later on.

Ayelet Duskis: Awesome.

Brooke Bodziner: Because those get a little bit fun.

Ayelet Duskis: Yeah. We're actually currently in a situation where a timing difference is costing somebody about $500,000, and we really don't know how to fix it, and he is going to end up paying $500,000 to both jurisdictions, it looks like. So it can get really-

Brooke Bodziner: Yeah, the timing differences can be very hard to deal with.

Ayelet Duskis: Yeah. All right. Let's see what else we got. So also just some important rules about foreign tax credits. They cannot reduce the U.S. taxpayer's US tax on its U.S. source income. So we're never going to be in a situation where the taxpayer has U.S. source income and foreign source income, and the tax rate in the foreign jurisdiction is higher, so they're able to reduce some of their U.S. tax because of the leftover. So you can never be in that situation. And we're going to talk about Section 904 limitations soon and how that plays into calculating what your foreign tax credit can be. There's a couple of different internal revenue code sections, so 901, 903, 904, 905 that talk all about foreign tax credits. So if you're one of those people that likes to read the code so you could fall asleep at night, these are good sections to read.

The 901 talks about what's a credible tax, 903 is talking about taxes in lieu, which means maybe it's not an income tax, it's in lieu of an income tax when that would be credible. And 904 talks about all those limitations that are really important. So it's going to say that you're never going to be able to take a credit that's higher than the percentage of your foreign source income. And we'll look at that in detail in a couple of minutes. And then there's all these other sections. Also, how we're moving the baskets and how we're changing things around a little, like how we calculate the baskets and what we can, I don't know how to say, how we're allocating-

Brooke Bodziner: Oh, allocating and portioning.

Ayelet Duskis: ... and portioning our expenses. Thank you, that's the word I'm looking for. So all of those things are in all different sections in the code. And again, like I said, if anybody has a desire to fall asleep tonight, good luck. But that's one of the reasons why this can get really complicated. It's not just the one little, there's so many different pieces of it, and it's really big. And again, it's not a buzzword, so we don't necessarily realize it's so big. So we've asked Brooke to help us understand it. Okay, we've got our second polling question. So if you're there, oh, wait, where's the rest of the polling question? That's funny. Okay, so hold on one second because the polling question, I'll tell you the whole polling question.

Brooke Bodziner: Yeah, I think we're missing the facts.

Ayelet Duskis: Yes, we are missing the facts. Okay, so we have a U.S. corporation that has $90,000 of domestic source income and $10,000 of income, a foreign sourced income. So their total income altogether is $100,000, 10% of it is foreign source. The US corporation is taxed at 21%, and the country of the foreign source imposes a 10% withholding tax on that foreign source income. So they've paid $1,000 in the foreign country. So the question is, what will the US corporation's foreign tax credit be?

So A is 10% of the total U.S. taxes of 21,000. The next, B, is only the 1,000 of withholding taxes paid, or C, nothing, withholding taxes wouldn't be eligible for a foreign tax credit. So we'll give you a couple of seconds to think about it. I can repeat the question if you guys need me to. We'll repeat the question just so you have a time to hear it, but we've got 90, we've got $100,000 of income, 10% is foreign source. We have $1,000 of foreign-sourced foreign taxes paid. What is our foreign tax credit? I'll give you another second. A little math. Somebody asked an interesting question here. They said the foreign tax credit is kind of similar to how it would be for somebody who lives in New Jersey and pays taxes in Philadelphia, meaning that the states also have this concept and they do, and it's similar, and I'm sure every state is different, and it's probably just as extremely complicated and makes me glad I'm international and not SALT. But you're right, it is a similar concept.

Brooke Bodziner: It's a very similar concept. It does use the ratio, and also they look at how much tax you'd be paying in your local jurisdiction, and your credit can't exceed what the state would tax. So yes, it's a extremely similar concept, but there's obviously a lot of nuance to it that goes above and beyond.

Ayelet Duskis: And probably every state is a little bit different. So just to add to the fun. All right, so our answer is the 1K of withholding taxes paid, and I think if we go to the next slide, oh, it just says it. So-

Brooke Bodziner: We'll see. Yeah.

Ayelet Duskis: Yeah.

Brooke Bodziner: So I think we'll get into how to calculate this for those of you that-

Ayelet Duskis: Correct.

Brooke Bodziner: ... didn't get the right 

Ayelet Duskis: Yeah, we're going to have some practical examples soon. And with that, I'm going to hand it over to Brooke.

Brooke Bodziner: Okay. So there's two different kinds of tax credits. There's direct and indirect. And direct tax credits are under 901 and 903. They're foreign tax that work were paid or accrued by the US taxpayer. They could be directly, so that would be withholding taxes or payments that they made in their capacity as a foreign branch, payments as a partner in a foreign partnership, or withholding payments. So if you paid withholding on interest dividends, this is what we're calling FDAP income, it's Fixed Determinable Annual or Periodic income. This type of income is different from what we call effectively connected ECI income that's generated when you're engaged actively in a trade or business in the United States.

So interest, dividends, royalties, more passive-type income for that generally has withholding taxes. Now, when we look at the treaties, it might reduce what needs to be withheld, but absent a treaty, that's 30%. So all of these tax credits from the withholding are considered direct. So you're thinking, big picture I like to think, okay, this is an expense that I would see directly on my taxpayers trial balance. I don't know. Ayelet, does that make sense to you? That's how I like to think about it. It came directly out of my corporation's books and records.

Ayelet Duskis: Yeah, that is exactly how I would think about it.

Brooke Bodziner: So that's opposed to, I'm just going to skip and come back. No, sorry, I'm not skipping and coming back. The indirect foreign tax credits. So indirect is something that only a corporation can have. So individuals, they get credit for direct foreign tax credits. Corporations are entitled to indirect foreign tax credits, and this is under Section 960, and that's when you have a CFC that's paying taxes in their foreign jurisdiction. So a CFC is a controlled foreign corporation. Really quickly, that means you have a foreign corporation that has US shareholders that control more than 50% of the corporation. So you might have a US corporation that owns 100% of an entity operating in the UK. Maybe they have an entity that they own 80% operating in Germany and they have another entity that they own 90% in Israel. All of those would be CFCs, and the taxes that are paid in Israel, the UK, Germany, all of those taxes will be considered deemed paid tax credits in the US.

But I'm only talking about income taxes, and we're going to get into a little bit about looking at the different tax liens and what qualifies as credits later on. But this concept of the deemed tax credit is special to corporations and specifically has been very important in the GILTI tax regime. Now, if you have Subpart F, we can use the taxes as well. And there's no limitation on Subpart F taxes. If you have GILTI income, your taxes will be limited to your GILTI inclusion, and there's an 80% haircut. It's important to note that when you're computing your GILTI income, you're looking at your corporation as though it was a domestic corporation, but you're able to deduct the foreign taxes. And so in order to get yourself on the same footing as a domestic corporation, there's something called Section 78, and that requires that any taxes that you're taking a credit for also be included in income separately. So the full amount of taxes that you would be able to deduct for GILTI, so that's before the haircut of any kind, that's going to be your Section 78 gross up. Okay.

Ayelet Duskis: So Brooke, a lot of the US CPAs in Israel do individual tax returns, but a lot of these individuals are people that own their own companies, they're self-employed, and they end up opening a... In Israel, there's no totalization agreement, which means that they would end up having to pay self-employment tax in both countries. So a lot of these people end up opening up a limited company in Israel, and the limited company is the CFC, and then GILTI came out, and it created a lot of issues. So we make a lot of 962 elections. So that's where a lot of us see, in this space, we see the Section 78 gross up. Whenever I hear that, I think of 962 election because that's definitely the space where the listeners are going to see it.

Brooke Bodziner: Thank you. Actually, I was thinking to myself, you had another thought, and I lost it, and I was like, it'll come back to me, and I'll bring it up then. But the other thing that I wanted to mention was for an individual, if they would like to avail themselves of the indirect foreign tax credits for CFCs that they own directly, they can make a Section 962 election. So what that is going to do is interpose a hypothetical C-corporation in between the individual and the CFC. So that means that they'll be able to use the indirect foreign tax credits. The income will be taxed at the 21% rate, and now everything's a give-and-take with the IRS. So if you're going to get these benefits, they're going to take something away, and what they're taking away is, instead of having your full GILTI or Subpart F inclusion as PTEP, only the federal income tax that you pay.

