Published in The Licensing Journal vol. 37, no. 9 (October 2017): pp. 11-18.
Read MoreMembers of Ruchelman P.L.L.C. contribute to publications throughout the world and the Firm’s monthly tax journal, Insights.
Published in The Licensing Journal vol. 37, no. 9 (October 2017): pp. 11-18.
Read MoreEarlier this year, the O.E.C.D. proposed amendments to Article 5 (Permanent Establishment) of the Model Tax Convention and Commentary. The revisions eliminate loopholes that exist for commissionaire arrangements, artificial characterization of core activities as “preparatory,” avoidance of permanent establishment status through artificial fragmentation of contracts, and the use of not-so-independent agents. Neha Rastogi, Beate Erwin, and Stanley C. Ruchelman explain the replacement provisions.
Read MoreU.S. tax law contains provisions that attempt to discourage the outbound migration of intangible assets including specific rules that target transfers affected through corporate inversions. Elizabeth V. Zanet and Stanley C. Ruchelman discuss the history and current standing of those provisions, while pointing out an alternative that is currently available to limit ongoing tax liability in the context of a start-up operation.
Read MoreThe New England Patriots recently made headlines with the purchase of two private team jets. Was this plan implemented only to provide more space for beefy footballers, or did ownership identify the nifty situation that could lead to a jackpot of tax savings for high-ticket assets purchased in 2017? Beate Erwin and Stanley C. Ruchelman explain that with increased depreciation deductions this year at high tax rates and possible recapture in a future year at low tax rates, the odds are good.
Read MoreWhile the O.E.C.D. and the European Commission have only recently discovered the “principal purpose” test as a tool to combat aggressive tax planning, U.S. case law has enforced an economic substance rule for over 85 years and that rule was codified in 2010. Fanny Karaman, Neha Rastogi, and Stanley C. Ruchelman explain the hurdles that must be achieved in order for a plan to have economic substance.
Read MoreTax 101 continues its series regarding the U.S. Federal tax considerations involving the creation, acquisition, use, license, and disposition of intellectual property (“I.P.”). This month, Elizabeth V. Zanet and Stanley C. Ruchelman focus on I.P. held through a corporation or a partnership/L.L.C. In particular, the not-well-understood rules regarding the sale of interests in a partnerships/L.L.C.’s owning “hot assets” are explained. Not all gain benefits from favorable long-term capital gains tax rates.
Read MoreIn June, the European Commission proposed a set of rules calling on tax advisers to report aggressive tax plans submitted to clients. The proposal identifies the hallmarks of aggressive plans and provides rules for the timing of reports and the exchange of information within Europe. Fanny Karaman and Stanley C. Ruchelman explain.
Read MoreTaxpayers having cross-border operations are confronted with numerous tax information forms to be filed as part of the annual tax return. Because the forms are not directly used to compute taxable income, they frequently are completed at the last minute and with less attention to detail. However, the I.R.S. imposes penalties for filing an incomplete form. Taxpayers faced with asserted penalties often argue that the forms are substantially complete. In a recent International Practice Unit (“I.P.U.”) issued by the Large Business & International Division of the I.R.S., the I.R.S. view regarding substantially complete form was explained. Not surprisingly, the I.R.S. view is significantly different from taxpayer expectations. It also differs from holdings in several Tax Court decisions involving other forms. Neha Rastogi and Stanley C. Ruchelman discuss the I.P.U. in detail.
Read MoreThe I.R.S. has a long history in misapplying U.S. tax rules applicable to a sale of a partnership interest. For U.S. tax purposes, a partnership interest is treated as an asset separate and apart from an indirect interest in partnership assets. In Rev. Rul. 91-32, the I.R.S. misinterpreted case law and Code provisions to conclude that gains derived by foreign investors in U.S. partnerships are subject to tax. No one thought the I.R.S. position was correct, but then, in a field advice to an agent setting up an adjustment, the I.R.S. publicly stated that the ruling was a proper application of U.S. law when issued and remains so today. The adjustment was challenged in the Tax Court, and the tax bar is eagerly awaiting a decision. Stanley C. Ruchelman and Beate Erwin examine the I.R.S. position, the string of losses encountered by the I.R.S. when challenged by taxpayers, and the Grecian Magnesite case awaiting decision.
Read MoreIn April, coordinated tax raids targeted three separate offices Credit Suisse involved in tax fraud examinations by the Netherlands, France, Germany, the U.K., and Australia. Was it merely a coincidence that these are countries with which the U.S. regularly cooperates in the exchange of tax information? Rusudan Shervashidze and Stanley C. Ruchelman discuss the many avenues through which the I.R.S. furnishes and receives information. One thing is clear: The I.R.S. had the means to transfer information to the relevant tax authorities.
