Business and International Federal Tax Developments

Buy Sell Agreements In Canada And Their Impact On Preserving The Tax Favored Status Of Canadian Resident Controlled Private Corporations

By: Jerald David August

Canadian Controlled Private Corporations

In a recent article written by lawyers in the Aird & Berlis LLP law firm in Toronto, which was just published in Tax Notes International, U.S. international tax practitioners and business lawyers can obtain valuable insights on drafting issues and problems with Canadian controlled private corporation (CCPC) shareholder agreements. The idea is to preserve favorable tax attributes of a Canadian private corporation by ensuring that de jure and de facto control of the CCPC is maintained by Canadian persons throughout.

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Former Credit Suisse Banker Pleads Guilty To Conspiring With U.S. Taxpayers And Other Swiss Bankers To Defraud The United States

By: Jerald David August

Department of Justice Press Release of July 19, 2017.

In its press release of July 19, the Department of Justice announced that a citizen and resident of Switzerland pleaded guilty to conspiring to defraud the United States in connection with her work as the head of a team of bankers for Credit Suisse AG, announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and U.S. Attorney Dana J. Boente for the Eastern District of Virginia. Ms. Meier was indicted in 2011 that was part of a number of cases filed by the United States on offshore tax evasion.

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Drafting Partnership Agreement Provisions With Respect To Partnership Audits Both Under TEFRA And The New Bipartisan Budget Act Of 2015

Focusing On The Controversial New Partnership Representative Rule

By: Jerald David August

Partner, Kostelanetz & Fink, LLP [1]

This is the second part of a series of posts pertaining to drafting and revising partnership, limited liability and limited liability partnership (“partnership”) agreements  into account the new consolidated audit rules. The first part of the series appeared on this website, “Business and International Tax Developments” on Friday, June 14, 2014. .

The new partnership audit rules are quite important not only for tax lawyers but for business lawyers and estate planners who undertake to advise clients on partnership agreements and further undertake the responsibility for negotiating and drafting such agreements. Let’s not forget to mention that the clients must have a general understanding of the new rules.

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The New Partnership Centralized Audit Rules Are Coming Soon; Are Your Clients’ Partnership and Operating Agreements Ready? Looking In Particular At the Partnership Audit Provisions

By: Jerald David August

Partnership Centralized Audit Rules Enacted in 2015 Having a General Start Date For Taxable Years Beginning January 1, 2018

The Bipartisan Budget Act of 2015 (the “Budget Act”)  which the President signed into law on November 2, 2015 (as modified by the Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”), fundamentally changes how the Service will conduct audits of partnerships. The Budget Act repeals the partnership audit provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”) and electing large partnership regimes and replaces them with a new set of rules for partnership audits and judicial review of partnership audit adjustments under a centralized or consolidated partnership audit regime.  While the new rules may have had a specific purpose in mind, i.e., of streamlining partnership audits and raising revenues from incorrect tax positions taken by large partnerships, the statutory language and principles in the new legislation suffer from several structural defects, some of which are fundamentally inconsistent with the long-standing principles of partnership taxation under Subchapter K.  

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Monster.com Founder’s Estate Wins Tax Court Decision on Decedent’s Variable Prepaid Forward Contracts

By: Jerald David August

Estate of Andrew J. McKelvey, Deceased, et al v. Commissioner,

148 T.C. No. 13, April 19, 2017

The decedent, Andrew J. McKelvey, was the founder and CEO of Monster Worldwide, Inc. (Monster.com), a company known for its job placement website. Mr. Mc Kelvey died on November 27, 2008. The IRS issued a statutory notice of deficiency of approximately $41,257,00 in income tax for 2008. The only issue for the Court was whether modifications made in 2008 to the decedent’s variable prepaid forward contracts (VPFCs) resulted in taxable dispositions under §1001 or under §1259. The case was tried on joint motion (fully stipulated statements of facts) without trial pursuant to T.C. Rules 50(a) and 122(a). The Tax Court found for the Petitioner-estate.

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Federal District Court For The Southern District of New York Refuses to Dismiss Criminal Indictment Against U.K. Citizen-U.S. Resident For Failing to File U.S. Income Tax Returns and FBARS

By: Jerald David August

Little v. United States: No. 1:12-cr-00647

A stern message was just issued by Judge Castel of the Southern District of New York Federal District Court against a defendant, a U.S. resident and citizen of the U.K., who claimed that he could not have known he had violated the U.S. income tax laws  as well as the FBAR provisions, because of the ambiguity of the application of such laws to him and with particular emphasis on his status under the U.S./U.K. Tax Treaty. He therefore moved for partial dismissal of a (second superseding) indictment on grounds that the charges of willful failure to file individual income tax returns, failure to file FBARs as well as obstructing justice by assisting others to avoid U.S. taxes due on their assets received through inheritance held in undeclared offshore accounts, denied him due process of law in violation of his Fifth Amendment right under the U.S. Constitution. A grand jury had previously returned a 19 count (second superseding) indictment again defendant, Michael Little, on March 18, 2013.

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IRS and Treasury Issue Proposed Regulations on Centralized Partnership Audits

By: Jerald David August

This post is the third of a Three Part Series of K&F Business and International Tax Developments Posts on the Proposed Regulations to the New Partnership Audit Regime which legislation is due to go into effect for all unincorporated entities treated as partnerships, in general, for taxable years beginning after December 31, 2017. Part One, which was posted on February 17, 2017, summarized the legislation which enacted the new partnership audit rules as part of The Bipartisan Budget Act of 2015, Pub. L. No. 114-74, Act §1101 (the “Budget Act”) which was signed into law on November 2, 2015, (as modified by Protecting Americans from Tax Hikes Act of 2015, Pub. L. No. 114-113 (the “PATH Act”)). The Proposed Regulations were issued on January 18, 2017 (REG-136118-15).

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

By: Jerald David August

This post is part of a Three Part Series of K&F Business and International Tax Developments Posts on the New Proposed Regulations to the New Partnership Audit Regime which is due to go into effect for all unincorporated entities treated as partnerships for taxable years beginning after December 31, 2017. Part One, which was posted on February 17, 2017, summarized the legislation which enacted the new partnership audit rules as part of The Bipartisan Budget Act of 2015, Pub. L. No. 114-74, Act §1101 (the “Budget Act”) which was signed into law on November 2, 2015, (as modified by Protecting Americans from Tax Hikes Act of 2015, Pub. L. No. 114-113 (the “PATH Act”)). The Proposed Regulations were issued on January 18, 2017 (REG-136118-15). 

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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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