So your residual liability after the foreign tax credit will be considered PTEP. But oftentimes, if you have enough foreign tax credits that you have zero residual liability, the 962 election can be considered a slam dunk. And then one last little tidbit, if you're in a situation where your taxpayer has Subpart F and GILTI in the same entity and you need to split the taxes to figure out how much taxes go to Subpart F and how much taxes go to GILTI, really interesting. It's not how you would think to do it at all. You look at the foreign tax return actually, and you say, okay, so let's just say I have $1,000 of Subpart F on my foreign tax return and I have $5,000 of what is GILTI income on my tax return. That ratio on the foreign tax return is what drives how you split the credits.

So it has nothing to do with the income that you're actually picking up in the United States. It's based on what is actually taxed overseas. So I've been in situations where our Subpart F income doesn't even exist in China. This is where it happened to me. I had a situation where there were dividends in excess of E&P in the U.S., but because the GAAP methodology in China was different, they had income to distribute and they were able to make dividend payments here. They were return of capital and capital gains. So we had Subpart F, but there they didn't have any passive income, so we had no tax credits to take. So that's something that I found very interesting when I actually looked into how you're supposed to do that. So I thought that might be a little bit of interesting information for everyone on this call.

Okay, so accrued taxes versus taxes paid. For individuals, which, as Ayelet just mentioned, this is a lot of your client base, individuals are default-paid. What does that mean? Well, it's really great if we can prepay you at the end of the year and get all of your taxes in, and there's some planning to do, but for corporations, which generally for the most part need to be on the accrual basis, I know that there is a safe harbor. It's like 27 million or less over the last three years of gross receipts, blah, blah, blah. But let's just, for the most part, say corporations are on the accrual basis. The IRS has been extremely clear with how we need to treat our foreign tax credits. So the foreign net income tax credits accrue at the end of the foreign taxable year and can be claimed as a credit it only in the US taxable year with or within which the taxpayers foreign taxable year ends.

So what does that mean in an example that makes sense to everyone? If you have a mismatch in years, if your CFC is a 3/31 year-end, so they end 3/31 2024 and your US taxpayers calendar year taxpayer, the taxes on the 3/31 2024 tax return, overseas tax return, that tax liability is only creditable on your taxpayers 2024 return. So the year in which their tax year ends the foreign tax year, that number needs to match the number in which your US tax return, the same year. I think that's the easiest way to break this down into taxes for dummies. Not that anyone on this call is a dummy, but I like to put things in very simple terms so that when we're really tired and we've working crazy hours to get all of the returns out and you're just like, please, why did I pick this profession?

You can't make a mistake. So that's what I would suggest everybody think about. The end of the fiscal year, that year matches the year that's on the top of that form that you're filing. So there can be a really big mismatch in the income that was picked up on that 3/31 tax year and the income that your taxpayer is actually reporting in a calendar year 2024. And I've seen this a lot, especially in Indian CFCs, because India won't let you change your tax year. The first thing I try to do for tax planning is say to my clients like, let's try and match up your tax years if at all possible.

Section 905 requires that you do a redetermination if your liability changes after you've filed your foreign tax credits, but it's not going to let you do a catch-up. And since GILTI doesn't let you carry your taxes forward or backwards, the mechanisms that were written in the code so many years ago don't allow for this sort of catch-up period that was something that was so inherent in what everyone was doing to sort of correct for the timing differences in the incoming years passed.

But the key takeaway that happened, I think, in 2024, is that the IRS has been very clear and Treasury really has been very clear in coming down and saying that the all-events test cannot be satisfied until the close of foreign tax year because neither the liability nor the amount due can be determined with reasonable-

Brooke Bodziner: ... nor the amount due can be determined with reasonable accuracy until the accounting period closes and the amount of the taxpayer's tax income for that period can be computed. An estimate does not meet the standard required by the all-events test to accrue a foreign tax expense. So that is their position word for word from the federal register on accruing taxes.

Ayelet Duskis: So in short, basically you're telling me if I didn't pay it and I have a funny fiscal year-end, I'm stuck, is that what I'm understanding?

Brooke Bodziner: And you're accrual basis taxpayer, yes.

Ayelet Duskis: And I'm an accrual basis taxpayer, okay.

Brooke Bodziner: So it's not that you didn't pay, it's, like, your liability is not fixed and determinable.

Ayelet Duskis: So I can't expense it or credit it?

Brooke Bodziner: Right. So you don't have to have paid all of it, you have to have that return in hand with a liability on it. So we're really looking less now at cash out of pocket and more what's the liability that's been assessed and what is our ultimate tax liability? Because if you look at how much you paid, you're running the risk of, well, you overpaid and then you took too much foreign tax credit or you underpaid and you didn't take enough foreign tax credit. And that's where I'm mentioning the 905 rules, where there's a redetermination. So if you took too much foreign tax credit, you're not supposed to just be like, "Oh, well, I'll take less in the next year." There's rules that say you need to go back and amend your return.

And when you have a client that's maybe filing in every state in the United States, amending your return is not that easy. If you're dealing with someone who has the limited company in Israel and it's not that big of a filing, it's certainly a lot easier to combine the redetermination rules. But the intent is that everything's matching the periods here. So in looking strictly at the liability and making sure that you wait till that foreign taxable year ends, you don't have that issue.

Ayelet Duskis: Got it. 

Brooke Bodziner: Okay. I see a question here that says, "What happens if you pick up a corporate client that was deducting foreign taxes and would like to switch to a foreign tax credit in lieu of a deduction?" That's an election that you make yearly, you can go back and forth each year. So you can take a foreign tax credit deduction one year and take a foreign tax credit, the credit, the next year, and then go back to the deduction year after. You don't have to do anything special, it's just again, as I mentioned before, if you're using foreign tax credits on any basket of income, GILTI, foreign branch, passive, anything. If you want a foreign tax credit anywhere on your return, then you have to take all foreign tax credits, there's no deduction. If you are not going to take any foreign tax credits, maybe you don't qualify for foreign tax credits because you have all losses, then you can think about using the deduction instead. And I would say that's when I would start thinking about the deduction, is when I'm looking at losses.

Ayelet Duskis: That's good point. And then let's say theoretically, I had losses and I deducted it, so I'd have that NOL carry over because I added my foreign taxes. Would that be meaning it still can be-

Brooke Bodziner: You could, yeah.

Ayelet Duskis: ... the foreign tax, because that deduct would still be part of my NOL?

Brooke Bodziner: It could be, yes. Absolutely, could be.

Ayelet Duskis: Nice. That's a good plan.

Brooke Bodziner: So that makes a lot of sense, instead of putting them in a basket that potentially might not carry forward.

Ayelet Duskis: Yeah, so that's an interesting plan, I think.

Brooke Bodziner: Okay. So we have our third polling question. So, "Taxpayer is an entity with a foreign year-end of July 31, 2024. The entity prepays their 2024 by December 2023. When can the entity pick up any credible foreign taxes on their U.S. return?" I think we failed to mention their calendar year, is that right?

Ayelet Duskis: Yeah, they're a calendar year taxpayer, that would...

Brooke Bodziner: So the taxpayer's-

... calendar year and their foreign year-end is July 31, 2024. When can they pick up their credible foreign taxes? Is it A, 2024? B, 2022? C, 2023? D, never?

Ayelet Duskis: That would be pleasant, wouldn't it?

Brooke Bodziner: So going back to deducting, we have a question that says, "Can you deduct all taxes paid in the current tax year on Schedule A and use the prior year carryovers to offset my liability on my foreign income?" No. And you can't do both. If you're deducting taxes, there's no foreign tax credit.

Ayelet Duskis: All right, enough people have answered.

Brooke Bodziner: Yeah. That's pretty good, 65% of you got it, 2024.

Ayelet Duskis: I see that we kind of forgot to update some of the dates on this slide.

Brooke Bodziner: Okay.

Ayelet Duskis: Sorry, guys.

Brooke Bodziner: These are old dates, so we'll just go right past that and going to turn back to you, Ayelet.

Ayelet Duskis: All right, so in short, because I want to make sure I understand, we can't pick it up till the 2024 tax year, because not until my tax year ended was my foreign tax a fixed and determinable amount. Up until then, it was an estimate, we weren't sure when the tax year ended. I was able to say, "This is my income, this is my taxes," and therefore, only in 2024. Is it a credit or a deduction?

Brooke Bodziner: Yes, that's when the IRS is saying that you meet the all-events test.

Ayelet Duskis: Amazing. All right, see, I'm learning so much from Brooke and she does such a good job explaining it. I feel very lucky. All right, now we're going to talk-

Brooke Bodziner: Well, I would say-

Ayelet Duskis: ... about 904 limitation.

Brooke Bodziner: ... this is collaborative, so don't give me too much credit. For everyone on this call, this is a labyrinth of rules and as we're doing this together, there's a lot to learn here.

Ayelet Duskis: There's a ton.

Brooke Bodziner: You're going to want to reach out to people when you're dealing with this.

