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.

The economic substance doctrine has a long-standing history in U.S. tax law, stretching back over 90 years. Case law also developed other related doctrines, such as the business purpose doctrine and step-transaction doctrine, all of which attempted to answer the same question – was the business transaction real or was it a charade intended solely to reduce tax. Code §7701(o), entitled “Clarification of economic substance doctrine,” was enacted in 2010 to codify the preexisting regime. The legislative history provided an angel list of transactions that were not viewed abusive. For those transactions and others that did not contain hallmarks of tax avoidance, it was accepted that the economic substance doctrine was not relevant. Indeed, the statute provides that, with limited exception, if the economic substance doctrine was not relevant to a fact pattern prior to the enactment of Code §7701(o), the economic substance doctrine would not be relevant after the enactment of that provision. Then, in 2023, the I.R.S. put on its sheriff’s hat and turned the angel list into a hit list, taking the position that Code §7701(o) was a game changer. In their article, Stanley C. Ruchelman and Wooyoung Lee examine two recent cases, Liberty Global and Patel, in which the I.R.S. position was that case law was no longer relevant if planning became too aggressive. The I.R.S. won both cases, but the jury is out as to the validity of its position.

Remote work is one of COVID-19’s enduring legacies. What began as something necessary for health and safety reasons has become a fairly conventional practice. Not surprisingly, issues have arisen related to remote work locations as permanent establishments when an individual resides in Contracting State 1 and works for an employer based in Contracting State 2. In November, the O.E.C.D. issued additional guidance to the permanent establishment article of the Model Tax Convention on Income and on Capital, without changing any of the text of the article. The updated commentary emphasizes that general principles for determining the existence of a P.E. – such as the permanence of the premises and whether the premises are used to carry out core business functions rather than ancillary functions – apply in evaluating whether the employer based in Contracting State 2 maintains a P.E. in Contracting State 1 by reason of a home office of an employee located in Contracting State 1. In their article, Stanley C. Ruchelman and Wooyoung Lee explain that the new guidance focuses principally on two factors: time spent working out of a remote worker’s home and commercial reasons for being in another country. Five examples of typical fact patterns are provided, of which four provide favorable outcomes. Companies with remote workers are encouraged to use the examples in drafting – and enforcing -- a remote worker policy that parrots the examples that reach favorable outcomes. Failure to do so will prolong the current system that yields uncertainty.

The year 2025 marks the 45th anniversary of the enactment of the Foreign Investors Real Property Tax Act. It is a good time to revisit issues that are faced by nonresident investors considering an acquisition of real property in the U.S. For the private investor, many decision points must be addressed. Here are a few that come readily to mind: (1) Will the investment generate passive or active income? (2) Now and possibly in the future, will the investment be limited to one property or will there be multiple properties? (3) Is it better to own the property directly or through a holding company? (4) Should the holding company be formed in the U.S. or abroad there, or should there be holding companies in both places? (5) Should the holding company be tax-transparent or tax-opaque? (6) Will the structure prevent death duties from being imposed in the U.S.? (7) If the initial holding structure produces suboptimal results, can the structure be revised, and if so, at what cost? (8) Is it better to hold all U.S. properties through one U.S. holding company or is it better to hold each U.S. property through its own separate U.S. holding company? Stanley C. Ruchelman and Wooyoung Lee provide guidance to foreign investors and their home country advisers so that well-reasoned investment structures can be formulated at the front end that take into account U.S. tax rules, foreign tax rules, and preferences of the particular client.

On Friday, May 22, 2025, the U.S. House of Representatives adopted a budget resolution containing provisions that would impose increased taxes for persons based in countries that impose taxes found to discriminate against U.S. companies or their subsidiaries. If a country is determined to have “crossed the line,” residents of that country and their subsidiaries would face up to a 20% increase in withholding taxes on U.S. source investment income, income taxes on income that is effectively connected to the conduct of a U.S. trade or business, and certain other taxes. In his article, Stanley C. Ruchelman lists the foreign persons that will be subject to the reprisal tax, the tax regimes that are expressly targeted, the implementation schedule, and the taxes that will be increased.

