HIDE

Other Publications

Insights

Publications

The Devil in the Detail: Choosing a U.S. Business Structure Post-Tax Reform

The Devil in the Detail: Choosing a U.S. Business Structure Post-Tax Reform

Prior to the T.C.J.A. in 2017, the higher corporate income tax rate made it much easier to decide whether to operate in the U.S. market through a corporate entity or a pass-thru entity. With a Federal corporate income tax rate of up to 35%, a Federal qualified dividend rate of up to 20%, and a Federal net investment income tax on the distribution of 3.8%, the effective post-distribution tax rate was 50.47%, before taking into account State and local taxes. With the post-tax reform corporate income tax rate of 21% and the introduction of the qualified business income and foreign derived intangible income deductions, the decision to choose a pass-thru entity is no longer apparent. In their article, Fanny Karaman and Nina Krauthamer look into some important tax considerations when choosing the entity for a start-up business in the U.S.

Read More

Corporate Matters: Delaware Law Allows L.L.C. Divisions

Corporate Matters: Delaware Law Allows L.L.C. Divisions

Delaware recently amended its company law to enable a limited liability company (“L.L.C.”) to be divided into two or more newly-formed L.L.C.’s, with the original company either continuing or terminating its existence.  The amendment provides L.L.C. members with significant flexibility in separating from each other so that assets, liabilities, rights, and duties of the company can be allocated among the resulting companies.  Simon Prisk explains the change in company law.

Read More

Corporate Matters: Profits Interest Basics

Corporate Matters: Profits Interest Basics

In the latest in his series of articles on the relative flexibility of limited liability companies and their desirability for use in many instances, including joint ventures, Simon H. Prisk looks at grants of profits interests as a means of compensating service providers and employees.  If done properly, these incentives can be optimized by favorable tax treatment, achieving the same or better tax results than incentive stock options available to C-corporations and S-corporations.  If done without proper thought and planning, the results may be suboptimal.  

Read More

Foreign Investor in a U.S. L.L.C. – How to Minimize Withholding Tax on Sale of L.L.C. Interest

Foreign Investor in a U.S. L.L.C. – How to Minimize Withholding Tax on Sale of L.L.C. Interest

U.S. tax law was revised in last year’s tax reform legislation to impose tax on non-U.S. persons recognizing a gain from the sale of a partnership that engages in a U.S. business.  Worse, purchasers must collect and pay over to the I.R.S. a withholding tax equal to 10% of the amount realized by the seller.  Because of the way U.S. tax law treats partners of partnerships financed with debt, the withholding tax can be greater than the cash that is set to be paid to the foreign seller.  In April, the I.R.S. issued guidance on the problem, leading some to recommend a two-step plan to align the withholding tax with the ultimate income tax that will be due.  Fanny Karaman and Stanley C. Ruchelman explain the I.R.S. guidance and the two-step plan.

Read More

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.

Read More