The Tax Times: January 2026

Tuesday, January 13, 2026

All That You Wanted to Know About Form 706NA - Part II

We previously posted All That You Wanted to Know About Form 706NA - Part I, where we discussed that in the area of estate tax compliance, many of us have prepared Form 706’s, the estate tax return for US citizens and domiciliaries. To be sure, this form is quite voluminous and can take a while to fill out but there are very few mysteries beyond schedule E; what percentage of an asset might be includable in an estate, the value of an annuity, what debts and expenses are deductible, the calculation of the marital deduction, and the generation-skipping tax computation. The Form 706NA, however, preparation of the tax return for the estate of the nonresident alien owning property in the United States, can present a more daunting task.

Based on our estate counsel Robert Blumenfeld's 32 years of experience as a senior attorney at the International office of the IRS, some of the strange and exotic problems that he discovered upon while auditing roughly 1,500 estate tax returns and preparing about 300 of the same in the last few years.

As he pointed out, one of the critical areas for each estate is to focus on is the decedent’s citizenship and domicile. To assist the IRS in reaching a conclusion, it is best to include the death certificate (required) as well as the birth certificate, passport, and any documents revealing the fact that the decedent expatriated from one country. This information may well be beneficial in avoiding an IRS examination. The problem is that once the IRS examines a tax return for one issue (i.e. citizenship or domicile), it opens the door for the IRS to examine a number of other issues that they might not have otherwise addressed. Kind of like opening Pandora's box.

After we get through the information about the decedent himself, we reach an area of the return, Part III, General Information. Most of it is pretty obvious but… The first area of major concern may be whether the decedent died intestate. Many people who have assets in several countries have country specific wills, for instance one for the United States and one for say Canada, England etc. If the decedent did die testate, one should always include the US will. If there are other wills, go through them carefully before you submit them to the IRS because they make contain data which would create questions or problems with the IRS. In the alternative, many folks have a Universal Will which covers the disposition of assets in all countries. Because of the difference of rules from country to country, such a universal will may create problems with assets passing to a surviving spouse or a charity.

Question two addresses debt obligations or other property located in the United States. One of the major problems that I saw as an auditor was that people will value the house or condominium in the United States allocating no value to the contents. In most cases this is not a big deal but in the case of an expensive property, I, as the auditor always requested (summoned if the estate did not cooperate) a copy of the insurance policy plus the floater. Generally I found nothing specific but from time to time, I found an art collection worth several million dollars, an automobile collection worth over million dollars, and an extensive collection of rare China worse close to $1 million. If the client is wealthy or as expensive real estate in the United States, obtain a copy of the insurance floater before you prepare the 706NA to avoid great embarrassment.

Question five relates to whether the decedent owned jointly held property in the United States. If the taxpayer plans to include 100% of the value of the asset, then this question should pose no problems. Two potential problems come to light: if the decedent came from a community property jurisdiction, is one half of the value of the asset excluded by operation of law in the foreign country? If one wishes to exclude a portion of an asset from a decedent in a non-community property jurisdiction, Section 2040 of the IRC places the onus again, of proving contribution on the surviving co-tenant. This can sometimes be a very difficult task, especially if the property is been held for a substantial number of years and many records/canceled checks etc. have been destroyed over the years.

Question six asks whether the decedent had ever been a US citizen. If the answer to the initial question is yes but at the time of death, the decedent is no longer a US citizen, it is necessary to include in the paperwork sent to the IRS some evidence that the decedent properly expatriated from the United States. Based on the timing, if this happened shortly before death, it could raise the issue of expatriation to avoid tax. Again, getting this information before preparing the return is a good way to avoiding embarrassment at the examination.

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Thursday, January 8, 2026

New IRS FCFC Rules: How IR-2026-03 Transforms 951B and Net CFC Tested Income

Treasury and the IRS used IR‑2026‑03 to roll out proposed regulations that overhaul how “foreign controlled foreign corporations” and “Net CFC Tested Income” work under the One, Big, Beautiful Bill Act, with big implications for U.S. owners of foreign entities starting in 2025–2026.

