The recently passed American Jobs Creation Act of 2004, makes changes to the international tax provisions that apply to individual and corporate taxpayers. Here's what you need to know right now about this important new legislation.

CORPORATE TAX CHANGES

• Repeal of extraterritorial income exclusion. The exclusion will be phased out over the next two years reducing benefits from 80% in 2005 and 60% in 2006.
• Repeal of foreign personal holding company (FPHC) rules and foreign investment company (FIC) rules. A new category is created under subpart F foreign personal holding company income for tax years beginning after December 31, 2004.
• Repeal of 90% limitation of foreign tax credits under alternative minimum tax (AMT). Corporate and individual taxpayers will now be allowed the full credit for AMT purposes.
• New laws with regard to corporate inversion transactions. The Act established tax consequences for certain corporate inversions completed after March 4, 2003.
• Temporary elective 85% dividends received deduction for a U.S. corporation owning a CFC.
• Foreign tax credits are now allowed to be carried back 1 year and forward 10 years. The old law allowed a 2-year carryback and a 5-year carryforward.

INDIVIDUAL TAX CHANGES

• U.S. income, gift and estate tax consequences of individual expatriations changes for expatriations occurring after June 3, 2004.
• Nondeductible 15% excise tax on the value of certain stock compensation of insiders in expatriated corporations.
• U.S. gross income inclusion of distributions from contributions and earnings attributable to nontaxable foreign compensation that a U.S. citizen or resident earned as a nonresident alien.
• New penalty for non-willful violations of foreign transaction and account reporting requirements. The IRS may impose a civil penalty of up to $10,000 on any person who fails to report foreign financial accounts regardless of whether the violation is willful.

This is only a summary of some the most important changes to the tax law effective for 2004 or before. Please do not hesitate to contact us if you would like more details or would like to schedule a tax planning strategy session.