Business and International Federal Tax Developments

Service Issues Favorable Private Letter Ruling on the Diversification of Stock Portfolio Under Section 721(b) and Potential For Applying the Netting Rule For Both Contributions And Reverse Section 704(c) Allocations

By: Jerald David August

In a recent private letter ruling issued on November 18, 2016, PLR 201710007, the Service ruled that the transfer of a stock portfolio to a surviving partnership from four terminating partnerships will not, under the facts, result in a diversification of portfolios under §721(b) thereby avoiding gain recognition.  This provision may pose a trap for the wary for taxpayers who do not give careful consideration in transferring appreciated property to a partnership (or corporation). The Service further ruled on the application of technical rules under §704(c) permitting partial or full netting of built-in gains and losses.

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Sixth Circuit Court of Appeals Reverses Tax Court on Treatment of Commissions of a Domestic International Sales Corporation Paid to Roth IRA

By: Jerald David August

An Instance Where the Business Taxpayer Can Win Despite the Absence of Economic Substance !!!

In Summa Holdings Inc. v. Commissioner, No. 16-1712 (Feb. 16, 2017), the Sixth Circuit Court of Appeals reversed the Tax Court decision below which held that payments a corporation made to a DISC were not DISC commissions but instead were to be characterized as dividends to shareholders followed by excess contributions to their Roth IRAs. Such recharacterization would have eliminated the tax benefits associated with the IC-DISC for the taxpayers.

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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.  

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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]

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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.

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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.

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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.

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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]

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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.

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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). 

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