Ayelet Duskis: That's what I was saying with I think a lot of times, we would just rely on, "Oh, the software knows how to do this," especially with the 904 limitation, which I'm going to start talking about now. And it's like, "Yeah, the software knows how to do it, we don't really understand why we're doing it the way that we're doing it. We're not really 100% sure that the software's doing it right. And really, there are all these rules and they're very complicated, and so we just sort of hope that we got it right." So instead of hoping, we're going to actually talk about it and understand a little.

So the 904 limitation is probably the thing that you guys see the most, especially on the Form 1116, because that's really the limitations. Those are the rules that govern how much of the foreign tax credit you could take each year. And really, the whole purpose is that you're allowed to use your foreign tax credits to offset U.S. taxes on foreign source income, but you are not allowed to use foreign tax credits to offset U.S. taxes on U.S.-sourced income.

So imagine you're in a situation where you have only $50 of U.S. taxes to be paid, but let's say you live in a place like Israel and the taxes on your salary are very, very high. So you actually paid $75 in Israel and only half of your income is foreign-sourced, you can't say, "Well, since I paid $75 in Israel and I only have $50 of taxes in the States, I'll just make my taxes zero in America. Now, only half of my income is foreign source, so only half of my total..." What do we call it? They call it the tentative U.S. tax liability is foreign source, so that's the only amount that's creditable.

So the idea being that I'm not going to be in a situation where I can use my foreign taxes to offset taxes that I would otherwise have to pay to the United States. The taxes that are supposed to go to the United States, because it's U.S. source income, are going to go regardless of what I've paid outside of the United States. The foreign tax credit should only be for that stuff that is actually sourced to the country outside of the United States. And that leaves us... Sometimes we have, like we said, these questions where we have different taxable events and because of that, we end up with a mismatch and we pay taxes in a jurisdiction where we shouldn't. And this happens both in Israel and the United States, and I'm sure it happens in other countries.

But if you would be in a situation, again, if we go back to the RSU situation, when the RSU vests in the United States, it's a taxable event. And in Israel, it's not a taxable event until the 102 stock is sold. So if I pay tax in the United States when it vests, when I sell my stock in the 102 plan maybe years later, the Israel tax authorities aren't going to say, "Oh, you've paid tax in the United States on the vesting, so we're going to give you a foreign tax credit." They're going to say, "No, no, no, you're a resident of Israel and we all know that capital gains are sourced based on your residence. We're getting the taxes on those capital gains. I don't care that you pay taxes in the foreign jurisdiction." Again, Israel happens to have the same rules as the United States, but it's a similar concept that this 904 limitation is making it that you're only getting credits where credits are due and you're not over counting or double counting.

So in that same regard, the 904 limitation talks about when we have a situation where we have foreign losses. So as everybody knows, in the United States, you take all your items of income, and you smoosh them together, and then you figure out what your U.S. tentative income tax is going to be. So if you have losses in one spot and income in another spot, they're not separately taxed, they're smooshed together. And if it brings you to zero, then you wouldn't pay taxes or you'd pay a lower rate. So you could be in a situation where you have foreign source losses, you have U.S. source income, it gets smooshed together and you end up paying less U.S. tax because of your foreign source income. So there's also very complicated rules on how that works, but you would actually have to keep track of those losses that are reducing your U.S. source income and make sure that in the future, your foreign tax credit is being reduced, because you benefited from those foreign losses in a different place.

The same thing is true in the opposite. If you have domestic losses and therefore, your amount of income goes down, but you really have foreign source income, you can actually carry over now, those domestic losses and increase your foreign tax credit in future years. And again, this gets so complicated to calculate, but the simple and basic calculation, of course, you have these cute little guys to understand, this is your foreign tax credit limitation. And if you think about the 1116, and we'll point this out later, this is what you kind of see at the bottom of the 1116. Your foreign tax credit limitation is equal to whatever your U.S. tentative tax on worldwide income is going to be, so that's your tax before all the tax credits and all of that, multiplied by the percentage of your income that's foreign source. So your U.S. tentative tax times by your foreign source taxable income over your worldwide taxable income. So that's the general 904 limitation rule. Yeah?

Brooke Bodziner: This is the ratio that is in my mind, very similar to the state ratio, where your resident state is giving you taxes for your non-resident taxes paid. And just as an aside, while you were doing this, I was looking at a lot of our questions and people are asking a lot about unused foreign tax credits. And to be clear, only foreign tax credits that are associated with GILTI income, so that is actually indirect foreign tax credits, so we're really in the 960 area. So with CFCs, that's the only type of foreign tax credits that can't be carried forward or backwards. You have to go back one year first and then it goes forward. Those are the only ones that can't get carried forward.

So long as you decide to use the credit, not a deduction, the foreign tax credits, if they're unused, they're going forward. So if you don't have the income to support them, you have some kind of limitation, they are still something you want to track, because they could be used in the future.

Ayelet Duskis: Correct.

Brooke Bodziner: So when we're talking about some income mismatches, if income is not being picked up in the U.S., but it is being picked up overseas, so you generate a foreign tax credit, you still would want to track that foreign tax credit in our records here, because when we pick up the income in the United States, we would have the taxes paid.

Ayelet Duskis: That's true. So in my big example of when the stock vests with the RSUs in Israel, the tax rates on salary are higher than the tax rates in the United States on salary, unfortunately for some of us. So what sometimes happens is that as long as you've been carrying over your credits each year when your RSUs vest and you have this pickup of income, which the United States is going to treat as compensation, that bump in income of compensation still gets to sit in that same basket of foreign source income. And because you had all these other credits that you haven't been using because the tax rates in Israel are higher, sometimes you don't end up with having to pay tax in the United States. So having that credit is very helpful, being able to carry it over and being able to benefit from that.

Let's see, we'll keep moving on to the next slide. Okay, so when we're calculating our 904 limitation, we also have to understand, and we've all heard this before, but we have our different baskets of income. So that limitation that we were just talking about, that formula, you do that separately for each basket of income. There are certain spots, especially with losses, where you cross over from one basket to the next, but in general, the baskets of income are separate and they're dealt with in separate ways. So like Brooke was saying, that GILTI basket, that's the only one that can't, doesn't have foreign tax credit carryovers, because that's in its own basket and that's the 951A basket. We have our passive basket, so that's going to be anything that you would treat as subpart F income is going to sit in your passive basket.

So if you were looking at a foreign corporation and you said, "Oh, they have interest, they have dividends, they have capital gains. Oh, that's all subpart F income, that's all passive income." Great, that's sitting in your passive basket. QEF income, if you have PFICs, that's going to sit in your passive basket. The only time that that sort of income isn't going to fit in your passive basket is when it's called high-taxed income. So high-taxed income is income that's taxed at more than the highest rate in the United States. All high-taxed income gets thrown into the general category. I don't 100% understand the logic why, but that is the rule. And the general category... Yeah?

Brooke Bodziner: They're looking to avoid you getting too much credit in that passive basket and offsetting, they're trying to create...

Ayelet Duskis: Got it.

Brooke Bodziner: I'm sorry, I read the congressional intent and now I'm thinking about this other comment that I want to say, which is that if you have subpart F income that is not foreign and personal holding company income, so you have foreign-based company sales, that's more on the active side, so not passive income. So we're looking at just anything that's of a passive nature. And passive is going to trump any of the other categories.

Ayelet Duskis: Okay.

Brooke Bodziner: If it's in a branch, but it's passive, it's passive.

Ayelet Duskis: It's passive.

Brooke Bodziner: Yeah.

Ayelet Duskis: And then general, which is where I always think, "Oh, that's where we're putting our salary, that's where we're putting our earned income," general is really just the catch-all. If it's not passive and it's 951A, it's just the catch-all. So somebody just asked, and I know Brooke is answering them personally, but I think it's an interesting one, so I'm going to answer it anyways. "If someone has U.S. source income that they've paid a foreign tax credit on, what basket does that U.S. source income go in?" And the answer is, it doesn't go in a basket, it is U.S. source. And what we were saying before with the 904 limitation, you never get a foreign tax credit on U.S. source income, that's not allowed. So it doesn't matter that you pay taxes in a foreign jurisdiction, that is not allowed. And yeah, sometimes it's frustrating, but that is the story with that. Okay, so we're going to talk a little bit about how you act-

Brooke Bodziner: I think you would have to... I was just going to say, I think you'd have to be in a very small country in Africa to have paid tax on U.S. interest income, because it's, like...

Ayelet Duskis: Yeah.

Brooke Bodziner: Well, actually I take that back, perhaps if you're in one of the countries where as a resident, you pay on worldwide income.

Ayelet Duskis: Right.

