Remember when tax planning was an exercise in solving two or three potential issues for a client? Memorandums ran eight pages or so. Those days are long gone, especially when planning for a non-U.S. individual’s purchase of a personal use residence in the U.S. A myriad of issues pop up once the property is identified, so that planning which begins at that time often misses significant tax issues encountered over the period of ownership and beyond. Michael J.A. Karlin, a partner of Karlin & Peebles, L.L.P., Los Angeles, and Stanley C. Ruchelman, address the big-picture issues in an article that exceeds 50 pages. Included are issues that arise leading up to the acquisition, during ownership and occupancy, the time of disposition, and at the conclusion of life. The article is the “go-to” document for tax planners.

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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Home Thoughts from Abroad: When Foreigners Purchase U.S. Homes

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

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