While the word “basket” may trigger a mental image of a bicycle with a daisy basket that is a gift in early childhood, the term has a totally different connotation in the tax world. It denotes “foreign tax credit baskets” to an international tax geek in the U.S. The foreign tax credit provisions are among the most complicated areas of U.S. and become further complicated when a “U.S. Shareholder” of a Controlled Foreign Corporation includes income in one year but receives distributions in another. In their article, Neha Rastogi and Stanley C. Ruchelman explore the labyrinth of the foreign tax credit provisions that are designed to ensure that (i) income and (ii) related foreign taxes are reported in the same foreign tax credit basket. The takeaway is that, if the exercise is not computed properly, double taxation of income is sure to arise.

The YA Global case has drawn widespread attention due to the U.S. tax implications for foreign investment partnerships investing in U.S. securities or making use of a U.S. investment manager. The I.R.S. prevailed in the U.S. Tax Court, and the foreign investment partnership was found to have been engaged in the conduct of a U.S. trade or business in the facts presented. The Tax Court has now released a follow-up memorandum opinion that addresses the following question: what standard should be applied when determining whether a foreign recipient of an income payment from a partnership should be recognized as a partner for income tax purposes and subject to Section 1446 withholding tax? At stake is the U.S. withholding tax imposed on partnerships with foreign partners and U.S. effectively connected income. Wooyoung Lee and Stanley C. Ruchelman address the issue. Sometimes, financial engineers develop a plan that works well when stress tested in the office, but is far too complicated for the I.R.S. and Tax Court judges.

An individual takes out life insurance in order to provide for his heirs and to obtain peace of mind. Tax treatment for the individual during life and the heirs is straightforward when everyone resides in one country. But when a life insurance policy is written in France and the insured or the heirs are U.S. citizens or residents, what the policy holder, his estate, or the beneficiaries may encounter is anything but peace of mind. To their chagrin, each may find that he or she is in the crosshairs of contrary laws in two countries resulting in sub-optimal tax results. In their article, Sophie Borenstein, of attorneys Klein Wenner in Paris, Neha Rastogi, and Stanley C. Ruchelman discusses the French and U.S. tax rules applicable to a French life insurance policy. Grown men have cried over less complicated matters.

On May 8th, the Treasury Department and the I.R.S. proposed regulations regarding information reporting in the context of U.S. persons, foreign trusts, and gifts from non-U.S. persons. When adopted in final form, they will affect (i) U.S. persons who engage in transactions with, or are treated as the owners of, foreign trusts and (ii) U.S. persons who receive large gifts or bequests from foreign persons. The scope of the proposed regulations is broad, and many existing regulations are affected. Wooyoung Lee and Stanley C. Ruchelman take a deep dive addressing specific regulatory provisions that are affected. Many “open doors” that currently exist have been closed. The authors tell all, linking explanations in the preamble to the proposed regulations with specific regulations in the proposal.

Many U.S. investors and business owners are familiar with the tax exemption provided to U.S. individuals recognizing gains from the sale of certain U.S. stock, defined as qualified small business stock (“Q.S.B.S.”). The Q.S.B.S. exemption plays an important role in the growth of hi-tech industry, which is dependent on investments by U.S. persons. It typically benefits U.S. individuals who invest in start-up software companies. However, the Q.S.B.S. exemption is not available for investment gains related to corporations engaged in the provision of nonqualified services, such as health care, brokerage, law, engineering, architecture, and accounting. However, a business that develops software that is used in those may qualify in certain circumstances, but not qualify in others. The key is whether the software is a tool for a person performing the nonqualified business or the software supplants the individual in performing the business. In this article, Stanley C. Ruchelman addresses two I.R.S. rulings illustrating the facts that distinguish a computer program that is a tool for service providers from facts that cause a program to be treated as a robot service provider.

