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The Responsible Party – Changes Effective May 2019

The Responsible Party – Changes Effective May 2019

The U.S. Taxpayer Identification Number used by entities is the Employer Identification Number (“E.I.N.”).  To apply for an E.I.N., the entity must identify the “responsible party” who ultimately owns or controls the entity or who exercises ultimate effective control over the entity – in other words, the person who controls, manages, or directs the entity and the disposition of its funds and assets.  In March, the I.R.S. announced that, beginning on May 13, 2019, only individuals with a U.S. Taxpayer Identification Number will be allowed to request an E.I.N.  Moreover, the responsible party must be a natural person – not an entity – unless the applicant is a government entity.  This change will affect many foreign companies entering the U.S. market after the effective date.  Galia Antebi and Nina Krauthamer explain all and speculate on whether revisions to the new procedure should be anticipated.

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It’s Time for Cayman Shell Entities to Come Out of Their Shells and Show Economic Substance

It’s Time for Cayman Shell Entities to Come Out of Their Shells and Show Economic Substance

·       It is said that beauty is in the eye of the beholder.  The same can be said about economic substance.  In a step to adopt a standardized definition in the context of business arrangements that are typical for Cayman Islands companies, the country enacted the International Tax Cooperation (Economic Substance) Law, 2018 (“E.S. Law”) on December 27, 2018, and issued supplemental guidance on February 22, 2019.  Neha Rastogi and Galia Antebi address relevant aspects of the new rules, including (i) entities that fall within the ambit of the E.S. Law, (ii) entities that are exempt, (iii) identified business activities under the E.S. Law, and (iv) steps that may be taken to meet the economic substance test.

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Proposed Amendments to F.A.T.C.A. Suggest Reducing or Deferring Withholding

Proposed Amendments to F.A.T.C.A. Suggest Reducing or Deferring Withholding

In mid-December 2018, revised F.A.T.C.A. regulations were proposed by the I.R.S. Highlights included (i) the elimination of withholding on payments of gross proceeds, (ii) deferral, but not elimination, of withholding on foreign passthru payments, (iii) clarification of the definition of an investment entity, and (iv) changes to the consequence of hold-mail instructions on presumptions of residence. Galia Antebi explains all.

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Additional Guidance on New Opportunity Zone Funds

Additional Guidance on New Opportunity Zone Funds

Days after Galia Antebi and Nina Krauthamer published “The Opportunity Zone Tax Benefit – How Does It Work and Can Foreign Investors Benefit,” the I.R.S. issued guidance in proposed regulations. Now, in a follow-up article, Galia Antebi and Nina Krauthamer focus on the new guidance as it relates to the deferral election and the Qualified Opportunity Zone Fund. In particular, they address (i) which taxpayers are eligible to make the deferral election, (ii) the gains eligible for deferral, (iii) the measurement of the 180-day limitation, (iv) the tax attributes of deferred gains, and (v) the effect of an expiration of a qualifying zone status on the step-up in basis to fair market value after ten years.

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I.R.S. Adds New Issues of Focus for Cross-Border Audits

I.R.S. Adds New Issues of Focus for Cross-Border Audits

In late 2018, LB&I announced five additional campaigns aimed at determining whether taxpayers are complying with tax rules in the following areas of the law: (i) foreign tax credits claimed by U.S. individuals, (ii) offshore service providers that assist taxpayers in creating foreign entities and tiered structures to conceal the U.S. beneficial ownership of foreign financial accounts, (iii) F.A.T.C.A. compliance by F.F.I.’s and N.F.F.E.’s, (iv) tax return compliance by foreign corporations that ignore the fact that they are engaged in a U.S. trade or business under the rules of U.S. tax law, and (v) late issuance of Work Opportunity Tax Credit (“W.O.T.C.”) certifications that result in the need to file amended tax returns and result in a misuse of I.R.S. resources when returns are filed without the W.O.T.C certifications. The move follows more than two years, of I.R.S. publications that alert the public to certain issue-based approaches being followed by examiners. Galia Antebi and Elizabeth V. Zanet summarize the new releases.

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