Read MoreThis month, Tax 101 presents an overview of the basic U.S. Federal tax considerations of transactions that occur over the life cycle of intellectual property (“I.P.”) – from its creation to its acquisition, exploitation, and ultimate sale in a liquidity event. The article address several important questions: Should expenditures be capitalized or deducted? If capitalized, over what period is the expenditure amortized? How are acquisitions of I.P. reported to the I.R.S. when an entire business is acquired? What is the character of gain on sale? When is a sale treated as a license? And when is a license treated as a sale? Elizabeth V. Zanet and Stanley C. Ruchelman explain.
Read MoreCode §6038A provides that a U.S. corporation that is 25% or more foreign-owned must provide the I.R.S. with information on certain transactions with its 25% foreign owner and any other foreign related party. The goal is to obtain access to documents that are helpful in determining the correctness of the U.S. tax return. In an I.P.U., LB&I explains how it plans to obtain documents held outside the U.S. This may include a requested exchange under a tax information exchange agreement or a summons served on a domestic agent appointed to receive a summons that is enforceable abroad. Galia Antebi and Stanley C. Ruchelman explain the process that will be followed by the I.R.S.
Read MoreIf all currencies were pegged to one single standard and did not fluctuate in value among themselves, the concept of currency gain and loss would not be needed. However, no universal standard exists and major currencies tend to fluctuate. Consequently, a uniform method must be applied to identify the amount of a transaction when the conversion rate changes between a booking date and a payment date of a transaction denominated in a non-functional currency. In a recent International Practice Unit (“I.P.U.”), the LB&I Division of the I.R.S. provides a broad overview of how currency gains and losses are recognized for U.S. tax purposes. Elizabeth V. Zanet and Stanley C. Ruchelman examine the applicable rules in the I.P.U.
Read MoreAlthough the U.S. is the world’s largest economy, it is the only world economy that does not have a national value-added tax (“V.A.T.”). Until the border adjustment tax (“B.A.T.”) proposals were floated, most cross-border tax advisers in the U.S. only had vague concepts of the workings of a national V.A.T. Fanny Karaman and Stanley C. Ruchelman explain the mechanics of the V.A.T. as enacted in the E.U., cautioning that the B.A.T. is not a V.A.T.
Read MoreThe I.R.S. Large Business and International (“LB&I”) Division has announced 13 issue-based campaigns targeting specific “Practice Areas” for audit and other enforcement activity. The campaigns involve a combination of examinations, outreach, guidance, and other approaches. Galia Antebi and Stanley C. Ruchelman look at the new I.R.S. approach to tax examinations in an age of increased complexity and limited budgets for examiners.
Read MoreCode §338(g) allows a taxpayer to elect to treat certain share purchases as if the transactions were asset purchases. As a result, the premium paid for the shares can be pushed down to increase the basis in operating assets of the acquired company. The step-up in depreciable basis results in steeper depreciation and amortization deductions for U.S. tax purposes. Because a comparable tax benefit is not obtained in the jurisdiction where the target operates, the Code §338(g) treatment magnifies the effective tax rate in the foreign country when looked at from a U.S. tax viewpoint. This creates mountains of excess foreign tax credits that can be used to reduce U.S. tax on other items of foreign-source income, provided those items are subject to little or no foreign tax and fall within the same foreign tax credit limitation basket. A similar result can be achieved through a check-the-box election, which acts as a poor man’s Code §338(g) election. Code §901(m) attempts to disallow the enhanced level of the foreign tax credit, and the I.R.S. recently issued temporary and proposed regulations. Rusudan Shervashidze and Stanley C. Ruchelman explain the labyrinth of rules.
Read MoreIn Notice 2016-73, the I.R.S. announced that it intends to issue regulations preventing certain taxpayer abuses incident to triangular reorganizations involving foreign corporations. These are transactions in which a subsidiary is the acquisition vehicle and the shares used to acquire the target are shares of the parent company, hence the reference to a triangle. The Notice is another step in the saga of “Killer B” reorganizations in which U.S. corporations attempt to take cash out of foreign subsidiaries without paying significant U.S. tax. Transactions occurring in the past two years have been found to be abusive because they apply recently issued regulations in a way that was not intended at the time of publication. Fanny Karaman and Stanley C. Ruchelman explain the approach enunciated in the Notice.
Read MoreA globalized economy has been the driving force behind cross-border tax transparency and increased dissemination of tax information in recent years. The importance of F.A.T.C.A. reporting has paled as the O.E.C.D. Common Reporting Standard has taken effect in the E.U., State Aid cases are progressing, and country-by-country reports may be publicly available. Europe and the U.S. are moving in different directions. Philip R. Hirschfeld and Stanley C. Ruchelman explain.
