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Memorandum: New Treasury Report on the Obama Administration's Tax Proposals

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TO:Clients and Friends
FROM:The Ruchelman Law Firm
RE:New Treasury Report on the Obama Administration’s Tax Proposals
DATE:February 19, 2010

On February 1, 2010, the Treasury published the "General Explanations of the Administration's FY 2011 Revenue Proposals” (the “2011 Green Book”), setting forth tax policy objectives of the Obama Administration (“the Administration”).

Several highlights from the 2011 Green Book are worth noting:

  • The proposed tax rate hikes and the reduced deductions for high-income individual taxpayers remain unchanged and continue to be on track to take effect after 2010.

  • The 2011 Green Book does not contain a proposal which would limit the availability of a check-the-box election with respect to certain wholly-owned foreign entities.

  • Only interest expense that is properly allocated and apportioned to a taxpayer’s foreign-source income that is not currently subject to U.S. tax are deferred under the 2011 Green Book. Previously in the 2010 Green Book, all expenses other than research and development expenses were subject to deferral.

  • Provisions tightening the earnings stripping limitations to interest expense would be directed only to expatriated entities that were formerly U.S. companies. Under the provision, the current law debt-to-equity safe harbor of 1.5 to 1 would be eliminated for expatriated entities and the 50% adjusted taxable income threshold for the limitation would be reduced to 25%. The carryforward for disallowed interest would be limited to ten years and the carryforward of excess limitation would be eliminated.