Brooke Bodziner: There's only one other country, and it's very small in Africa, that has worldwide taxation on just having citizenship.

Ayelet Duskis: Yeah, and interest is specifically one of those ones that...

Brooke Bodziner: Yeah, so I guess the thing that we should mention here is also, all of our treaties allow for the United States to retain taxing benefits on U.S. source income. Things are more complicated than just, okay, you relieve the double taxation, because the United States still has the right to tax you as a U.S. person.

Ayelet Duskis: So this question, he added a second part that I think is also important to say. So he's like, "So is that an example where the foreign taxes don't get carried forward?" And the answer is no. If you paid taxes outside of the United States and they fit into all the rules of what makes something a creditable foreign tax, which Brooke is going to talk about when we talk about the new regulations, those taxes are those taxes you can take on your 1116 or your 1118 and they can be carried over and move forward regardless of if this year, you could source income or not.

So if you paid the tax, put it on, carry it forward, benefit from it in a future year, it just doesn't mean you might not be able to benefit from the income that you actually paid on that specific tax. But that doesn't mean that in the forever, those taxes are going to the garbage. If you pay taxes that fit to the definition of what's a credible foreign tax, stick it on your return and get a carryover for it. So that's a really important piece to keep in mind.

Brooke Bodziner: I think everyone's questions are great and I love 

Ayelet Duskis: Yeah, we're going to keep moving.

Brooke Bodziner: But we're going to keep moving and I-

Ayelet Duskis: Correct.

Brooke Bodziner: ... I think I hope that we'll have time to come back...

Ayelet Duskis: I hope so.

Brooke Bodziner: ... in a little bit.

Ayelet Duskis: Yeah.

Brooke Bodziner: But in hopes of getting through everything, let's-

Ayelet Duskis: Yeah, we got to keep moving.

Brooke Bodziner: Worst-case scenario, we'll get back to everyone's questions after the presentation.

Ayelet Duskis: Correct. All right, so we're going to talk a little bit about how to actually compute the 904 limitation. So the first thing that you have to do is sort of say, "Wait, which parts of my income are U.S. source and which parts of my income are foreign source? Because I got to get that ratio, I got to get that percentage." So this is my little cheat sheet. If you're at my K-2, K-3 class, it's the same cheat sheet I had for my K-2, K-3 class, but it's a good cheat sheet.

Interest, in general, I know that some people in Israel treat interest differently based on the treaty for whatever reasons, but in general, interest is source based on the resonance of the person that's paying the interest. Dividends is sourced based on if the corporate is a U.S. corp or a foreign corp. Rent is going to be based on what property it is. Royalties is also based on the location where the property is. We've got capital gains, that's based on where the sellers tax home is. It's pretty intuitive most of the time for things like this. Something like pensions might not be so intuitive, because it could be like, "Hey, I'm sitting in X country, but I worked in Y country to earn that pension." So in general, irregardless of treaties, before you look at treaties, the pension would be sourced to where the services were performed that allowed you to earn the pension. So those are all just different places where we're sourcing our income.

So the first step we're going to do is figure out where we're sourcing our income, what can be sourced where, and then also, what basket it's going in. So it's not just where I'm sourcing it, I'm basketing it, we're calling it. So I'm saying, "Okay, this is sourced Israel in my foreign basket, in my passive basket, and this is sourced Israel, in my general basket." And the resource by treaty, what somebody was asking about, is a completely different basket. So that's going to be sourced in a completely different basket with its own credits. We have to keep it separate when we're calculating our limitations and all of that.

Once we've done all of that and when we look at the 1116, we're going to say, "Oh, now we understand it in a way we never did before," because it's really just going through these steps. Once we've done all of that, we're going to allocate and apportion our deductions to that income. The first thing we do is look at deductions that will be directly allocated to certain sources of income. So if you have a foreign branch and you're sourcing that income to foreign, because it's a branch, and they have their own books and records, and on their own books and records, they have their own expenses, that is directly allocable to that foreign source income.

And the same regard, if you have GILTI income, your 250 deductions are directly allocable to that GILTI income. Everything that's not directly allocable, like you had a... I don't know, interest expense, whatever you had, and it's not... Interest is a hard one to say. Yeah, no, just to say, interest was not a good example, not a good example.

Brooke Bodziner: Interest is special.

Ayelet Duskis: So that was not a good example. Whatever expense you might've had otherwise, a good one is charity, you gave charity. So that's one that I see a lot in Israel. So if you have something like that, so then you would apportion randomly. So 50% of your income is U.S. and 50% of your income is foreign. So 50% of your charity deduction would be used to reduce your foreign-sourced income when you're figuring out what that percentage is going to be, that's a foreign source income, in order to calculate your foreign tax credit.

And then we got the losses. So really, part of the 904 limitation is the losses. So when I first started looking into this, I asked Brooke, do people actually do this? Because what's it basically saying is that, like I said before, if you have losses and the losses reduce your U.S. source income, you really have to keep track of those losses for the future. Because in the future, you're going to have to recapture them and reduce your foreign tax credit, because your foreign income reduced your taxes on U.S. source income, if that makes sense. Meaning you had a loss, it reduced your U.S. taxes on U.S. source income, and therefore in the future, we're going to decrease the amount of foreign tax credit you can take, because somewhere else, you reduced your taxes on the U.S. source side, if that makes sense. I'm trying to explain it in a way that is clear, but it's a little complicated.

So you're supposed to really keep track of on both sides, your U.S. source losses and your foreign source losses year over year. And then when it comes to a situation where last year, you had losses and then this year, you have income, you would do the recapture. So you were supposed to be keeping track of this year over year. So I said to Brooke, "Do people really keep track of this year over year?" And this was one of those places where she said, "The software is supposed to keep track of it, just like the software keeps track of our carryovers." So a lot of us probably, it's one of these things that we see on the 1116 and we go, "What is that? Should it be there? Why is my taxpayer's foreign tax credit getting reduced? That doesn't make sense. Why is it limited?" And it does make sense, it fits in with the rules of 904. The software is doing it for us, it's calculating it for us, this is why, because you're not allowed to benefit twice from the losses.

Brooke Bodziner: Right. And this is also probably one of those areas that in the individual space, it's going to be more of a rare fact pattern to have a U.S. domestic loss and perhaps foreign overall profits or vice versa. So I know personally, when I was practicing in the U.S. as a domestic practitioner, I think I had one client generate an overall loss one time. So having the overall domestic loss and then thinking about, well, were they profitable from their foreign source income at that time? That's questionable. And I think having fact patterns like that, this is a very big foreign corporate concept.

Ayelet Duskis: Yeah, I think it's part of the [inaudible 01:00:37].

Brooke Bodziner: You're going to see it when in a multinational business concept, perhaps not as often in the individual context.

Ayelet Duskis:

But it is there and it does exist. And I know I've seen it. And I know in the past, maybe many, many years ago, I've seen it and somebody said a comment that I really appreciate, they said, "So deleting that number when CCH sticks it on the 1116 isn't a good idea, right?" And yeah, I know in the past, I looked, I said, "Why is the... Doing this?" It does exist, it happens. Maybe it happens rarely, but it does exist, and deleting it is not a good idea, so...

Brooke Bodziner: No.

Ayelet Duskis: ... you should know.

Brooke Bodziner: It's there for a reason, it means you might need to vet the calculation. But the software is smart.

Ayelet Duskis: Pretty smart, yeah.

Brooke Bodziner: It knows what it's doing. These are really complex calculations. Year over year, there's a lot of more limitations than I think people realize are happening. And it's not kicking things out in error, I think it's probably right more than you realize.

Ayelet Duskis: Which is one of those like... Though brings us to this class, should be hopefully empowering us, because maybe before, we never understood why the software was doing what they were doing. We just kind of knew the software was smart, so we let it go and now we can maybe understand it a little better and feel a little stronger on the tax returns that we prepare. So this is definitely one of those examples.

Also just very important, I know we touched on this a lot already, but this is also part of 904, is that any of the unused foreign taxes can be carried over to the future year or they can be carried back by one year. So everything besides for the GILTI basket. The 951A basket doesn't get to be carried over, but everything else does get to be carried over. The 1118, if your corporation actually has a whole schedule that shows your carryover taxes. But even with the 1116 for an individual, if you have foreign taxes, you should have some sort of schedule that shows your carryover computation.

And again, this is one of these places where the software does it for us, and we follow the software, and we trust the software. But we do need that schedule. And probably, one of my biggest review comments when I take a new client in is that the staff or the preparer takes last year's tax return, and then they start preparing this year's tax return, and they forgot to add all the foreign tax credit carryovers. Just like they might forget to add the capital loss carryovers, because the software normally does it for us. We're not used to it, but it's really important that we keep in mind that the software is doing it for us and we need it. And it's there, it's important. I know we've kind of beat a dead horse a little bit on that. So I'm going to hand over the reins to Brooke, who's going to talk to us about the new regulations.