Read MoreNew powers have been given to H.M.R.C. in recent legislation, and new criminal and civil penalties have been enacted as part of a massive legislative program designed to stop U.K. residents from participating in offshore tax avoidance and evasion schemes. Several criminal penalties are directed to advisory firms that facilitated tax offenses. In certain circumstances, advisory firms based outside the U.K. will be at risk of prosecution. Gary Ashford of Harbottle and Lewis L.L.P., London, and Stanley C. Ruchelman examine the new provisions.
Read MoreIn 2016, the U.S. Treasury Department resurrected an area of the tax law that lay dormant for almost 40 years – the debt-equity regulations under Code §385. As we reminisce on the best of 2016, we offer detailed analysis of the new tax treatment adopted under Code §385. These comprehensive and detailed regulations address whether a debt instrument will be treated as true debt for U.S. income tax purposes or re-characterized, in whole or in part, as equity.
Read MoreForming a Delaware corporation or limited liability company (“L.L.C.”) is remarkably easy. Remembering what to do with its internal records afterwards can be another matter. Corporate attorneys are frequently asked to form corporations and limited liability companies for use as blockers, holding companies, or acquisition vehicles in connection with a transaction. The entity itself may be only a small part of a much larger transaction, with most of the attention being paid to the purchase agreement, financing documents, or other agreements that is entered into by the newly formed entity. Once the transaction is completed, however, the internal corporate records of the newly formed entity can easily become an afterthought. The issue often resurfaces months or years later when a lender, purchaser, investor, or foreign counsel asks to see them. In his article, Simon Prisk looks at the various ancillary documents that are executed and then frequently ignored by clients that do not have an internal legal department. Examples include (i) certificates of formation, (ii) bylaws, (iii) subscription agreements, (iv) amendments to reflect changes to formal ownership records, and (v) a physical or digital minute book.
Over the past several years, the I.R.S. has targeted tax-free partnership transactions designed to shift tax basis to property in a way that will yield tax savings for the partner, the partnership, or both. The goal of these transactions is to use the interplay of rules governing inside basis and outside basis to shift tax basis from assets where it is less beneficial for income tax purposes to assets where a higher basis provides greater benefits, i.e., because the asset offers greater cost-recovery deductions or smaller taxable gains when sold. Regulations were adopted in final form during the last days of the Biden Administration, but were withdrawn in Notice 2025-23, with effect as of the date of their issuance. In his article, Wooyoung Lee (i) observes that, while the regulations were withdrawn, the I.R.S. has not withdrawn Rev. Rul. 2024-14, which accompanied the proposed regulations when issued in 2024 and explains the three types of basis-shifting transactions that, in the view of the I.R.S., fail the economic substance doctrine that is codified in Code §7701(o).
Foreign owners of single member U.S. limited liability companies (“L.L.C.’s”) are often told that an L.L.C. with one member is a disregarded entity for U.S. tax purposes. They assume that it means exactly that: disregarded. The assumption is understandable. It was true in almost every relevant respect for many years. It is still true for U.S. income tax purposes. A single-member L.L.C. generally files no income tax return of its own. Its income, deductions, and assets belong to its owner. But the assumption is wrong in one important respect. Since 2017, a foreign-owned single-member L.L.C. has been treated as a domestic corporation for purposes of the reporting and record-maintenance obligations under Code §6038A, involving transactions between the L.L.C. and its foreign related parties. The reporting mechanism is Form 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.) The I.R.S. instructions confirm that a reporting corporation includes a ≥25% foreign-owned U.S. corporation, including a foreign-owned U.S. disregarded entity. On April 24, 2026, the I.R.S. released Chief Counsel Advice 202617012 (“C.C.A.”). The C.C.A. addresses when the reasonable cause exception to the Code §6038A penalty applies and, in particular, what it means for the I.R.S. to apply that exception “liberally” for certain small corporations. In her article, Galia Antebi explains (i) Code §6038, (ii) the reasonable cause standard in Treas. Reg. §1.6038A-4(b), and (c) how that standard was applied in the C.C.A. While the C.C.A. may not be used or cited as precedent, it serves to illustrate how the I.R.S. evaluates reasonable cause at the time of the C.C.A.’s issuance.
