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Grecian Magnesite Put to Bed: Tax Court Ruling Affirmed on Appeal

Grecian Magnesite Put to Bed: Tax Court Ruling Affirmed on Appeal

The battle is over. It is agreed that the emporer’s new clothes are made of fairy dust, and Rev. Rul. 91-32 is not worth the paper on which it was printed in the I.R.S. Cumulative Bulletin for 1991. In June, the Court of Appeals for the D.C. Circuit affirmed the 2017 Tax Court ruling in the matter of Grecian Magnesite Mining v. Commr., which held that a foreign corporation was not liable for U.S. tax on the gain arising from a redemption of its membership interest in a U.S. L.L.C. treated as a partnership. In their article, Galia Antebi and Stanley C. Ruchelman address the history of the I.R.S. position and the disdain given to it by the courts. However, they caution that the taxpayer victory applies only to sales, exchanges, and dispositions effected through November 26, 2017. Thereafter, new Code §864(c)(8) modifies the law by adopting a look-thru rule when determining the character of gain from the sale of a membership interest. Win some, lose some.

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Foreign Partner Not Subject to U.S. Tax on Gain from Redemption of U.S. Partnership Interest

Foreign Partner Not Subject to U.S. Tax on Gain from Redemption of U.S. Partnership Interest

Hurray!  After three years, the U.S. Tax Court ruled that gain from the sale of a partnership interest or the receipt of a liquidating distribution by a retiring partner is not subject to U.S. income tax even though the partnership conducts business in the U.S.  Neha Rastogi, Elizabeth V. Zanet, and Nina Krauthamer explain the reasoning behind the decision and the magnitude of the defeat for the I.R.S. Unless the case is reversed on appeal, the decision invalidates the I.R.S. position announced in Rev. Rul 91-32.

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J.C.T. Report on Competitiveness – A Step Toward Consideration of New Rules

volume 2 no 4   /   Read article

By Stanley C. Ruchelman

This month, our team delves into the Joint Committee Report addressing international tax reform in a series of articles. Stanley C. Ruchelman leads with comments on the J.C.T. analysis of Subchapter N of today’s Code – the foreign provisions.  See more →

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Tax 101: Tax Planning and Compliance for Foreign Businesses with U.S. Activity

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The U.S. tax laws affecting foreign businesses with activity in the U.S. contain some of the more complex provisions of the Internal Revenue Code. Examples include:

  • Effectively connected income,
  • Allocation of expenses to that income,
  • Income tax treaties,
  • Arm’s length transfer pricing rules,
  • Permanent establishments under income tax treaties,
  • Limitation on benefits provisions in income tax treaties that are designed to prevent “treaty shopping,”
  • State tax apportionment,
  • F.I.R.P.T.A. withholding tax for transactions categorized as real property transfers,
  • Fixed and determinable annual and periodical income, and
  • Interest on items of portfolio debt.

One can imagine that it is no easy task to identify income that is subject to tax, to identify the tax regime applicable to the income, and to quantify gross income, net income, and income subject to withholding tax. Nonetheless, the I.R.S. has identified withholding tax obligations of U.S. payers as a Tier I audit issue.