Aimed at curbing money laundering, terrorism financing, and other nefarious activity, Congress enacted the Corporate Transparency Act (“C.T.A.”) on January 1, 2021. However, the C.T.A. became fully effective from January 1, 2024. It now requires certain domestic and foreign entities to disclose to the Financial Crimes Enforcement Network (“FinCEN”), a division of the U.S. Treasury Department, the identity of their beneficial owners and control persons. A failure to do so can attract heavy penalties. The targets of the C.T.A. are much like Matryoshka dolls, having many layers between what appears on the surface and what exists at the heart. Neha Rastogi and Stanley C. Ruchelman guide the reader through the in’s and out’s of what is likely the most invasive legislation enacted by Congress.

In E.S. N.P.A. Holding L.L.C. v. Commr., the U.S. Tax Court decided that the indirect receipt of a profits interest in a partnership in exchange for services was not a taxable event for the recipient. The decision was largely an application of Revenue Procedure 93-27, in which the I.R.S. provided guidance on the tax treatment of an individual who directly provides services to a partnership in exchange for the receipt of a profits interest. However, it is not a run-of-the-mill fact pattern that involves the grant of a profits interest to an individual in the financial services sector. Rather, it is about how an individual running a business through a taxable C-corporation was able to (i) arrange a sale of 70% of the C-corporation’s business to new investors bringing in fresh capital and (ii) by choosing a proper structure open a pathway to receive future profits without channeling income through the C-corporation. Wooyoung Lee, Nina Krauthamer, and Stanley C. Ruchelman explain the applicable I.R.S. regulations defining a “profits interest,” an important 8th Cir. Case reversing a decision of the U.S. Tax Court, the Revenue Procedure, and finally E.S. N.P.A. Holding v. Commr.

Moore v. U.S. is a case that asks the following question: does the U.S. Constitution impose any limitations on Congress to impose tax where no Subpart F income is realized during the year by a C.F.C. and no dividends have been paid to shareholders? It does so in the context of the change in U.S. tax law provisions designed to avoid double taxation of income in a cross border context. Prior to 2018, U.S. law eliminated double taxation on direct investment income of a U.S. corporation by allowing an indirect foreign tax credit for income taxes paid by a ≥10%-owned foreign corporation. In 2018, the U.S. scrapped that method and adopted a D.R.D. for dividends paid to a U.S. corporation by a ≥10%-owned foreign corporation. To ensure that accumulated profits in the foreign corporation at the time of transition would be taxed under the old system, the transition tax required a one-time increase in Subpart F income attributable to the deferred foreign earnings of certain U.S. shareholders. However, the tax was imposed in certain circumstances on individuals who never were entitled to claim an indirect foreign tax credit under the old law and were not eligible to claim the benefit of the D.R.D. Mr. and Mrs. Moore were two such individuals. They paid the transition tax, filed a claim for refund, and brought suit in the U.S. Federal District Court to recover the tax paid. They lost in the district court and again on appeal. A writ of certiorari was filed with the U.S. Supreme Court and the case was accepted for consideration. Most pundits believe the Moores have no chance of winning. Stanley C. Ruchelman and Wooyoung Lee evaluate their chances, pointing out that the last chapter of the saga has not yet been written. 

In 2013 a new investment scheme was introduced to the world. A Simple Agreement for Future Equity (“S.A.F.E.”) allows a company to receive funds in exchange for an obligation to issue shares in the future at favorable conversion rates for an investor at the happening of a fundraising round, a liquidity event, or an I.P.O. The S.A.F.E. is popular among start-up tech companies because of its simplicity. However, it does not properly fit into any of the usual categories of investment vehicles, such as debt or equity, and there is much ambiguity as to the proper characterization of a S.A.F.E. for U.S. tax purposes. Stanley C. Ruchelman and Daniela Shani take a deep dive into the tax issues that surround the character of a S.A.F.E. Should it be treated as debt, equity, a warrant, a prepaid variable forward contract? None of the above? While the I.R.S. was asked by the A.I.C.P.A. to provide guidance on the character of a S.A.F.E. arrangement, the I.R.S. declined to include the matter in its 2023-2024 list of regulatory priorities.