Brooke Bodziner: So we have a polling question before I start, just to have an idea. Polling question number four, I'm looking to gauge everyone's familiarity with these new regulations. So this says, "I'm familiar with the new FTC regulations and ready to implement them," true or false? So someone asked that polling question earlier...

Brooke Bodziner: So, someone asked a polling question earlier and I responded, but I think it's worthwhile bringing it up to everyone. The resource treaty baskets, they are, therefore when the code would say that something is US source income, but because of the treaties that we are a part of, the treaty then allows us to resource that income, so that we can use a foreign tax credit to offset double taxation. This is something that requires a lot of analysis, because like I said, within the treaty there's a provision that says the United States has the right to tax the US person, so that's resident, green card holder citizen, on their US source income. So, I would say, don't go reading treaty one paragraph, or one line and being, "I can resource it," but that's what those baskets are. It's when you're using the treaty to move income, that would typically be US sourced too foreign to avail yourself of foreign tax credits.

So I think we have majority of our polls submitted. And so, okay, a lot of you are not familiar and ready to implement. I really don't want to implement them either. I'm being truthful. But I have to say that having seen the IRS chief counsel speak a few times, I think the IRS really is holding strong. The Treasury feels that they need to move in this new direction because there's a lot of countries that are implementing these digital service taxes that don't rely on the traditional nexus that everything used to hinge on in a pre-digital world. And so they feel they need to do this to protect their piece of the pie, so to speak.

So, these regulations were issued in January of '22, and initially were set to apply to taxpayers beginning on or after December 28th 2021. As everyone knows, on July 22nd of 2023, there was a notice that suspended the regulations for the tax years 2022 and 2023. And then on December 11th of 2023, we got an additional notice that extends temporary relief until the date that the notice or other guidance withdrawing or modifying the temporary relief issued comes out. So currently, they're suspended.

Ayelet Duskis: Do you think that's going to stay suspended?

Brooke Bodziner: I think they're working on changing them and figuring out how they're going to roll this out. I think there's a lot of, how are they going to administer this? They've already said that 901 and 903, so taxes that are eligible for a credit, right now they're on the no opinion list. They're not coming out with a list of credits that are eligible for tax. They're not going to hand it to everyone. So, how do they go about auditing people? I think there's been a lot of pushback from practitioners saying, "What do you mean? How do we handle X, Y and Z?" Which we'll get into. And it made them really take a step back and look at what came out. And I don't think they will be pulled back entirely. II wish that that would be the case, but based on just sitting in a lot of panels with government representatives, people who work directly at the treasury, it doesn't seem like that will happen. It just seems like things will continue to be modified, and this is going to be the new way, the new world.

So, I'm going to start with a very basic, we're going to go back to 10,000 feet right now. And that's not all taxes paid to foreign jurisdiction are eligible for a credit against US income. So like real estate taxes that you pay in Israel, that you pay in Russia, anywhere, those aren't creditable taxes because they're not income taxes. So the... Sorry, I just need some water. So the first step in understanding if you have a creditable foreign tax is to look at each separate levy. And now, one thing that I think is important to point out, if you have taxes from a country, a state, a canton, any region within, those are all considered separate levees. So, just because it's the same, they're all different governments according to our regulations.

So, each levy is looked at differently, and the first thing that you need to conclude is that the levy is creditable under section 901. And that means that it is akin to an income tax. If it's not akin to an income tax, then we would look to in lieu of an income tax under 903. So, we've had some standards to help us determine if you meet the income tax test. The only thing that's changed in these standards are our four new concepts, the realization gross receipts, cost recovery and attribution. So, the fact that it needs to be a compulsory payment pursuant to the foreign country's authority to levy taxes, has always been there. You can't just have the option to make the payment, it needs to be compulsory. The predominant character is that of an income tax, has always been a requirement. And the fact that it's not a soak-up tax, has always been a requirement. And a soak-up tax just means that you are going to pay this tax based on the availability of a foreign credit on your income in another country.

So instead of them having you maybe not do business there, or paying higher taxes, they're going to institute this tax that's going to sort of help you lower your overall tax rate. So, it would just be creating some sort of scheme to get around it, and it's creating a larger tax in a foreign country, and knowing that you'll get a credit here. That's considered a soak-up tax.

So, these all have always been out there. But the criteria that you need to meet, and you need to meet all four of them, under the 901-2 regulations, have changed substantially. And when we looked at what we had was, we always had realization, we always had gross receipts, but net income has changed the cost recovery, and attribution is new. And so I'm going to step into these four different tests, and describe what it means to meet them. And so if you look at each separate levy and you can determine first that it's a compulsory payment with the predominant character US tax, and it's not a soak-up tax, and then we meet these four criteria, then you have determined you have a credible tax.

One other thing that has been challenging and is very different, in the 901-2 regulations, the standard to determine if a tax is an income tax in the US sense, was in the US sense. But now it indicates that you're going to be looking to the foreign law to help you make that determination. And so this is something that's garnered a lot of attention from practitioners. It's very burdensome given the international nature of our businesses now, because it requires an understanding of foreign law. And again, as I noted, the IRS has indicated, and Treasury's indicated, this is still on the no-rule list. So, how everyone is going to interpret foreign law to determine the dominant character is a hurdle that I think needs to be addressed.

So, the realization requirement, it's a timing requirement. It's ensures that your taxpayer has received the income before being obligated to pay taxes on it. But there are allowances for CFC regimes, market to market regimes. So everything that we're used to having deemed receipts of, is allowed for, but it's just basically making sure the regular timing of net income that we've always had. The gross receipts requirement, and I am going to go deeper into it. I think maybe we'll skip this. This is just a nice visualization for everyone. I just thought it's something to think about. And for me personally, it's something good to have, to look at, when we actually have to start assessing the taxes.

So gross receipts, it's an income requirement. It's saying that you're basing the tax on basis of the gross receipts, not something that's greater than your fair market value. Not some inflated value, but what you actually have in hand, and that you can then have cost recovery, which means that you have been afforded the right to recover a significant amount of your costs, which we're going to talk about what that significant amount of costs actually means. And it's consistent with the US rules.

And attribution is the new nexus requirement. The country has to have sufficient reasonable attribution and authority to tax this in the government's views.

Ayelet Duskis: Can I ask a question?

Brooke Bodziner: Yes.

Ayelet Duskis: I just don't understand in terms of gross receipts and the cost recovery. So, if I have a tax, let's say on unrealized income, that would fail the gross receipts test.

Brooke Bodziner:Correct.

Ayelet Duskis: And if I had a flat tax on my gross receipts that I wasn't allowed to reduce by expenses that would fail my cost recovery, or you're going to explain that to me now?

Brooke Bodziner: A flat tax on your gross receipts would-

Ayelet Duskis: Meaning, in Israel we pay 10% tax on rental income.

Brooke Bodziner: Yeah, I think that, because it's not allowing for any deductions, that's going to fail cost recovery.

Ayelet Duskis: Interesting. Okay.

Brooke Bodziner: Yeah. So, I like this slide, because for once it looks like we're actually simplifying something. The new notice is saying, and the reason that they had to change this was, the cost recovery said that you needed to recover significantly all of your costs. And there was a lot of discourse around what significantly all meant. There'd be local rules surrounding limitations. We have 163-J, we have limits, like R&D now has to be amortized. So even meals and entertainment. All these things that we adjust, how much you can deduct for, what is significantly all of your costs. So, they've come out and said that no foreign tax whose base is gross receipts, or gross income, satisfies the net income requirement. Except in the case of a foreign tax whose base consists solely of investment income that is not derived from a trade or business, or wage income or both. So I would think that in the case of the rental income, even though we usually think of that as passive and sometimes investment, I don't think it falls into this type of investment income, because you really are running significant costs.

Ayelet Duskis: So I would really be stuck if I have rental income, and it's a 10% flat tax on my gross receipts.

Brooke Bodziner: Yeah, that sounds, I did not know about that before right now. Otherwise, I would've done some more-

Ayelet Duskis: Sorry, I should have told you. I was waiting to ask you.

Brooke Bodziner: That's not good. And as I'll go into the safe harbors of cost recovery, I just don't see where you're at. That's very unfavorable, because substantially all has been given some safe harbors to help everyone understand what they are. And so the disallowance of cost is permitted if it's on a ceded portion of an item, or multiple items. And the total portion of that item, or the items that is disallowed, does not exceed 25% of the items. So meaning, if interest is disallowed and you don't exceed 25% of it, that's okay. And you could say interest, and meals, and charity, and if they all don't exceed 25%, that's the first day of harbor.

