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Financial Products and Securities

IRS Private Letter Ruling Holds that Pass-Through Interests in Mortgages Can Qualify as Registered Form Obligations

February 25, 2015 By Daniel Reach

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

Filed Under: Financial Products and Securities, International - Corporate Tax Planning, International - Inbound, International Tax Alert, Partnerships, RICs, REITs and other Special Entities Tagged With: engaged in a US trade or business, grantor trust, PLR, portfolio interest exemption

Global Banks Being Audited

January 7, 2013 By Jasper L. (Jack) Cummings, Jr. and Edward Tanenbaum

All global banks currently being audited by the IRS, which have engaged in cross-border withholding planning for clients, should take careful notice of AM 2012-009. This GLAM explains to IRS LB&I how to assess foreign affiliates of domestic banks that did not withhold tax on foreign stock borrowing and back-to-back swaps, in reliance on Notice 97-66. The basic advice is to assert the economic substance doctrine. Fortunately, the advice applies only to transactions prior to the partial codification of the doctrine in 2010, which happened to coincide with legislation fixing the Notice 97-66 [...]Read more

Filed Under: Controversies - Federal, Corporate - Federal, Federal - Corporate Tax Planning, Federal Tax Litigation, Financial Products and Securities, International - Inbound, International - Outbound

Closing a Prepaid Forward with a Short Sale

October 24, 2012 By Jasper L. (Jack) Cummings, Jr. and Edward Tanenbaum

TAM 201214021 appears to reconsider an issue addressed in CCA 201104031, issued about a year earlier. Both involved versions of a combination of a type of forward contract with the settling of the contract by physical delivery of borrowed shares—that is, a short sale. Both conclude that the value of the forward at the time of delivery of the borrowed shares should be the amount of gain recognized by the forward seller. The TAM is better reasoned than the CCA, but still just announces a conclusion without any on point authority. The CCA’s facts were like the simplified Example 1, below. [...]Read more

Filed Under: Corporate - Federal, Financial Products and Securities

Section 305(b)(2) Warrants

April 2, 2012 By Jasper L. (Jack) Cummings, Jr. and Edward Tanenbaum

LTR 201213011 rules that a domestic corporation can generate a section 301 distribution to its shareholder(s), possibly for the purpose of creating capital gain, possibly to allow use of an expiring capital loss of the shareholder. Sec. 1212(a). The ruling is unusual both for its brevity and for dealing with section 305, which does not attract many letter rulings. Facts. Taxpayer had outstanding common stock and at least two and possibly three classes of preferred stock: (1) cumulative preferred stock with dividends in arrears, (2) preferred stock convertible into common, and (3) other preferred [...]Read more

Filed Under: Accounting, Corporate - Federal, Federal - Corporate Tax Planning, Financial Products and Securities

Anschutz Company

February 13, 2012 By Jasper L. (Jack) Cummings, Jr. and Edward Tanenbaum

Just before New Year’s Eve 2011 the Tenth Circuit affirmed the Tax Court’s ruling against the taxpayer Anschutz Company in a case involving a variable prepaid forward contract. Anschutz Co. v. CIR (10th Cir. 2011). The ruling required the taxpayer to recognize immediately the gain on the stock to be sold under the prepaid forward, rather than postponing gain recognition to the future closing of the sale. The court’s reasoning reflected an unfortunate tendency of courts to default to a “benefits and burdens” analysis of ownership of property rather than grappling with [...]Read more

Filed Under: Controversies - Federal, Corporate - Federal, Federal - Corporate Tax Planning, Financial Products and Securities

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