There’s only one thing worse than your client overpaying their taxes when you could have helped them – them not paying enough in taxes and having to deal with penalties as well. It's like adding insult to injury. There is only so much that we can do to help our clients avoid penalties. Educating ourselves, so we can educate our clients, is a big part of that. Penalties are inevitable, but that doesn't mean that the client must max out their penalties. But it also doesn't mean that we should not do our due diligence to avoid penalties where possible.
State Tax Planning with the “80/20 Company” Exclusion
Ted Stotzer
Many multinational groups find that foreign-source dividends and other income earned by domestic affiliates are fully or partially subject to state income taxation, even where the federal system provides an exemption. This state-level “leakage” can be material – particularly in high-tax jurisdictions – and is often overlooked because the income appears sheltered at the federal level. For groups with predominantly foreign operations, a starting structure or a restructuring that causes one or more domestic affiliates to qualify as an “80/20 company” can substantially reduce or eliminate state taxation on that income.