And I'm seeing someone asking when these regulations come into effect. And as they are right now, they are suspended, we have no information about when they're coming into effect. And anything and everything that I'm saying is subject to change. So again, the treasury is actively looking at these, they have a lot of comments... Jen's making a point, which is what I'm kind of going back and forth in my head with about rental being the DAP, and maybe being in that exception.

Ayelet Duskis: Yeah. So my dear friend Shaul is saying the same thing, that maybe it really is more like investment income. But from the US tax perspective... I think I lost you for a second. Is it me, or is it you?

Brooke Bodziner: Can you hear me?

Ayelet Duskis: I can hear you.

Brooke Bodziner: Okay. I'm wondering if their intent with the investment income is to fall to have real estate fall in there, but...

Ayelet Duskis: Yeah, I'm not sure.

Brooke Bodziner: I'm not either.

Ayelet Duskis: Also, I was thinking about it from more like the US tax perspective of, if the taxpayer wants to treat it as an investment income, meaning from the foreign person investing in the US would have to elect to be treating this as passive income. It's like that's kind of why I thought of it as a genera. But maybe it is, it's really more investment income and then it's okay. I'm not sure. But I think it's a question mark, and it's going to be something we have to explore.

Brooke Bodziner: I could see that absolutely being a position that it's investment income, and that's exempt from this cost recovery. But...

Ayelet Duskis: I definitely think it's a question mark.

Brooke Bodziner: Yeah. And I wonder if there's really anything definitive at this time surrounding that, because again, this is not in fact right now, this tax is creditable. But the second safe harbor for the cost recovery requirement... Oh, we're missing my... Okay. Give me one second to read this, because it's wordy and I had some polls here to make it easier to understand and it didn't take.

Okay. So, there's two different prompts to the safe harbor. A stated portion of gross receipts, gross income or a similar measure, that is not less than 50% of such measures. So, if there's a limitation that caps the recovery of an item, or multiple items that relate to a single category of significant costs and expenses, and by single category they mean like interest, or royalties, or something like that, you're going to then look at either gross receipts, or gross income, and 15% of your gross receipts. If the limitation on those items is not less than 15% of that measure, then you're good.

And then there's also taxable income. If you are 30%, you're good. So, there's a lot of different ways for the safe harbors to make sure that you meet their substantially all, which is a lot more clarification than we initially had when they just wrote substantially all in the initial regulations.

Now, attribution. This is our new requirement. And it applies to 901 and 903 taxes. And this is really what the government implemented in response to those digital service taxes. So it depends on if you are a resident, or if you are a non-resident. It's really interesting, because if you're a non-resident, there's bunch of different ways you can meet it, you only have to meet one of the tests. And that's probably because, depending on the type of transaction you have, you're only really going to be eligible to meet one of these. But for residents, all you have to do is have paid the Arm's Length test.

So, the really big takeaway from that was, Brazil's transfer pricing was not using the Arm's Length methodology. Since this has come out, Brazil has taken steps to be in line with the OECD, or the Arm's Length method. So it would seem that in the future we would perhaps be able to use the Brazilian taxes, but that was a huge question in 2022, even 2023. But they are moving towards it. They can early adopt in Brazil the new transfer pricing regulations. So, as long as the countries are under an Arm's Length standard. Yes.

Ayelet Duskis: So Brooke, if I'm a resident of Israel from a perspective of I actually sit here and I live in Israel, but I know that I file a US tax return like any US tax resident for these purposes, would I be considered a resident or a non-resident?

Brooke Bodziner: You're a resident. You're filing a resident return.

Ayelet Duskis: Okay. Meaning it's based on if I'm a US tax resident, not actually where I live. So every US citizen is resident.

Brooke Bodziner: Yes. And then when you're looking at the foreign levies, then you're looking at the non-resident requirements.

Ayelet Duskis: Okay.

Brooke Bodziner: Because these are requirements for the taxes to be creditable or non-creditable. So if the tax is assessed on you in an area where you are a non-resident, then we're going to look at the attribution tests for places that you are a non-resident. Does that make sense?

Ayelet Duskis: Yeah.

Brooke Bodziner: Because remember, we're looking at each levy separately. And then within that levy, how does it fit with the taxpayer's narrative?

Ayelet Duskis: Okay.

Brooke Bodziner: So, if you had a rental property in the south of France...

Ayelet Duskis: Sounds good.

Brooke Bodziner: Yeah, sounds great.

Ayelet Duskis: I'll be there.

Brooke Bodziner: We would be looking at, are your taxes on a property [inaudible 01:28:32] based like nexus-based sort of jurisdiction? If it's services or royalties, are their rules looking similar to the United States? Now, this one gets tricky because, in a lot of places, royalty income is not sourced in the same way that the United States sources royalties. We look at where the IP is exploited. That was quite an issue that a lot of people were concerned about, because withholding on royalty taxes is very common. And a lot of companies were like based on this, if they're not sourcing royalties to where they're exploited, but perhaps where the IP is owned, that's going to be problematic. So I'll talk about that.

And services, the other country must be looking to source them based on where they're performed. And then we have up top activities. So ECI or permanent establishment type principles. Nothing that's going to be destination-based. So no remote sales that are triggering taxes, and nothing that's attributing your activities because of an independent agent or affiliate. So, they want you to actually be on the ground. So think big picture, the point of this was to limit what they felt like the digital service taxes were overreaching with the activities-based nexus the overreaching is what I'm thinking about. So that's why ECI and P type principles make sense to me.

So here's another really pretty picture to make everything sit a little bit better. If you are a resident and you're looking at taxes, so maybe this is for everyone who's living in Israel and also filing US 1040, your Israeli taxes are under this Arm's Length principle. But then if you have any other foreign taxes outside of Israel, they're under the non-resident principles. That's how you want to think about that.

And then this is the exception for the royalty withholding that I was talking about. So, as a workaround of the fact that the US sourcing rules for royalties didn't really line up with most of the rest of the world, they came up with this single country license exception for royalty withholding in proposed regulations that said, the place of use, or the right to use... Or the payer or location of registration in other jurisdictions, is often what other countries are looking at.

So, what we can do here is, if you get all new royalty agreements that say that you're only licensed to exploit this royalty within a single country, it would meet the exception, and you can use your royalty withholding. Because then you would only be exploiting in Israel, you'd only be exploiting in Italy. Wherever that single country is, it meets our side, it would probably also then meet the foreign jurisdiction, and the two sides merge. This came out in 2023. So, I think the time to execute this you for back year royalties has come and gone. But for new royalty agreements, you just need to have it signed no later than 30 days of the payment. So, that is something to think about if you have a lot of loyalty agreements for client on a prospective basis.

All right. We're going to move on. So we're going to try and go to some practical examples.

Ayelet Duskis: Do you remember, Brooke, that we were afraid that this wasn't enough material for the time?

Brooke Bodziner: thank you guys for the questions.

Ayelet Duskis: we really appreciate it. It's true.

All right. So I'm going to do the first, then we're going to flip back and forth, but these are just some simple practical examples. But if you have a taxpayer who's a resident of Israel and they earned salary in Israel, so they have salary on what's called a Form 106, which is the W-II equivalent for those of you that are not in Israel, and they also have interest dividends and capital gains, all coming from Israeli banks or Israeli brokerages, how should that be sourced? And in the opposite, sometimes you have a taxpayer that's a resident of Israel, and they have salary in Israel, but their interest dividends in capital gains are all coming from a brokerage account in the United States. So, how would that be sourced differently? So, our salary is going to be sourced to Israel, and that's going to be in our general limitation basket.

Our interest in general is... We'll start with our capital gains. That's easier. Capital gains are sourced based on residence. So if I'm a resident of Israel, they're sourced to Israel. It doesn't matter where the stock was. I'm a resident of Israel, my capital gains are sourced to Israel.

My dividends, also quite clear. It's sourced on wherever the corporation that paid me the dividend, wherever they are, wherever they're domiciled or whatever, that's where I'm sourcing my dividends. So if I'm getting dividends from Google, whatever, inc. in the United States, that's going to be US source. And if I'm getting dividends in Israel from Rami, Levy, the supermarket, those dividends are going to be Israeli sourced.

Interest is an interesting question. And again, the capital gains of the dividends, it didn't matter that it came from a US brokerage or an Israeli brokerage. They were going to be treated the same. Interest is going to be treated based on the person that's paying you the interest. So, if you're getting it from an Israeli broker, then the interest is coming from the bank is paying you interest on the cash that you're lending them, so to speak. That interest is going to be sourced to Israel. If the interest is coming on a 1099, and it's from your bank account in Chase in New York City, that interest is going to be...

