May 27, 2021

Final Regulations for Withholding on Foreign Partners’ Transfers of Specified Partnership Interests – Construct, Exceptions, and Reporting

May 27, 2021/ Ruchelman P.L.L.C.

For U.S. tax purposes, gain or loss upon a sale or exchange of property is generally sourced based on the tax home of the seller. For a foreign person investing in a partnership conducting a U.S. trade or business, the source rules change. A foreign partner that sells an investment in a U.S. partnership operating in the U.S. will be subject to tax on the portion of the gain deemed to be effectively connected with a U.S. trade or business. This change stems from Code §864(c)(4), which recharacterizes a sale of a partnership interest as an indirect sale of partnership assets, resulting in gain to the selling foreign partner. Under Code §1446(f), withholding tax of 10% applies to the seller’s amount realized. Andreas A. Apostolides and Nina Krauthamer take a deep dive in the I.R.S. regulations issued in late 2020. A must read for advisers to foreign partners in partnerships with U.S. fixed offices and U.S. trades or businesses.

September 28, 2020

Final G.I.L.T.I. High-Tax Regulations and the Tested Unit: Would a Rose by Any Other Name Smell as Sweet?

September 28, 2020/ Ruchelman P.L.L.C.

A precursor to a global minimum tax for multinational enterprises, the G.I.L.T.I. rules under Subpart F ensure that tax is imposed on cross-border income. The tax rate on G.I.L.T.I. reported by U.S. corporations is relatively low, currently 10.5% and a foreign tax credit is allowed for 80% of the foreign taxes imposed on tested income taxed under the G.I.L.T.I. provisions. In the summer, the I.R.S. issued proposed and final regulations allowing taxpayers to avoid the tax by claiming an exclusion for highly taxed income of tested units. Are the regulations a true benefit or is the benefit illusory? Andreas Apostolides and Neha Rastogi explain all.

September 27, 2020

When an Exchange of Vows is Followed by Separate Ownership of Shares Should Either Spouse Feel G.I.L.T.I.?

September 27, 2020/ Ruchelman P.L.L.C.

Cross border tax planners are expected to know all there is about various provisions of Subchapter N of the Internal Revenue Code. An example might be the G.I.L.T.I. provisions adopted in the Tax Cuts & Jobs Act of 2017. They are not expected to know more mundane provisions of tax law such as rules that apply to married persons filing a joint tax return. In their article, Andreas Apostolides and Stanley C. Ruchelman examine a recent hiccup in G.I.L.T.I. provisions that focus computations in a top-down way. What happens when the marital property regime adopted by the married couple is that of separate property (or they are domiciled in a common law jurisdictions), one spouse separately owns C.F.C.’s with losses, the other spouse separately owns C.F.C.’s with positive earnings, and none of the C.F.C.’s generates Subpart F income? Is the married couple treated as one unit or simply an aggregate of two separate taxpayers? The answer may be troubling.

June 02, 2020

Anti-Abuse Rules of Temp. Reg. §1.245A-5T – A New Cerberus for the U.S. Tax System

June 02, 2020/ Ruchelman P.L.L.C.

In a companion piece to the preceding article, Andreas A. Apostolides and Stanley C. Ruchelman explore many of the anti-abuse rules attached to the foreign D.R.D. provisions. These rules are designed to close the door on financial products that undermine the I.R.S. view of the global biosphere comprised of the D.R.D., Subpart F, P.T.I., and G.I.L.T.I. The goal is to ensure that the benefit of the foreign D.R.D. is not expanded beyond boundaries viewed proper by the writers of the regulations. The D.R.D. is not a tool to shift profits abroad and to bring those profits back to the U.S. tax-free.