The IRS can have a long memory when it comes to rulings and decisions against taxpayers. Even with the seemingly all-purpose economic substance doctrine in its utility belt, the IRS sometimes dusts off old precedents to attack transactions. Revenue Ruling 80-239, 1980-2 C.B. 103, and Basic, Inc. v. United States, 549 F.2d 740 (Ct. Cl. 1977) are two anti-taxpayer authorities that targeted perceived abuses that are now largely obsolete. Nevertheless, the IRS may still invoke these precedents for support in totally different situations. Taxpayers should be aware of how the IRS might use [...]Read more
Last week, in ConAgra Brands, Inc. v. Maryland Comptroller of the Treasury, No. 09-IN-00-0150 (Md. Tax Ct., Feb. 24, 2015), the Maryland Tax Court issued an opinion perpetuating the state’s erroneous Gore decision from 2014, essentially holding that a corporate subsidiary had nexus in Maryland because its corporate parent had nexus there. The Tax Court was constrained by the Maryland Supreme Court’s decision in Gore Enterprise Holdings, Inc. v. Comptroller, 437 Md. 492 (2014), so perhaps it is not surprising that the Tax Court issued an opinion that is a continuation of that very confused [...]Read more
In late January, the IRS issued a private letter ruling (P.L.R. 201504004) dealing with whether interests in a non-grantor trust and a partnership are considered to be in registered form, a precursor to qualification for payments thereon to the portfolio interest exemption. Although the ruling answers in the affirmative, it does not ultimately state whether the particular payments addressed in the ruling would be eligible for the portfolio interest exemption.
To qualify for the portfolio interest exemption, and avoid U.S. withholding tax on payments of U.S.-source interest to a foreign person, [...]Read more
Oregon Invites Litigation
The Oregon Legislature recently introduced legislation that would reestablish gift cards as a type of unclaimed property reportable to Oregon. [https://olis.leg.state.or.us/liz/2015R1/Measures/Overview/HB2543] The state previously amended its act to delete all references to gift cards. Under HB 2543, the value of a gift card will be reportable as unclaimed property if it has not been redeemed for 3 years. Oregon thus re-joins the minority of states that require the escheat of gift cards.
Most significantly, however, HB 2543 provides that if the issuer of [...]Read more
On February 9, 2015, the U.S. Treasury released final regulations on foreign tax credit (FTC) splitting arrangements (the “2015 Regulations”). The final rules, released the same day that the 2012 temporary and proposed regulations were set to expire, offer some definitional and other clarifications and add useful illustrations. But for the most part, the 2015 Regulations adopt the prior proposed and temporary regulations, including the exclusive list of FTC splitter arrangements. Notably, the final rules fail to address several “mechanical issues” (i.e., issues concerning the tracking [...]Read more
The IRS recently released the letter ruling (PLR 201503010) that was likely issued to Iron Mountain, a US multinational document storage company, on its conversion to a REIT. The taxpayer in the ruling proposed retaining its leases and ownership interests in warehouse-like buildings and racking structures therein in the corporation that would elect REIT status and moving its document storage activities into taxable REIT subsidiaries.
The letter ruling contained more than a dozen separate rulings, evincing the complexity of transitioning from a C corporation to a REIT, particularly when [...]Read more
In Chief Counsel Advice 201501013, the IRS determined that a foreign fund was engaged in a U.S. trade or business ("ETBUS") based on lending and underwriting activities conducted on the fund's behalf by a U.S. resident fund manager under a management agreement. The IRS attributed the manager's activities to the fund, for purposes of the ETBUS analysis, finding the activities to be "considerable, continuous, and regular." The CCA further concluded that the foreign fund's activities did not qualify for the "trading safe harbors" under Section 864, exploring the fine distinction between "traders" [...]Read more
This November the IRS has given some taxpayers subject to reporting on outbound property transfers to foreign corporations something to be thankful for.
Under Section 367(a) of the Code, if a US person transfers property to a foreign corporation in a Section 332, 351, 354, 356, or 361 transfer or exchange, the foreign corporation generally is not treated as a corporation for purposes of determining the US transferor’s gain on the transfer. This rule typically means that the US person will recognize gain on what would otherwise be a non-taxable transfer.
The regulations offer exceptions [...]Read more