For many non-U.S. individuals, obtaining a U.S. Individual Taxpayer Identification Number ("I.T.I.N.") represents their first substantive interaction with the U.S. tax system. At first glance, the process may appear relatively straightforward: complete Form W-7, provide the required supporting documentation, submit the application to the I.R.S., and await issuance of the I.T.I.N. In practice, however, the process is considerably more nuanced. All of these steps must be coordinated through an I.R.S. Certifying Acceptance Agent ("C.A.A."), assuming the individual does not wish include his or her passport in the packet of documents sent to the I.R.S. In his article, David te Boekhorst, the Founder and the Director of Angularis Global Services Inc., offers practical observations drawn from true life experience working in coordination with legal and tax advisors to assist international clients in navigating the administrative and compliance-related dimensions of the I.T.I.N. application process. He addresses (i) the purpose of the I.T.I.N. program, (ii) the role and responsibilities of the C.A.A., (iii) common misconceptions surrounding I.T.I.N.’s, and (iv) practical lessons learned from guiding foreign individuals through the application process.
Legal systems regarding taxation differ significantly between jurisdictions, and legal vehicles used to attain a specific goal often must be revised when a border is crossed. A clear illustration of this is the discretionary trust, which is a common estate planning tool in the U.S., but is often associated with tax avoidance schemes in the Netherlands. For that reason, assets, liabilities, and income of a discretionary trust are attributed to the contributor under the Afgezonderd Particulier Vermogen (“A.P.V.”) regime. An A.P.V. is defined as a segregated estate that is intended to serve a private interest that is more than incidental. In their article, Stan Stevens, a Partner at HVK Stevens Tax and Legal in Amsterdam, and Sandra Singh, a Director at the same firm, explain the rules and how they are applied in troublesome fact patterns, including unexpectedly harsh treatment if (i) a contributor of a trust moves to the Netherlands, (ii) a nonresident contributor arranges for the trust to have Dutch source income, (iii) a nonresident contributor owns Dutch situs assets at the time of death, or (iv) a Dutch expat individual dies within ten years from the date of expatriation.
No rule is more easily ignored than one no one seems to have heard of, and few provisions of French tax law make the point as neatly as the annual 3% tax on the fair market value of French real estate held by legal entities (taxe annuelle sur la valeur vénale des immeubles). Indeed, while having a very broad scope – the 3% tax is never far away where a French real estate property is not owned directly by an individual – it seems to be often overlooked by international investors, exposing them to significant tax risks. The 3% tax was initially conceived as a tracking device to seek out individuals attempting to avoid wealth tax or registration duty. Assessment of the tax is not time-barred until the end of the sixth year following the year involved, leading in the most egregious case to a 21% tax based on the real estate value. In their article, Xenia Lordkipanidze, a Partner in the Tax Department of OVERSHIELD Avocats, Paris, and Clement Pere, a Senior Associate in the Tax Department at the same firm, take a deep dive into the rules, explaining (i) how the tax is computed when a chain of corporations stands between the individual and the property, (ii) the persons who a deemed to be authorized to receive notices from the French Tax Authority, (iii) the 30-day grace period to file late that is offered to first time offenders, (iv) seven applicable exemptions to the 3% tax, (v) adverse case law for persons and entities that challenge the tax, and (vi) several items of practical guidance for affected individuals.
With a coalition government in office for 19 months, Belgium is making progress on the implementation of the ambitious tax reform that was announced when the new government was about to be sworn in. Although progress is real, it is taking shape piece by piece instead of one massive overhaul. In their article, Werner Heyvaert, Of Counsel at Advisius Tax & Legal in Brussels, and Yannick Vandenplas, an Associate at the same firm, explain the myriad of changes adopted earlier this year, including (i) the introduction of a broad capital gains tax on financial assets for Belgian individual taxpayers, followed up in administrative guidance that was issued in July, (ii) stricter rules for the dividends received deduction for Belgian corporations and for the dividend withholding tax exemption allowed to nonresident corporations, (iii) changes to the company exit tax regime, allowing for taxation of the “Liquidation Bonus” realized by individual shareholders, (iv) the adoption of a special tax regime for “carried interests,” (v) an overhaul of the tax regime for newly arrived expats, (vi) a revision to the Investment Deduction regime, a tax incentive allowing Belgian businesses to deduct a notional portion of the purchase price or investment cost of qualifying fixed assets made during the year, and (vii) the adoption of mandatory digital invoicing.