What IR-2026-03 does

IR‑2026‑03 announces proposed regulations implementing the new statutory framework for foreign controlled foreign corporations (FCFCs) and Net CFC Tested Income (NCTI) created by the One, Big, Beautiful Bill Act (OBBBA). The package is aimed at aligning Subpart F–style anti‑deferral rules with the 2025 legislative changes while narrowing some of the over‑breadth produced by prior attribution and GILTI regimes.

At a high level, the proposed rules translate the statute into mechanics: who is treated as a U.S. shareholder under the new regime, when a foreign corporation is an FCFC, and how NCTI inclusions are computed, allocated and reported. This is the guidance multinational groups and cross‑border closely held structures have been waiting for to model 2026 and later effective dates.

Key concepts: FCFCs and NCTI

The One, Big, Beautiful Bill Act introduced a new FCFC category to capture foreign corporations that are effectively controlled by U.S. persons through downward attribution from foreign parents or intermediaries. IR‑2026‑03’s proposed regulations define control thresholds, aggregation rules and safe harbors to distinguish targeted foreign‑parented structures from ordinary portfolio holdings.

On the income side, the Act rebrands and refines GILTI as Net CFC Tested Income, with new computational rules and interaction with foreign tax credits. The proposed regulations flesh out how to determine NCTI, allocate it among U.S. shareholders, coordinate it with existing Subpart F categories and apply new limitation rules added by OBBBA.

Effective dates and transition

Most of the OBBBA international provisions, including the FCFC and NCTI framework that IR‑2026‑03 addresses, are effective for tax years beginning after December 31, 2025. The proposed regulations generally follow those statutory effective dates but include limited transition relief and reliance rules, allowing taxpayers to adopt reasonable interpretations pending finalization.

For calendar‑year taxpayers, that means the new regime is live starting with the 2026 tax year, and modeling needs to begin now, even while rules are still technically in proposed form. The preamble also invites comments on several key definitional and computational issues, giving taxpayers a window to influence final guidance before it locks in.

Practical planning implications

For multinational groups with foreign‑parented structures, the FCFC rules will require a fresh look at ownership chains, voting and value, and prior reliance on the absence of CFC status. Structures that escaped Subpart F and GILTI purely because of foreign control may now generate NCTI inclusions and expanded information reporting for U.S. minority stakeholders.

U.S.‑parented groups face a different challenge: integrating the new NCTI computational rules with existing foreign tax credit planning, entity classification, and supply‑chain restructuring driven by the One, Big, Beautiful Bill’s broader rate and deduction changes.

For closely held clients, the message is simple but urgent: inventory all foreign entities, map constructive ownership under the new rules, and start “what‑if” modeling of NCTI now, rather than waiting for the first 2026 extension season.

Have an International IRS Tax Problem?

Contact the Tax Lawyers at

Marini & Associates, P.A.

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources:

1. https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-reflecting-changes-from-the-one-big-beautiful-bill-to-the-threshold-for-backup-withholding-on-certain-payments-made-through-third-parties

Retroactive QEF Relief: How Rev. Proc. 2026‑10 Helps Clean Up PFIC Nightmares

Rev. Proc. 2026‑10 gives PFIC shareholders a more structured path to request IRS consent for retroactive QEF elections via private letter ruling, while tightening documentation and “no prejudice” requirements. It is especially important for high‑net‑worth individuals and fund investors trying to escape punitive PFIC excess‑distribution treatment on legacy holdings.

A PFIC is a non-U.S. corporation that meets either the income test (at least 75% of its gross income is passive) or the asset test (at least 50% of its assets produce or are held for producing passive income). Common examples include foreign mutual funds, foreign ETFs, foreign hedge funds, and certain foreign pension plans.