If you are a tax professional, you know your client is in a pickle if a provision under U.S. tax law disallows a deduction for the payor of an expense and another provision subjects the corresponding income of a foreign counterparty to U.S. tax, notwithstanding its residence in a treaty partner jurisdiction. That is the predicament that is faced when Code §§267A and 894(c) apply to outbound payments of deductible items to hybrid entities. In their article, Stanley C. Ruchelman and Neha Rastogi explain the death knell of what had been a common planning technique for U.S. tax advisers. They point out that, in certain circumstances involving payments to a reverse hybrid entity, relief might be provided by resort to competent authority proceedings.

Sometimes, good things happen to the undeserving. In the play “Pygmalion,” Alfred Doolittle – the undeserving father of Eliza Doolittle – receives a bequest from a faraway benefactor. In Farhy v. Commr., a scofflaw who refused to file Form 5471 for several Belize companies and received penalty notices regarding the seizure of his property convinced the Tax Court that the penalty was not self-enforcing. Rather, the Department of Justice would be required to initiate enforcement proceedings in District Court to collect the assessed penalties. Stanley C. Ruchelman and Wooyoung Lee explain the reasoning of the decision and then ask which other penalties have similar requirements. In answer, they survey client alerts published on the internet by various firms. Surprisingly, the answers are not consistent.

Code §367(d) provides rules for intercompany transfers of intangible property to related parties abroad. Not only are they taxable when first made, but they may continue to give rise to taxable income for the transferor for extended periods of time, notwithstanding a fixed price that is arm’s length at the time of the original transfer. Recently, U.S. companies have considered repatriating intangible property previously transferred abroad, in light of favorable provisions under the F.D.D.I. regime, the inability to defer tax under the C.F.C. rules, both Subpart F and G.I.L.T.I., and the prospect of Pillar 2’s adoption. However, the rules that applied to repatriation of intangible property left issues unanswered. In early May, the I.R.S. published proposed regulations affecting transactions in which U.S. corporations bring intangible property back to the U.S. In their article, Stanley C. Ruchelman and Daniela Shani review the legislative background of the proposed regulations and address the key principles involved before the toll charges of Code §367(d) are turned off. If the repatriation transaction can be effected tax free under U.S. domestic law to the prior transferor or a qualified successor, no gain is recognized.

Like concepts of beauty, the presence or absence of economic substance in the tax context often is in the eye of the beholder. More importantly, economic substance means different things to tax authorities in different jurisdictions and the approaches in taxpayer obligations varies widely. This article looks at the concept of economic substance in three separate localities. Stanley C. Ruchelman and Wooyoung Lee look at the U.S., addressing case law establishing the requirement and the 2010 codification of the concept into the tax code. Werner Heyvaert, a partner in the Brussels Office of AKD Benelux Lawyers, and Vicky Sheik Mohammad, an associate in the Brussels Office of AKD Benelux Lawyers, look at the Danish Cases that establish an abuse of rights view for aggressive tax planning – the taxpayer abused rights granted to it by E.U. law – and the Unshell Directive designed to remove certain tax benefits from shell companies. David Payne, Global Head of Governance for Bolder Group, looks at the self-certification rules that have been adopted in the B.V.I., Cayman, and Nevis.

At a certain point in the life of a corporation that operates more than one business, management may wish to separate the different businesses into two or more separate corporate entities. In most cases, demergers are structured based on the requirements of the corporate law in the place of domicile of the corporation. Typically, a demerger of a foreign corporation that follows the corporate law provisions of applicable foreign law would also be exempt from tax in the relevant country. However, when one of the shareholders is a U.S. individual or corporation, U.S. Federal tax considerations should be taken into account to prevent unexpected U.S. tax for a U.S. investor. Demergers are given tax-free treatment under U.S. tax law only if the requirements of Code §355 are met. If not met, both the corporation that undergoes the demerger and its shareholders recognize gain in connection with an actual or deemed distribution of appreciated property. While the foreign corporation may have no U.S. tax to pay, the U.S. investor may find that tax would be due in the U.S. if the foreign corporation undergoing the demerger is a C.F.C. Stanley C. Ruchelman and Daniela Shani explain the various categories of tax free demergers under U.S. tax concepts and the consequences of failing to meet the requirements in the context of a corporation formed outside the U.S.