This month, Nina Krauthamer and Wooyoung Lee look briefly at two recent developments in tax. The first addresses pied-à-terre homes in New York City. Following tax policies adopted by certain cities in Canada, a yearly property tax surcharge will be imposed on New York City homes worth $5 million or more when (i) the home is not used as a primary residence for the owner or for a family member or (ii) is not rented out on full-time basis to an individual who uses the unit as a primary residence. The second development is reported by an anonymous source in contact with an unnamed immigration lawyer. According to the source, the I.R.S. is considering a change to Form 1040 (U.S. Individual Income Tax Return) to add two check boxes to the form. One will be used to indicate (a) whether the resident filer is or is not a U.S. citizen. The second will be used to identify w
In May, the I.R.S. announced a settlement offer for partnerships involved in disputes concerning “syndicated conservation easements.” The dispute involves the value of charitable deductions claimed in regard to the grant of an easement that prevents the owner from developing land. An easement is a legal right that allows one party to use a specific portion of someone else’s property for a specific, limited purpose without actually owning the land. The grant purportedly becomes a tax shelter when (i) multiple unrelated investors (ii) pool their money in a partnership or syndicate (iii) that is formed to acquire various parcels of undeveloped land (iv) for the principal purpose of contributing development rights to a land trust, (v) that allows the investors to claim charitable contribution deductions at purportedly inflated values far in excess of the investment in the land. In their article, Stanley C. Ruchelman and Wooyoung Lee explain the history of this typically U.S. centric tax shelter to readers outside the U.S.
“Q.S.B.S.” is a tax related acronym in the U.S. for Qualified Small Business Stock. When a start-up corporation meets certain conditions enumerated in Code §1202, noncorporate investors are offered the opportunity to derive tax-free capital gains by holding the investment for a period of time prior to a liquidity event. The greater of $10 million of gain or 10 times the taxpayer’s basis in the Q.S.B.S. – referred to as “basis loading – may be exempt from tax on exit. The tax benefit can be enhanced by creating multiple irrevocable nongrantor trusts, each formed for the benefit of a specific family member. Each trust is entitled to its own capital gain exemption, so long as the multiple trust rule of Code §643(f) is not triggered. Under that rule, multiple trusts having (i) the same grantor, (ii) substantially the same primary beneficiaries, and (iii) an income tax avoidance purpose are treated as a single trust.. Among savvy investors, the tax plan is known as “stacking.” In her article, Galia Antebi reports that Treasury Assistant Secretary for Tax Policy Kenneth Kies recently signaled that Treasury does not like stacking. The bad news is that forthcoming Q.S.B.S. guidance is expected to limit taxpayers’ ability to multiply the benefit. The good news is that basis loading is not a target – at least for now.
When individuals consider moving their tax residence to Italy, the first conversation almost always begins with a specific question. How will I be taxed in Italy? It is a question that comes most naturally to clients who have read about Italy’s special regimes. But is it the only question that should be considered? In her article, Giada Mazzola, Senior Counsel at Caldara & Associati in Milan, cautions that an adviser who treats the first conversation as a tax-rate conversation will produce an answer that may be technically correct, but may be problematic for practical reasons related to the way the client chooses to live. A more useful approach is one that asks the five questions that all begin with the letter “W” – Who? What? When? Where? and Why? An adviser will be able to fashion a tax plan and a life plan that meets the needs of the client over the long haul only when those five questions are asked by the adviser and answered by the client (i) fully, (ii) completely, and (iii) honestly.
In the past year, the British Virgin Islands (“B.V.I.”) beneficial ownership information (“B.O.I.”) reporting regime moved from consultation and transition to implementation and enforcement in ways that may affect more than companies and their beneficial owners. Areas of the law that are potentially affected, include (i) beneficial and legal ownership and title, (ii) proprietary rights, (iii) shareholder disputes, (iv) creditor rights and secured lending, (v) fiduciary obligations, (vi) registered agent duties, (vii) privacy, (viii) cross-border confidentiality, and (ix) potential public law challenges to administrative decision-making.that may affect more than companies and their beneficial owners. In his article, Joshua Mangeot, a leading advisor on the implementation of the B.V.I. economic substance and beneficial ownership reporting requirements, points out that these are areas of the law that areprovides an update on the B.V.I. position, focusing on points most likely to matter to international tax advisors, family offices, corporate and fiduciary service providers, trustees, private banks, fund managers, litigators, and end-clients using B.V.I. companies or limited partnerships in cross-border structures. It raises potential issues regarding (i) beneficial and legal ownership and title, (ii) proprietary rights, (iii) shareholder disputes, (iv) creditor rights and secured lending, (v) fiduciary obligations, (vi) registered agent duties, (vii) privacy, (viii) cross-border confidentiality, and (ix) potential public law challenges to administrative decision-making. Clearly, the adoption of the B.O.I. reporting regime can be viewed to be the equivalent of the proverbial camel’s nose under the tent.
Ruchelman P.L.L.C. provides a wide range of tax planning and legal services for foreign companies operating in the U.S., foreign financial institutions operating ...