Notice Partner Other Than Tax Matters Partner Fails To Unwind Final Partnership Administrative Adjustments That Disallowed Limited Liability Partnerships’ Intangible Drilling Costs Deductions
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.
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
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. 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.
All countries, including underdeveloped countries, are well aware of the strain that has been placed on tax administrators throughout the world in grappling with the billions if not trillions of revenue loss associated with base erosion techniques and strategies utilized by many multinational business enterprises (MNEs) that are principally driven by tax avoidance and not primarily based on sound business practices. This base erosion is visibly greater when comparing the aggregate tax loss impact suffered by high tax jurisdictions from more modest tax jurisdictions. But as long as there is a moderate if not high level of taxation in a particular country, there are indeed many ongoing efforts to strip out earnings through interest, business transactions among related parties and nimble supply chain participants.
Well, Look Here! The United States Chamber of Commerce and the Texas Association of Business Files Suit Challenging the Inversion Regulations
There is much irony in the US Chamber of Commerce’s desire to prevent the Treasury and the current Administration from stopping inversions, at least unilaterally, by asking a Federal District Court to hold a part of the temporary regulations on inversions invalid. Viewed from a narrow lens of legality (and not legality and tax policy) the recently issued temporary (anti-inversion) regulations stray beyond permitted boundaries of proper rule-making. But looking through a wider lens into tax policy issues, what is the US Chamber of Commerce doing to help with the continuing exodus of US based companies MNEs relocate overseas? Don’t inversions (really limited to U.S. parent corporations based on our worldwide corporate income tax and at the highest corporate income tax rate) result in the loss of tax revenues and the movement of capital and labor outside of the United States? Is that good? If not, then shouldn’t the U.S. Chamber of Commerce simply pound the table to get Congress in a moment of bipartisan “weakness” to lower the corporate income tax rate?
For business organizations formed and operated as partnerships for federal and state income tax purposes it has long been assumed that when the partnership and its owners wish to take the business “to market” in terms of a public offering, it has been the general consensus that the partners needs to convert into a corporation before the IPO is effectuated. But that is not, however, the only available model for a partnership’s venturing into an IPO. In this regard, another model involves the use of the “Up-C partnership” structure which is not as widely known.
Jerald David August and Ian Weinstock Participate in The 8th Annual NYU Wealth Planning for High Net-Worth Individuals and Closely-Held Companies Seminar
On July 27-29, 2016, Jerald David August and Ian Weinstock, Partners at Kostelanetz & Fink, LLP., spoke at the three-day component of the NYU Wealth Planning Conference at The Westin New York at Times Square as part of the Summer Institute in Taxation. The Wealth Planning Conference features a nationally-recognized group of speakers on a variety of wealth planning and tax planning subjects geared for high-net-worth individuals and owners of closely-held businesses.
United States Seeks Compelled Production by Federal District Court Order Against Facebook, Inc. With Respect to “Billions of Dollars” of Undervalued Intangibles Transferred Offshore
Summons Enforcement Action Against Facebook Filed In Federal District Court
The government recently filed a summons enforcement proceeding on July 6 in The United States District Court for the Northern District of California against Facebook Inc., 16-cv-o3777. The enforcement action taken by the government became necessary since the taxpayer recently refused to turn over summoned tax and business records related to Facebook’s transfer of its global rights of many of its intangible assets, situated outside the United States and Canada (but not within the United States and Canada), to a subsidiary (Facebook Ireland Holdings Limited or “Facebook Ireland”) situated in Ireland, which has a corporate tax rate approximately 1/3 (12.5%) of the U.S. corporate income tax rate (35%). The relevant audit year at present is 2010 which is alleged to expire on August 1, 2016. Other years are presumably under review as well, including the years after 2010.
On June 29, 2016, the Treasury and the Internal Revenue Service published final regulations (T.D. 9733) requiring annual country-by- country (CbC) reporting by U.S. persons that are the ultimate parent entity of a multinational enterprise group (MNE) with annual revenue for the preceding accounting period of $850 million or more. The regulations are effective on June 30, 2016, and made several changes to the proposed regulations issued last December.
The Bipartisan Budget Act of 2015, which President Obama signed into lawonNovember, 2015, repealed the complex and much-criticized TEFRA partnership entity-level audit rules, including the electing large partnership rules. On December 18, 2015, Congress passed, and President Obama signed into law, the Protecting Americans From Tax Hikes (PATH) Act of 2015. This act sets forth certain corrections to the new audit rules.
In this course, Jerald David August and Megan L. Brackney will review the updates to the TEFRA Partnership Audit Rules Repeal.
Still Waiting For Final Regulations on Transfers of Property to Partnerships With Related Foreign Partners
Last Summer, in Notice 2015-54, 2015-34 I.R.B. 210, the Treasury and the Internal Revenue Service announced their intention to issue regulations under Section 721(c) to ensure that, when a U.S. person transfers certain types of property to a partnership that has foreign partners related to the transferor, income or gain attributable to the property will be taken into account by the transferor either immediately or periodically. The Treasury Department and the Service further announced their intention to issue regulations under Sections 482 and 6662 applicable to controlled transactions involving partnerships to ensure the appropriate valuation of such transactions. This would extend to cost-sharing arrangements under Treas. Reg. §1.482-7.
Repeal of Sections 1491 to 1494
Repealed as part of the Taxpayer Relief Act of 1997, Sections 1491 through 1494 imposed an excise tax on certain transfers of appreciated property by a U.S. person to a foreign partnership, which generally was 35% of the amount of gain inherent in the property. Congress believed that the imposition of enhanced information reporting obligations (including Sections 6038, 6038B, and 6046A) with respect to foreign partnerships eliminated the need for imposing the draconian excise tax under Sections 1491 through 1494.