Ayelet Duskis: Account in Chase in New York City, that interest is going to be sourced to the United States. Even though you're a resident of Israel, that interest is going to be sourced to the United States. Now I have seen, I saw somebody commented on this and they said, "Where does it say this in the treaty?" And I have looked and tried to find it in the treaty and I haven't necessarily been able to, but I've seen US tax [inaudible 01:36:22] in Israel say that they can resource interest to Israel. Again, I didn't see that anywhere on the treaty, but I know people do it, which is why I'm bringing it up. And if somebody understands the logic behind it, I would love to hear it, because I feel like there's a little piece that I don't quite understand why. But when I'm preparing a tax return, I look at if the interest is coming from JPMorgan Chase, it's going to be US source. And if the interest is coming from Bank Leumi, it's going to be Israeli sourced. All right, Brooke, I'll let you do the next example.

Brooke Bodziner: That's interesting. I'm going to have to read the treaty after and tell you what I think.

Ayelet Duskis: I would love to hear your thoughts.

Brooke Bodziner: Yeah, I'm not sure about that. Okay. So under the January 2022 regulations are the following taxes credible: taxes paid on capital gains, not real property, in Brazil by a resident of the US. Taxes paid on capital gains, not real property, in Brazil by a resident of Israel. Income taxes paid on self-employment income. Self-employment taxes paid on self-employment income. 10% gross income tax on Israeli rental income. Oh, so we put that one in.

Ayelet Duskis: I did, because I had a question for you about it. Would it fit into the definition of cost recovery? I don't know.

Brooke Bodziner: I didn't notice that one.

Ayelet Duskis: I knew I wanted to talk to you about it.

Brooke Bodziner: So the taxes paid on capital gains in Brazil, so by a resident of the United States. No, the income resource to the US and the taxes as far as being credible... Well, I'm sorry, I changed this on you, Ayelet, and that's not right. If it's US source income, there's no foreign tax credit and you wouldn't do anything with the taxes. But the taxes paid on capital gains by a resident of Israel. Yes, the income resource to Israel, the taxes would be creditable if Brazil had early adopted the transfer pricing regulation. So I apologize, this top thing belongs in the second line. The income taxes paid on self-employment. Yes. Self-employment taxes paid on self-employment income. No. And then the jury's really out on this gross income tax on Israeli rental income. Clearly I was not... I don't know where I was on this, so I'm sorry.

Ayelet Duskis: I should have [inaudible 01:39:14] it to you, but I knew it was something I wanted to talk about with you. I was like, I don't know. And maybe we do say it's passive income. I don't know. I'm not a hundred percent sure.

Brooke Bodziner: I think that that's definitely a position people are going to be talking about taking. I'm actually really curious about what Treasury thinks about that because they're giving you that carve out and there's certainly an argument to be made there.

Ayelet Duskis: Right. All right.

Brooke Bodziner: Okay, so let's go over this 904 limitation because I think that was something that some of the people on the call didn't really get at first.

Ayelet Duskis: Yeah, I think when you see with the numbers it works a lot better. So this question's quite clear just when you look at the numbers. We're accountants, we like numbers. But if we have $200 of income, basically we're a US Corp, we have $200 of income and 100 of it is US source, 100 of it is foreign source. So we're literally in the 50/50%. In the foreign jurisdiction, it's a 30% tax rate, whereas in the US it's a 21% tax rate. So remember the first thing we're going to do is figure out what's our US tentative tax. So on the entire $200, our US tentative tax would be $42, but we've paid $30 in the foreign jurisdiction. So if there was no limitation, we'd say, okay, great, we've got our $42, we've got our foreign tax credit is going to be $30 and we're going to end up with our US tax liability of $12, which again, we had $100 of US source income, so we're really only paying 12%. That's what it's going to look like without the limitation.

So section 904 comes in and says, wait a minute, you can't take foreign tax credits on US source income. We are going to limit you. So now we're going to say what's our foreign tax credit limitation? So we know we've got the 100 over the 200, we've got this 50%, we're going to multiply our tentative US tax of 42% by the 50%, and that's going to give us 21%. So we are only allowed to take foreign tax credit of up to 21% of $21. In this case we have $21. So our US tax is going to end up being $21. We get to carry over $9. If we only had $18, our foreign tax credit would be $18 and we'd have to pay that $3 differential. But that's it in numbers. I'm going fast because I know we are running out of time.

Brooke Bodziner: Okay, that's polling question number five. You lived and worked in Iran until August and then you were transferred to Israel.

Ayelet Duskis: I thought that was a funny one. And that was before any plane crashes yesterday.

Brooke Bodziner: You paid taxes to each country on the income you earned in that country. Which of the following is true? Because Iran is a sanctioned country I cannot claim the foreign taxes paid to Iran on the 1116, but my salary will still be in the general basket and I can use the Israeli taxes paid to reduce US taxes on my Iranian salary. Or B, I can treat the taxes paid in Iran like any other taxes paid on the general limitation bucket. Or C, because Iran is a sanctioned country I cannot claim the foreign taxes paid to Iran on the 1116 and my salary will be in the 901(j) category of income, as such my general limitation taxes paid in Israel cannot offset my US taxes due on this salary.

Ayelet Duskis: You have to scroll down to submit because it's a long question. So make sure you hit the submit button.

Brooke Bodziner: Bonus if you get this right because we didn't talk about this concept.

Ayelet Duskis: I know. So I think we were meant to talk about this. The taxes on a sanctioned country are their own basket. So just like of the general limitation basket, and we have the passive basket, taxes paid to a different country, to a sanctioned country, which is I think like Iran and I don't know, Afghanistan, scary places like that. Those are in their own bucket. So they're basketed separately.

Brooke Bodziner: Yes. It's like Iran, I think Iraq, Kuwait, Qatar. I know that the UAE is no longer there. It's been removed and couple other... There's only a handful of places, but... Okay I think we should move because we're running out of time.

Ayelet Duskis: Yeah, we're running out of time.

Brooke Bodziner: So the answer is that they go in the 901(j) basket. They're not viable for credit. So that would be C.

Ayelet Duskis: And since my income is associated with those taxes, that income's in that basket, that's it. I can't combine it with my general limitation. It's going to be a loan by itself.

Brooke Bodziner: And there's also a special disclosure for doing business or generating income in a sanctioned country. So you're going to want to make sure you take care of that. So we just wanted to briefly go over a little bit of the reporting for these credits.

Ayelet Duskis: So the way that I looked at this when I was looking at it was like, wow, I can understand how the 904 is being calculated now by looking at the 1116. I wanted to run through it super fast because... Anyways, there's no time. I'm laughing at myself a little. But you can see the first thing we're going to do is say what basket does it belong in? And then we're going to look at gross income in parts one and we're going to allocate our deductions in parts two, all in part one, but in section two of that. And then we've got part two where we're going to... I pointed out we have our pay to recruit and we're going to put in how much it was, and then we're going to look at our taxes on the next page and see if we have any adjustments.

So like line 12, if you took the 2555, any of the taxes associated with the income that was excluded is going to come out on line 12. The high tax kick out, which we talked about before is on line 13. Again, I'm running through this. Probably people are pretty familiar with this form and I know we're short on time. I really wanted to point out line 16, that's where all those losses that we were talking about before go. So when you see all of a sudden the software put a negative number over there and you have these carryover losses, that's where they're going to go. And also, I really wanted to point out line 18. This is where if you have qualified dividends or capital gains, the full amount of the qualified dividends or capital gains doesn't get to go into your number to calculate your percentage because you're not paying the full taxes on those amounts.

You're not paying at your regular tax rate. So there's a whole calculation. It's another slide, you could look at it later. But you've reduced the amount of income that you include for your capital gains or qualified dividends when you're calculating how much of my income is foreign source. And finally we get to the lines 21, 22, 23, 24. This is where we're basically doing that 904 calculation. Now we know how much our income is, we know how much our foreign taxes is, we've figured out how much is foreign source, what's our percentage. Okay, what's our tentative US tax? Multiply it by our percentage, this is the amount of foreign tax credits we're allowed to take. Did we pay that amount? We can take up to the amount that we paid. And then we've got our summary. So that's the 1116 in really, really short and I'm going to pretty much fly through it.

And again, this is talking about the capital gains, which I pointed out. And we have a polling question and then I'm going to let Brooke talk about the 1118. So polling question is, Chaya has $200 of foreign sourced capital gains in the 15% tax rate group, how much gain should she be included in line 1a of her 1116? So remember she's going to be reducing her... I missed something else because it's not line 1a, it's line whatever. How much is she going to reduce her foreign... How much is she going to reduce her $200 capital gains by if she's in the 15% tax rate group? So again, we skipped, but if you're in the 15% tax rate group, then you're going to only take 40% of your capital gains. So I believe I'm going to give it away for you, but I believe that is the $81 is the 40%. So we'll give you guys another second. Again, I gave the answer away.

