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Qualified Opportunity Zones: Second Set of Proposed Regulations Offers Greater Clarity to Investors

Qualified Opportunity Zones: Second Set of Proposed Regulations Offers Greater Clarity to Investors

The Opportunity Zone tax benefit, which was crafted as part of the 2017 tax reform, aims to encourage taxpayers to sell appreciated capital properties and rollover the gains into low-income areas in the U.S.  One major benefit – reducing recognition of deferred gains by up to 15% – is available only to investments made before the end of 2019, although other benefits will continue to be available to later investments.  The clock is ticking on the 15% reduction, and the I.R.S. is accelerating the issuance of guidance.  In late April, the I.R.S. released a second set of proposed regulations that address many of the issues that were deferred in the initial set.  They also address issues raised by written comments and testimony at the well-attended public hearing in February.  In their article, Galia Antebi and Nina Krauthamer lead the reader through the important and the practical parts of the second set of guidance.

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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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Updates & Other Tidbits

Updates & Other Tidbits

This month, Fanny Karaman, Galia Antebi, and Stanley C. Ruchelman look at interesting items of tax news, including (i) the I.R.S. announcement that French contribution sociale généralisée ("C.S.G.") and contribution au remboursement de la dette sociale ("C.R.D.S.") are now considered creditable foreign income taxes as they are no longer considered to fall under the provisions of the France-U.S. Totalization Agreement, (ii) the Senate Foreign Relations Committee has recommended approval of protocols to income tax treaties with Japan, Luxembourg, Spain, and Switzerland, paving the way for Senate approval, and (iii) proposed regulations under Code §951A now allow taxpayers to claim the benefit of the high-tax kickout to limit the inclusion of G.I.L.T.I. income, thereby allowing individuals to avoid current taxation of net tested income when the controlled foreign corporation incurs foreign income taxes imposed at a rate that exceeds 18.9%.

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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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