What it covers

Rev. Proc. 2026‑10 supplements the general ruling procedures and focuses specifically on PLR requests for retroactive QEF elections under section 1295(b) and Treas. Reg. § 1.1295‑3(f). It applies to ruling requests received on or after January 20, 2026, and standardizes what the IRS expects in these submissions.

Key eligibility and “prejudice” test

The taxpayer must be seeking consent for a retroactive QEF election, and the IRS must find that granting relief will not prejudice the interests of the United States. The prejudice analysis looks at whether the retroactive election would effectively erase income, exploit timing rules, or undermine prior IRS examinations.

Evidence, affidavits, and protective statements

The procedure demands detailed factual statements, supporting documents, and affidavits from the shareholder and others with knowledge of the PFIC and the decision not to elect earlier. Shareholders that filed a PFIC protective statement under Treas. Reg. § 1.1295‑3(b)(2) are given a more favorable pathway if their original non‑PFIC belief was reasonable.

Multiple PFICs and user fees

Rev. Proc. 2026‑10 allows “substantially identical” retroactive QEF ruling requests to be bundled, with reduced user fees for additional substantially identical rulings in the same package. This is particularly relevant for family offices and funds holding multiple similar PFIC positions.

Practical takeaways

Advisors now have a clear checklist but a higher bar for retroactive QEF relief, making weak, lightly documented cases harder to sustain. Going forward, systematically spotting PFICs, filing protective statements, and preserving detailed investment records will be critical for clients who may someday need to rely on Rev. Proc. 2026‑10 to clean up PFIC exposure.

Have an IRS Tax Problem?

Contact the Tax Lawyers at

Marini & Associates, P.A.

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources:

1. https://www.irs.gov/pub/irs-drop/rp-26-10.pdf

2. https://kpmg.com/us/en/taxnewsflash/news/2026/01/tnf-rev-proc-2026-10-guidance-on-process-for-requesting-plrs-for-consent-to-make-retroactive-qef-election-under-section-1295.html

3. https://www.vitallaw.com/news/irs-issues-additional-guidance-on-retroactive-qualified-electing-fund-ruling-requests-rev-proc-2026-10/ftd010abe57ccc7874a89b45b03590e9c04b1

4. https://www.irs.gov/irb/2026-01_IRB

5. https://news.bloomberglaw.com/daily-tax-report/irs-rev-proc-procedures-for-retroactive-qef-election-ruling-requests-for-pfic-shareholders-irc-1295

6. https://kpmg.com/us/en/taxnewsflash/news/2026/01/irs-annual-revenue-procedures-2026.html

7. https://static1.squarespace.com/static/54a14f8ee4b0bc51a1228894/t/695970b6d1c1822153c34402/1767469239951/2026-01-05+Current+Federal+Tax+Developments.pdf

Tuesday, January 6, 2026

“America First" Wins Again: How U.S. Multinationals Escaped the OECD’s 15% Global Minimum Tax

Nearly 150 countries have just signed off on a global tax deal that, in practice, gives U.S.-headquartered multinationals a significant carve‑out from the OECD’s 15% Pillar Two global minimum tax. For U.S. groups, this “side‑by‑side” safe harbor could mean less foreign top‑up tax exposure and more leverage to keep planning within the U.S. system instead of around it.

The new side‑by‑side deal

The Inclusive Framework has agreed to a “side‑by‑side package” that adds new safe harbors on top of the existing Pillar Two rules. At the center is a Side‑by‑Side (SbS) safe harbor and a UPE (ultimate parent entity) safe harbor that, together, can reduce or eliminate top‑up tax in many jurisdictions for qualifying groups.

Under the SbS model, if a multinational’s ultimate parent is in a jurisdiction that runs its own robust minimum tax system, the group can avoid—or dramatically limit—Pillar Two top‑up tax in other countries. Instead of layering the OECD’s 15% minimum on top of the home country’s rules, the package lets those two systems operate side‑by‑side, with Pillar Two stepping back where the home regime is deemed sufficient.

