The American Institute of CPAs has sent a comment letter to the Internal Revenue Service and the Treasury Department highlighting potential problems for international tax entities from the IRS’s proposed regulations related to the net investment income tax.

The net investment income tax imposes a tax on unearned income on investments of certain individuals, estates and trusts, whose income is above the statutory threshold amounts. The Health Care and Education Reconciliation Act of 2010 added the net investment income tax to the Tax Code as Section 1411. The IRS has just releaaed a draft version of the form, according to Forbes.

The AICPA agreed in its letter Monday with comments submitted by the American Bar Association on April 5, 2013, which recommend assessing the Section 1441 tax at the same time as Chapter 1, Normal Taxes and Surtaxes, or imposing a look-through regime to determine section 1411 implications as if the U.S. shareholder or qualified electing fund shareholder earned the income directly. 

If, AICPA Tax Executive Committee chair Jeffrey Porter wrote, “Treasury and the IRS deem it necessary to provide an option for taxation at the time of repatriation, rather than at the time income is earned for purposes of Chapter 1, we recommend that the final guidance reverse the default and elective methods.”

The AICPA pointed out that in the proposed regulations, as they are currently drafted, the Section 1411 tax is imposed on amounts included in gross income under Sections 951(a) and 1293(a) when income is repatriated, rather than when the income is taxed for Chapter 1. The AICPA noted that there is elective treatment under the proposed regulations to impose Section 1411 tax when the income is taxed for Chapter 1. But the AICPA contended that the default ordering under the proposed regulations creates significant taxpayer recordkeeping burdens, basis differences between Chapter 1 and Section 1411, and adds an enormous amount of complexity for the average taxpayer. Instead, the AICPA recommended that the default rule impose Section 1411 tax at the same time the income is taxed for Chapter 1, with elective treatment to impose Section 1411 tax on repatriation.

“The proposed regulations as currently drafted create a significant administrative burden for both taxpayers and the IRS,” the AICPA stated.

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