When European parents engage in inheritance planning by transferring bare legal title in shares of a privately held company to children resident in the U.S., the gift may bring with it a pandora’s box of tax issues. If the value of the bare legal title exceeds 50% of the value of the property when computed in accordance with U.S. tax rules for valuing split interests in property, the foreign company may become a C.F.C. That can trigger certain reporting requirements in the U.S. related to Form 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations) even though the children have no right to income from the company. Separate and apart from C.F.C. status, the basis which the children have in the shares is a carryover basis that will not be stepped up then the usufruct interest and the bare legal title are merged. Separate and apart from the foregoing issues is a potential F.B.A.R. filing requirement on FinCEN Form 114 (Report of Foreign Bank and Financial Accounts) with immediate effect. In their article, Nina Krauthamer, Wooyoung Lee, and Stanley C. Ruchelman explain these issues, why they pop up, and potential ways to mitigate some if not all of the problems.

Code §245A of effectively exempts U.S. corporation from U.S. Federal income tax on dividends received from certain foreign subsidiaries. It allows a deduction equal to the amount of the dividend received. Code §245A applies only with respect to dividends received “by a domestic corporation which is a United States shareholder.” Nevertheless, Code §245A can also apply to dividends received by a controlled foreign corporation from a qualifying participation in a lower-tier foreign corporation. The question presented in that fact pattern relates to how Code §245A will be applied. Is the controlled foreign corporation entitled to claim the deduction as dividends are received? Or is a U.S. corporation that is a U.S. Shareholder with regard to the foreign corporation entitled to claim the deduction at the time Subpart F income is reported in its U.S. tax return? Significantly different results may apply depending on the answer. Interestingly, the differences affect U.S. taxpayers other than the corporation that is a U.S. Shareholder. Stanley C. Ruchelman and Daniela Shani explain the different results that may apply.

When a U.S. person is faced with an asserted penalty for late filing of Form 3520 reporting the receipt of a foreign gift or bequest, the process to have the penalty abated is long and winding. Neha Rastogi and Stanley C. Ruchelman explain all the steps and suggest a strategy for supporting the taxpayer’s contention that reasonable cause exists for the compliance shortfall. In many areas of the tax law, less is more. The authors point out that as much favorable information as possible must be given to the Appeals Officer in order to demonstrate that the shortfall in compliance was not the result of negligence or disregard of the rules by the taxpayer.

Generally, U.S. tax law treats a partnership, including an L.L.C., as an aggregation of its partners, meaning flow-through treatment applies to the partnership’s income. However, for certain purposes, a partnership is treated as a separate entity from its partners, as if it were a corporation. As a consequence, various complicated and somewhat counterintuitive tax consequences may arise from the acquisition or the disposition of interests in a U.S. partnership or L.L.C. by a foreign member. Stanley C. Ruchelman and Daniela Shani explain the way withholding taxes are computed when a foreign member sells an interest in a U.S. partnership or L.L.C. They also address U.S. tax accounting treatment for partnerships that take in additional members after operations have been conducted for several years. To say the rules are not straightforward is a massive understatement.

It is not uncommon for a young adult who was born in the U.S. to noncitizen parents living temporarily in the U.S. to live abroad. Although he or she may never have returned to the U.S., the young individual is a U.S. citizen, and that status brings with it U.S. tax obligations. In their article, Nina Krauthamer, Wooyoung Lee, and Stanley C. Ruchelman address the tax obligations in the context of Ms. A, a typical young adult, born in the U.S., but living abroad. She may have a bank account in a foreign county, but ordinarily will not have her own source of income. At some point, Ms. A may receive gifts and bequests from her foreign parents or grandparents. At this point in her life, Ms. A’s U.S. tax compliance obligations become complex. Just how complex is explained by the authors.