Brooke Bodziner: And just not to beat a dead horse, but what we're getting at here is if you're getting that benefit and the rate, then the income is going to have to be reduced to reflect that on the 1116. So that's not something that you would see on the 1118 because there are no beneficial rates. But it's something that I know when I was first starting to practice on the 1116, I'm like, what are they doing? It didn't click. And so make sure you're also scrolling down to submit your answer.

Ayelet Duskis: Yeah, because I see that only... I'll give you guys one more second. But Brooke, what do you say to talking about the 1118 while we do the next polling question? So we make sure that they get the polling question, is that crazy?

Brooke Bodziner: Okay. So I should click?

Ayelet Duskis: Yeah.

Brooke Bodziner: Okay. All right, so we're at...

Ayelet Duskis: Yeah, the right answer was the 81%. Yeah.

Brooke Bodziner: Yes. And also I misspoke before, the UAE was a boycott country not a sanctioned country. So, sorry about that.

Ayelet Duskis: Actually, we have peace with the UAE now.

Brooke Bodziner: Yeah, and there's difference between sanction and the boycott countries. So just like the 1116, the 1118, you're doing a separate form for the separate categories. Your separate category is going to go right up here. You're going to add your direct or indirect credits here. So if it's indirect, we're adding your... I'm sorry, these are where your indirect credits go and you're adding your EIN or your reference ID, the foreign country coming from. This is your income... Your gross up. And then you could see there's different columns for dividends, interest, rents, royalties, if it's sales, if it's services, if you have a foreign currency, income generation. And then you need to tell them what kind it is. So that might be a 986, a 988.

And this is for other types of income. So that's these two sections. Then you've got all of those same basically columns are again reported, but this is for your deductions associated. And you then go to your next page, and this is where your direct foreign tax credits get reported. And also the indirect payments are coming for the deemed paid here as well. And if you have your deemed paid taxes for sub-part F and they're calculated on schedule C or schedule... Do we have a full schedule D on here? I don't think we do.

Ayelet Duskis: I don't think I put-

Brooke Bodziner: Schedule D is where there's guilty.

Ayelet Duskis: I just put a schedule of what...

Brooke Bodziner: Yeah, there's a whole schedule for guilty that's going to all flow up through and here and pull down to this part two where we're again doing the 904 calculations and you'll see there's the total foreign tax credits, your total taxable income, and then it divides to get your fraction of what's allowed and then your total US income tax, which credit is allowed. And then they're going to multiply that by your foreign tax credits. So you actually get down to your separate foreign tax credit, that single basket limitation. So there's different deemed paid credit schedules for different types of income generation. And there's a lot of sections to the 1118. There's schedules for... And we have this whole layout here. There's [inaudible 01:53:18]-

Ayelet Duskis: I wasn't putting screenshots of every schedule because it's way too big. It would've been like 20 pages.

Brooke Bodziner: So schedule C is for sub-part F, schedule D is for guilty. There's things to be done with distributions of PTEP on schedule E. I'm not going to go through all of these. I really want to talk about the Christensen case. So let's just keep it moving. And then polling question number seven. True or false. I'm awake.

Ayelet Duskis: It's such an interesting conversation. Yeah, switch to the next polling question. I mean guys, come one, only 16% have submitted answers so far.

Brooke Bodziner: Yeah, I think the answer is no, but we can start talking about Christensen, which is...

Ayelet Duskis: I think you should start talking about Christensen and I'll flip it over when I think it's time and then I'll just flip to the next one.

Brooke Bodziner: Yeah, so the net investment income tax is a tax that is not under chapter one of the IRC. It was put out there I think during the Obama administration.

Ayelet Duskis: Yeah, they called it the Obamacare tax.

Brooke Bodziner: Medicare taxes. Yeah.

Ayelet Duskis: Exactly. Obamacare tax.

Brooke Bodziner: When you look in the code at the foreign tax credit regulations, they say that it can be used to offset taxes that are ultimately levied-

Ayelet Duskis: Look, they're awake. I'm switching to the next polling question, but please listen to Brooke and just answer the polling question.

Brooke Bodziner: I'm going to... Just give me a second. So it says that you can use foreign taxes for credits that are levied under chapter one. And this is not cooperating with me and I need the slides. I'm sorry guys. Sorry.

Ayelet Duskis: Okay. Give it like 10 more seconds. Please answer the polling question. Give it like 10 more seconds so she can move back to the slides.

Brooke Bodziner: And then I'll... Yeah, because I need the...

Ayelet Duskis: Yeah. All right. Come on, answer the polling question. I'm giving you five more seconds. 3, 2, 1. Okay, now go to the slide that you need.

Brooke Bodziner: Sorry, everyone.This I did not commit to memory.

Ayelet Duskis: How do I push? Oh, got it. There you go.

Brooke Bodziner: Okay. So let's take a step back to the Christensen case, which is that we have US citizens that are living in France and they wanted to use their foreign tax credit to offset their net investment income tax. And the reason I'm talking about where the net investment income tax resides in our tax code is because the US-France tax treaty has two paragraphs in it that say two different things. Paragraph 2(a) of Article 24 says that you are allowed to take a foreign tax credit against US income for French income tax paid by US citizens or residents subject to US law limitations. So this is kind of hearkening back to what I said earlier, where the United States has, and there's more to what I'm saying here, but the United States still has the authority to tax its US citizens. So subject to US law limitations, and when you look further into the code for regulations, this paragraph is limited by code section 27 and 901(a), which say a foreign tax credit is only allowed for taxes imposed under chapter one.

But the following paragraph of the US-French treaty says that individuals who are both residents of France and US citizens are allowed a foreign tax credit against US income for French income tax paid with certain restrictions. But they don't have the limitation of... They don't have that limited wording that I just mentioned, which is subject to US laws and limitations. And that was the argument of the entire case saying that this treaty basically is giving them the right to subvert the 27 and 901(a) limitations and use the net investment income tax as a US tax that can be offset as a foreign tax credit.

And so that's not something that we normally see. So they won. And then on April 22nd 2024, the IRS appealed. And how does this look on a return is interesting because I think you would probably have to, not probably, it is unlikely that your system is going to consider the net investment income tax as part of that overall tax limitation of US taxes computed for that 904 limit. It is a position I think that... I also read that in the past, there've been other cases decided in this favor, favorably in this way. But the French treaty is very unique. You do have a double tax relief provision in the US-Israeli treaty. I think the question on that provision is really, do you have a second provision that's going to get you out of the parts that bind you to the US regulations?

Ayelet Duskis: I think the most interesting thing here is just going to be in the end of the day, what's going to happen? The IRS is appealing, is this going to work out? How's it going to play out? And it's going to definitely have a huge impact for taxpayers in Israel.

Brooke Bodziner: Yeah. And unfortunately we're past the point of the making protective refund relief for the earliest years, but you can still go back and file protective claims for some back years for clients who have paid, if that's something that is a sizable amount of tax.

Ayelet Duskis: Right now I'm telling clients it's a question mark and it depends on how risk averse you are. There's clients who would be like, I'd rather take the foreign tax credit. And okay, if the IRS comes back to me, fine, but there's other clients that would be like, I won't be able to sleep at night. I'd rather just pay it. And depending on what happens in the future, I could try to amend my return. So I know that there's the two sides. So when I'm talking to clients, my question I always ask is which one's going to be easier for you to sleep in bed at night with? And if the answer's like, I can't take the credit, I'm not... That's going to cause me a lot of tension than I'll say, so don't take it. But it's a big question mark.

Brooke Bodziner: Yeah, there's a lot of question marks in all of this, unfortunately. But I think the good news is that the... Right now, the new regulations which we're giving everyone a lot of anxiety I think are on the back burner and it gives us time to really think about issues like that 10% real estate tax and what is the best path forward so that when the IRS does repeal the current hiatus on them being effective, everyone will be ready.

Ayelet Duskis: So this is another hot topic, so a lot of this training ended up really being question marks. What's going to be, we don't know, but we'll find out. Always exciting in tax, there's always something new.

Brooke Bodziner: Yes, and thank you all for all of your participation. It was really great, and hopefully if we didn't get to you, we'll try to follow up with you.

Ayelet Duskis: Yeah, this is really a great bunch. And stay tuned because there'll be more, and if you have topics that you want me to cover or you want me to pull awesome people like Brooke in to cover, please let me know because we're definitely happy to have more of these classes in the future.

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