January 30, 2022

Goodwill and Mister Donut – A Going Concern?

January 30, 2022/ Ruchelman P.L.L.C.

· A sale of a business often involves an element of goodwill, a term that can have different meanings in different contexts, depending on whether the term relates to (i) purchase price allocations for financial statement purposes or income tax purposes or (ii) attempting to compute the source of income for foreign tax credit purposes. Compounding the definitional inconsistency, the meaning of the term has changed over time. In a 25-year old case, the overseas Mister Donut franchising business was sold to a foreign buyer in an asset-sale transaction. Although only intimated in the case, the taxpayer likely had significant amounts of deferred assets on its balance sheet arising from unused foreign tax credits. Because the seller was a U.S. company, gain from the sale of business generally results in the generation of domestic source income. Under the law in effect at the time, goodwill was sourced where business was carried on. Was that provision the key to access deferred foreign tax credits? The U.S. Tax Court said no. Sometimes, goodwill is not goodwill for foreign tax credit planning purposes. Michael Peggs and Wooyoung Lee look at the court’s reasoning and comment on certain contemporary aspects of the decision in light of provisions in the Tax Cuts and Jobs Act and several I.R.S. pronouncements on goodwill.

June 28, 2018

A Fundamental Change of the Professional Sports Landscape under the 2017 U.S. Tax Reform? The End of Like-Kind Exchanges for U.S. Sports Trades→

June 28, 2018/ Ruchelman P.L.L.C.

Published by Nolot in Global Sports Law and Taxation Reports vol. 9, no. 2 (June 2018): pp. 49-54.

February 28, 2018

Non-Corporate Taxation: Individuals & Partnerships Face Highs & Lows Under the T.C.J.A.

February 28, 2018/ Ruchelman P.L.L.C.

Most cross-border tax advisers with clients that are impacted by the T.C.J.A. focus on the principal items, such as B.E.A.T., G.I.L.T.I., and the like. However, the act contains many additional provisions that can affect the non-corporate cross-border investor. Taxes have been reduced, a holding period for capital gains treatment now applies to carried interests, the scope of like-kind exchanges has been limited, and the tax treatment of alimony payments has been changed. These are just a few of the items addressed by Sheryl Shah.

September 20, 2017

A Case of Nonacquiescence: I.R.S. Opposes Bartell Decision

September 20, 2017/ Ruchelman P.L.L.C.

Tax-smart investors in U.S. real estate understand that the principal method of disposing real property is to participate in a two-party swap transaction with the ultimate purchaser or a three-party deferred swap through a qualified intermediary. In Bartell v. Commr., the U.S. Tax Court allowed a replacement property to be purchased by an exchange accommodation title holder with whom it was parked for 17 months prior to its transfer. However, the I.R.S. has issued a notice of nonacquiescence, advising taxpayers that it disagrees with the holding of the court. Rusudan Shervashidze and Nina Krauthamer explain the facts in Bartell, the safe harbor that was published in Rev. Proc 2000-37, and the status of the facilitator as a beneficial owner for purposes of allowing tax deferral in the swap transaction.

March 27, 2017

New Developments in the World of Reverse Like-Kind Exchanges

March 27, 2017/ Ruchelman P.L.L.C.

Tax planners to New York City real estate families understand that real estate should never be sold. Rather, it should be exchanged in a tax-free, like-kind exchange. The exchange can be bifurcated into two independent transactions – one a purchase and the other a sale – without affecting tax-free treatment, provided certain well identified rules are followed. Moreover, the replacement can be acquired before the sale of an existing parcel is effected. In a recent advisory opinion affecting property in New York State, the Department of Taxation and Finance issued a taxpayer-friendly advisory opinion involving real estate transfer tax exposure in a reverse like-kind exchange. Rusudan Shervashidze and Nina Krauthamer explain the ruling.

October 26, 2016

Estate of Bartell Offers Taxpayer Relief in a Reverse Deferred §1031 Exchange

October 26, 2016/ Ruchelman P.L.L.C.

Many countries provide a tax deferral benefit for property gains through the form of a reinvestment reserve. Although U.S. tax law does not provide reserves, it does permit a taxpayer to participated in a three-party exchange of properties that may offer deferral benefits that are comparable to a reserve. Most three-party exchanges involve a sale as the first step and a reinvestment of proceeds as the second step, but in some instances, the reinvestment may occur before the sale. The I.R.S. position on these reverse exchanges is that several enumerated hurdles must be overcome before tax deferral is allowed. However, as one recent U.S. Tax Court case demonstrates, the I.R.S. view is not the last word. Rusudan Shervashidze and Nina Krauthamer explain the holding in the case, place it in context, and suggest that it may offer hope for reverse three-party exchanges that do not meet I.R.S. guidelines.

May 15, 2015

Art for Art

May 15, 2015/ Ruchelman P.L.L.C.

Taxpayers are usually taxed on net gains from the sale of property. However, tax may be deferred if the transaction is cast as an exchange and certain conditions are met. Art investors are now employing these methods to defer tax on gains from the sale of appreciated art by exchanging one piece of artwork for another. In this article, Nina Krauthamer and Sheryl Shah address the application of the like-kind exchange provisions under Code §1031, traditionally used for investment and business real estate, to the exchange of works of art.

February 15, 2015

Tax 101: Understanding U.S. Taxation of Foreign Investment in Real Property – Part III

February 15, 2015/ Web Developer

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INTRODUCTION

This is the final article in a three-part series that explains U.S. taxation under the Foreign Investment in Real Property Tax Act of 1980 (“F.I.R.P.T.A.”). This article looks at certain planning options available to taxpayers and the tax consequences of each.

These planning structures aim to mitigate taxation by addressing several different taxable areas of the transaction. They work to avoid gift and estate taxes, and double taxation of cross-border events and corporate earnings, while simultaneously striving for preferential treatment (e.g., long-term capital gains treatment), as well as limiting over-withholding, contact with the U.S. tax system, and liability. Often, such structures are helpful in facilitating inter-family transfers and preserving the confidentiality of the persons involved.