While resorting to a B.I.T. provides a corporation access to an independent body when seeking to resolve a dispute with a foreign government, success is not always obtained easily or at all. Stanley C. Ruchelman and Marie de Jorna, a member of the Paris Bar learning U.S. tax law during a period of training with Ruchelman P.L.L.C., dive into two cases where relief has either been denied for over a decade (Perenco v. Ecuador) or where access to a B.I.T. was eliminated as a mechanism to resolve disputes for corporations that are resident in an E.U. Member State with the government of another E.U. Member Sate (Achmea B.V. v. The Slovak Republic).

Is a partnership an entity for certain tax purposes or is it an aggregate of the partners? U.S. tax law was never consistent on this point. In 2017, a foreign taxpayer won a major victory when the U.S. Tax Court held that a partnership is an entity when determining the tax exposure of a foreign partner selling its partnership interest or having its interest redeemed. Almost immediately, Congress changed the law. From that moment, the I.R.S. reviewed the way partnerships and their partners are treated for purposes of the Subpart F, G.I.L.T.I., and P.F.I.C. provisions of U.S. tax law. Regulations were revised, the Schedule K-1 reporting form was modified with the addition of Schedule K-2 and Schedule K-3, and elections once made by domestic partnerships and binding on all members were now to be made by individual partners. Stanley C. Ruchelman and Wooyoung Lee explain these and other changes in the treatment of partnerships for the international provisions of U.S. tax law.

Ever wonder what happens to well-crafted reasonable cause statements attached to late-filed I.R.S. information returns, such as Forms 5471, 5472, and 3520? In a presentation before the San Francisco Tax Club, a retired long-term I.R.S. attorney named Daniel Price provided the answer: nothing happens to them. Over the years, the I.R.S. has increased the number of information returns that must be filed by taxpayers. To keep up the pace, I.R.S. delegates many tasks to lower-level employees who may not have been trained sufficiently to make discretionary judgments. Moreover, they are managed by relatively inexperienced supervisors. Stanley C. Ruchelman and Wooyoung Lee explain the problem and several suggestions offered by Mr. Price. Recent experience with F.B.A.R. penalty inconsistencies are also discussed.

When a U.S. person disposes of a business situated in a foreign country, the nature of the gain as capital or ordinary and the source of the gain may sound like simple issues that require simple tax advice. It may, however, turn out to be far more complex as one begins to review the relevant provisions of U.S. tax law in light of the facts and circumstances that exist. It is not uncommon for issues to pop up, one after the other and on a never-ending basis. In their article, Neha Rastogi and Stanley C. Ruchelman discuss the various U.S. Federal income tax issues that must be addressed by a U.S. seller in connection with a sale of a business as a going concern held indirectly through an entity that is treated as a disregarded entity for U.S. tax purposes. Mind-blowing complexity is not an overstatement.

How many times have we watched a movie, read a book, or listened to a colleague talk about an action that appeared to be a no-risk proposition, only to turn into a nightmare? At some point, the general lament is uttered: “It seemed like a good idea at the time, but . . .” Tax plans can be like that, too. A company identifies an acquisition target, proposes a merger with a supplier, or considers an internal restructure. Teams of lawyers, accountants, and operations personnel perform appropriate due diligence. The deal closes. At some point, blemishes, problems, errors float to the surface. The same lament is uttered: “It seemed like a good idea at the time, but . . .” While the laments are the same, the suffering for a tax planning mistake need not linger forever. If the parties to a transaction act quickly, the doctrine of rescission may apply, allowing the parties to treat the event as if it never occurred. Stanley C. Ruchelman and Neha Rastogi explain the early cases and discuss a published ruling and several private letter rulings in which the principal concern of the I.R.S. is that the transaction and its rescission occur in the same taxable year.