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I.R.S. Breaks the Silence with Rev. Rul. 2017-09, Issues Guidance on “North-South” Transactions

I.R.S. Breaks the Silence with Rev. Rul. 2017-09, Issues Guidance on “North-South” Transactions

In Rev. Rul. 2017-09, the I.R.S. addressed “north-south” transactions.  In these transactions, a shareholder transfers property to a corporation in a transaction structured to be free of tax under Code §351.  At about the same time, the corporation distributes shares of its subsidiary to the shareholder in a spinoff.  If the transactions are considered separate for income tax purposes, each can be effected free of gain recognition and the imposition of income tax.  On the other hand, if the transactions are integrated into a single multi-step transaction, gain will be recognized and tax imposed on each step of the arrangement.  The ruling announces that the I.R.S. will once again rule on the status of these transactions and provides guidance on the standard that the I.R.S. will apply.  Rusudan Shervashidze and Nina Krauthamer explain the factual context and the approach of the I.R.S. in granting relief.

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New Proposal for Swiss Corporate Tax Reform

Through the first ten days of February, Swiss tax advisers were contemplating life after the adoption of the Corporate Tax Reform III (“C.T.R. III”).  Then, the bottom dropped out from under their feet as Swiss voters defeated the tax reform package by an almost 60-40 majority.  Now, a Steering Committee representing the cantons and Swiss Federation has issued T.P. 17, recommending a modified version of corporate tax reform.  Peter von Burg and Dr. Natalie Peter of Staiger Attorneys, Zurich, compare the provisions in T.P. 17 with those in C.T.R. III.

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I.R.S. Pushes to Ease Implementation of Country-by-Country Reporting for U.S. M.N.E.’s

It is widely known that the U.S. is following its own path towards international tax compliance.  It has not signed onto the O.E.C.D.’s Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports; it does not participate in the Common Reporting Standard; and it did not sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent B.E.P.S.  Nonetheless, at the request of U.S. multinationals, the I.R.S. has adopted domestic income tax regulations on country-by-country (“CbC”) reporting.  In May, the I.R.S. confirmed the first bilateral competent authority agreement regarding CbC reporting was signed with the Netherlands.  That agreement has now been followed by agreements with Canada, Denmark, Guernsey, Iceland, Ireland, Korea, Latvia, New Zealand, Norway, Slovakia, and South Africa.  Galia Antebi and Kenneth Lobo delve into the U.S. rules and forms for CbC reports.

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Sale of a Partnership Interest by a Foreign Partner – Is Rev. Rul. 91-32 Based on Law or Administrative Wishes?

The I.R.S. has a long history in misapplying U.S. tax rules applicable to a sale of a partnership interest.  For U.S. tax purposes, a partnership interest is treated as an asset separate and apart from an indirect interest in partnership assets.  In Rev. Rul. 91-32, the I.R.S. misinterpreted case law and Code provisions to conclude that gains derived by foreign investors in U.S. partnerships are subject to tax.  No one thought the I.R.S. position was correct, but then, in a field advice to an agent setting up an adjustment, the I.R.S. publicly stated that the ruling was a proper application of U.S. law when issued and remains so today. The adjustment was challenged in the Tax Court, and the tax bar is eagerly awaiting a decision.  Stanley C. Ruchelman and Beate Erwin examine the I.R.S. position, the string of losses encountered by the I.R.S. when challenged by taxpayers, and the Grecian Magnesite case awaiting decision.

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Qualified Small Business Stock & the EB-5 Visa Program – An Attractive Combination for Potential Investors

Qualified Small Business Stock & the EB-5 Visa Program – An Attractive Combination for Potential Investors

Ever heard of qualified small business stock (“Q.S.B.S.”) as a means of investing in start-up companies?  Although it is not typically thought of as a tax planning tool for foreign investors, when the foreign person is an applicant for an EB-5 visa, the tax results can be surprisingly good.  Fanny Karaman and Beate Erwin explain.

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