How U.S. companies won a carve‑out

In this first iteration, the United States is effectively the sole “eligible jurisdiction” for the SbS safe harbor. The justification is that the U.S. already has a combination of a relatively high statutory corporate rate plus minimum‑tax‑type rules (including its own alternative minimum mechanisms and interaction with foreign tax credits) that the deal treats as broadly equivalent protection against base erosion.

Democratic lawmakers passed legislation in 2022 without adjusting an existing levy on offshore income, the provision for global intangible low-taxed income, to operate as a Pillar Two top-up tax. Trump then effectively withdrew from the Pillar Two tax agreement in an executive order at the start of his second term in January 2025.

The GOP's budget bill modified GILTI to get closer to Pillar Two, including by increasing its rate from 10.5% to 14%. The G7 cited these changes in its announcement that U.S. multinationals won't face Pillar Two taxes.

The practical result is that U.S.-headquartered multinationals that meet the technical conditions and elect the safe harbor will generally not face Pillar Two top‑up tax under the income inclusion rule (IIR) or the undertaxed profits rule (UTPR) in other countries. Their global effective tax outcomes are left primarily to U.S. law, rather than being recalculated under the OECD’s 15% framework in every jurisdiction where they operate.

The geopolitical backdrop: tax brinkmanship

This outcome did not happen in a vacuum. After the U.S. withdrew support for the original Pillar Two implementation and signaled that it would not enact conforming legislation, trading partners began moving ahead with their own global minimum tax rules, raising the specter of higher foreign tax burdens for U.S. groups. Washington responded with threats of retaliatory “revenge taxes” and other trade/tax counter‑measures if U.S. multinationals were targeted by overseas top‑up taxes.

The side‑by‑side compromise is, in large part, a political off‑ramp from that stand‑off. It allows other countries to save face by keeping Pillar Two architecture intact on paper, while carving out U.S.‑headquartered groups through safe harbors rather than explicit exemptions written into the model rules.

What this means for U.S. multinationals

For U.S.-based groups, the immediate attraction is clear:

· Reduced exposure to foreign top‑up tax under Pillar Two, especially the UTPR “backstop” that worried many U.S. boards.

· Less compliance duplication from having to compute income and effective tax rates under both U.S. rules and a full Pillar Two overlay in every jurisdiction.

At the same time, the safe harbor does not mean a free pass from minimum taxation. Instead, it anchors U.S. multinationals more firmly in the U.S. tax net: groups are effectively told, “If your parent is in the United States, your minimum‑tax destiny will be decided here, not in dozens of foreign revenue authorities.”

For tax departments and advisors, the planning focus shifts from modeling Pillar Two top‑ups country by country to:

· Confirming eligibility for the U.S. safe harbor and monitoring any conditions or metrics that could cause a group to fall out of it.

· Re‑evaluating structures that were built around a world with both GILTI‑style rules and a parallel Pillar Two top‑up layer that now may never fully materialize for U.S. parents.

Criticism and what to watch next

Unsurprisingly, the agreement has drawn fire from tax‑justice groups, which argue that the safe harbor undermines the original promise of a truly global minimum tax. They warn that giving the U.S. a unique carve‑out leaves room for profit shifting to continue through low‑tax arrangements that sit comfortably within U.S. rules but outside the reach of Pillar Two.

Business groups, by contrast, have largely welcomed the deal as a pragmatic way to avoid double taxation and prevent a patchwork of punitive “revenge” measures against U.S. companies. They view the side‑by‑side package as a crucial stabilization of the international tax framework at a moment when geopolitical tensions and unilateral digital taxes could easily have pushed things in the opposite direction.

Looking ahead, the key questions for practitioners and multinationals will be:

· How long the U.S. retains its status as the primary—or only—eligible jurisdiction under the SbS safe harbor.

· Whether future U.S. legislative changes to minimum tax rules, or shifts in foreign political attitudes, lead to a tightening or unwinding of the carve‑out.

For now, the message to U.S.-headquartered groups is simple: the global minimum tax is arriving, but it will be doing so on terms that leave the U.S. firmly in the driver’s seat.

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