Business and International Federal Tax Developments

House of Representatives Passes Bill To End Judicial Deference to Treasury’s Rule-Making Authority

By: Jerald David August

A bill, H.R. 5, recently introduced by House Judiciary Committee Chair Bob Goodlatte, R-Va.,  the Regulatory Accountability Act of 2017, proposes to end the Chevron deference doctrine, passed the House of Representatives by a 50 vote majority (283-183) on January 11. The bill was referred to the Committee on the Judiciary, in addition to the Committee on Oversight and Government Reform and the Committee on Small Business.  

Read more Share

Danish Tax Authority (SKAT) Issues Favorable Ruling For Foreign Investors In A Danish Private Equity Fund As Not Having a Permanent Establishment in Denmark By Virtue of Their Investment

By: Jerald David August

In General: The View From the United States on What Constitutes a Permanent Establishment

A U.S. treaty may exempt from income tax computed on a “net basis” the business profits of an individual or company resident in a treaty country unless such business profits are attributable to a “permanent establishment” (PE) maintained in the United States by such individual or company. tax the business profits of a resident of a treaty country unless those profits are attributable to a “permanent establishment” maintained by that resident in the United States. See U.S. Tax Treaties with Canada, Article 7(1); Japan, Article 8(1); Netherlands, Article 3(1); United Kingdom, Article 7(1). [1]

Read more Share

European Commission Continues Its Assault on Hybrid Entities Engaging in Base Erosion Strategies and Charges Improper State Aid by Luxembourg In Issuing A Set of Rulings On a Set of ZORA Obligations

By: Jerald David August

Last January, the European Commission (COM (2016) 26 final)(2016/011 (CNS)) proposed for Council action rules against tax avoidance practices to fight against tax avoidance and aggressive tax planning, both at the global and EU levels. This fight has been ongoing for several years now and is reflected in part by the BEPS project of the OECD which was recently finalized and adopted by the G20. The schemes targeted by this Directive involve situations where taxpayers act against the actual purpose of the law, taking advantage of disparities between national tax systems, to reduce their tax bill.

Read more Share

IRS And Treasury Issues Needed Guidance on Centralized Partnership Audits: Proposed Regulations Issued

By: Jerald David August

This will be Part One of a Three Part Series of Posts on the New Proposed Regulations; This Part One Will Focus on the Background to the Proposed Rule-making, Qualifications for Electing-Out, the Designation of the Partnership Representative and Related Items. Part Two Will Focus on the Imputed Underpayment Rules and Modifications while Part Three Will Address the Push-Out Election and Other Procedural Rules.

Read more Share

Treasury and Internal Revenue Service Issue Regulations That Treat A Defective Entity Owned By a Foreign Person As a Domestic Corporation For Certain Tax Compliance Purposes

By: Jerald David August

On December 12, 2016, the Service (and Treasury) issued Final Regulations in T.D. 9796 on the treatment of certain domestic entities that are disregarded from their owners as corporations for purposes of Section 6038A.

Read more Share

Recent Regulations Issued On The Treatment of Partnership Liabilities Under the Disguised Sales Rules Still Meeting With Much Criticism

By: Jerald David August

On October 5, 2016 the Internal Revenue Service and the Treasury issued Final and Temporary Regulations (T.D. 9788) pertaining to how liabilities are to be allocated and treated for purposes of applying the disguised sales rules under section 707 and when certain obligations will be as a recourse liability under section 752. Shortly thereafter, new proposed regulations (REG-122855-15) withdrew a portion of the recent rule-making to the extent not adopted in the final regulations and contain new proposed regulations on: (i) whether certain obligations to restore a deficit balance in a partner's capital account are to be regarded (versus disregarded) for purposes of section 704; and (ii) when partnership liabilities are to be treated as recourse liabilities under section 752. These are important regulations obviously and, as reported in a prior blog post, will affect many if not most partnerships and their partners, including members of limited liability companies and limited liability limited partners. The regulations were to be effective on date of issuance with an important deferred date on the application of revisions to the disguised sales rules and liabilities until early next month. [1]

Read more Share

Trump Wins Presidential Election: Potential Federal Tax Impacts

By: Jerald David August

The presidential election is history and Donald J. Trump is President-elect. We all know that Mr. Trump has promised substantial reductions in the federal income tax rates applicable to both individuals and businesses in a major effort to stimulate our economy and provide for GDP growth in excess of 3.5% each year.  His vision is to create 25 million new jobs over the next ten years.

Read more Share

European Commission Mandates Ireland Recover € 13 Billion In Improper Tax Benefits Granted to Apple

By Jerald David August

In a press release of August 30, 2016 issued by the European Commission, the Commission held that Ireland granted undue tax benefits of up to €13 billion to Apple  pursuant to an agreement (rulings) that it entered into with Apple in 1991. This was “improper illegal aid” in clear violation of the EU state aid rules which state quite simply that “Member States cannot give tax benefits to selected companies..”.  See Article 107(1) of the Treaty on the Functioning of the European Union (TFEU). 

Read more Share

Notice Partner Other Than Tax Matters Partner Fails To Unwind Final Partnership Administrative Adjustments That Disallowed Limited Liability Partnerships’ Intangible Drilling Costs Deductions

By Jerald David August

Berkshire 2006-5, LLC, et al, v. Commissioner, T.C. Memo. 2016-25 (Buch, J.).

The TEFRA partnership entity level audit rules are still with us for at least 5 years and cases will continue to be decided under the TEFRA legislation enacted in 1982. Under the new centralized partnership audit rules, which generally go into effect for partnership taxable years commencing in 2018, the ability of a notice partner to intervene in a partnership audit, appeal or in litigation will be denied. Under TEFRA a notice partner was permitted to intervene. 

Read more Share

Are You Anxiously Waiting for the New Set of Final Section 385 Regulations? Well, Not Senate Finance Committee Chair Hatch and House Ways and Means Chair Brady

By: Jerald David August

On April 4, 2016, the Treasury and the Internal Revenue Service issued proposed regulations on the treatment of certain interests in corporations as stock or indebtedness, or as partly stock and debt. REG-108060-15.[1] One of the stated purposes of the proposed regulations was to follow through on the anti-earnings stripping guidance that was issued by the Service in Notice 2014-62, 2014-42 IRB 712 (10/14/2014) and Notice 2015-79, 2015-49 IRB 775 (12/7/2015) to guard against post-inversion earnings stripping tax avoidance strategies. See also Section 7701(l)(conduit financing rules).

The proposed regulations provide guidance regarding substantiation of the treatment of certain interests issued between related parties as indebtedness for federal tax purposes, the treatment of certain interests in a corporation as in part indebtedness and part stock, and the need to recharacterize debt as stock in situations where there is no new capital provided to the lender and the transaction is substantially motivated by tax savings.

Wide-sweeping in their application, the proposed regulations to Section 385 are considered by some to be the most significant income tax regulations “ever”. The scope of the proposed regulations fundamentally redefine whether an intercompany instrument will constitute debt for federal income tax purposes regardless of whether the debt is linked or otherwise part of an inversion transaction or end run of Section 956.

Read more Share