International Tax Blog

Chart of PLR 201340010 - Manufacturing Exception to FBCSI - Growing Activities can be Production Activities

Last week the I.R.S. published PLR 201340010 which concluded that production activities included growing activities for purposes of determining whether a CFC "produced" products for purposes of Treas. Reg. §1.954-3(a)(4)(i) - (iv) and Code §954(d), dealing with foreign base company sales income ("FBCSI"). The income was not FBCSI because the CFC (and its disregarded entities) satisfied the "manufacturing exception." A chart of the structure is shown below (click on the image to enlarge), and the... Read more →

Chart of PLR 201324005 - ADS Not Required for Possession Located Property Held Through Partnership

Below is a chart of PLR 201324005 in which the I.R.S. held that depreciation is not required pursuant to the alternative depreciation system ("ADS") of §168(g) when the property is held through a domestic partnership and is located in a possession of the U.S. The chart can be viewed as a PDF file here: PLR 201324005 Read more →

Chart of Rev. Rul. 90-76 - Foreign Corporations: Liquidating Distributions of USRPIs

Below is a chart of Rev. Rul. 90-76 in which the I.R.S. addressed where gain must be recognized when foreign corporations liquidate, distributing U.S. Real Property Interests ("USRPIs"). The chart can be viewed as a PDF file here: Rev. Rul. 90-76 Read more →

Chart of PLR 201328003 - Deemed Distribution and Contribution with Circular Flow of Cash

Below is a chart of PLR 201328003 in which the I.R.S. held that a circular flow of cash was disregarded and a deemed distribution and contribution occured. The chart can be viewed as a PDF file here: PLR 201328003 Read more →

Situational Chart of Rev. Rul. 89-103 - Stapling of Interests Triggers Inbound "F" Reorganization

Below is a chart of Rev. Rul. 89-103 in which the I.R.S. held that a stapling of foreign and domestic stock interests triggers a deemed inbound "F" reorganization for the foreign entity. The chart can be viewed as a PDF file here: Rev. Rul. 89-103 Read more →

Situational Chart of Rev. Rul. 58-422 - Merger an "F" Reorg & Two 332 Liquidations

Below is a chart of Rev. Rul. 58-422 in which the I.R.S. held that a merger of a parent corporation and its two subsidiaries into a new corporation was an "F" reorganization and two section 332 liquidations. The chart can be viewed as a PDF file here: Rev. Rul. 58-422 Read more →

Situational Chart of Rev. Rul. 70-434 - Spin-Off & "B" Reorganization

Below is a chart of Rev. Rul. 70-434 in which the I.R.S. held that a stock-for-stock exchange qualified as a "B" reorganization even though it occurred after a spin-off. The chart can be viewed as a PDF file here: Rev. Rul. 70-434 Read more →

Situational Charts of "F" Reorganizations of "S" Corporations

Below are three new situational charts regarding the treatment of S corporation elections and QSub elections as a result of "F" reorganizations. The first chart is Rev. Rul. 64-250, where the merger of an S corporation into a newly formed out of state corporation was treated as an “F” reorganization. The new corporation was treated as a continuation of the original, and therefore the “S” election did not terminate. The second chart is Rev. Rul.... Read more →

Situational Charts of Examples 8 and 9 of Treas. Reg. §1.1361-5(b)(3) - Terminations of Qsub Elections

Below are two situational charts of Examples 8 and 9 of Treas. Reg. §1.1361-5(b)(3). The first chart is Example 8, where the merger of an S corporation into its Qsub (with the subsidiary surviving) was treated as an “F” reorganization. Although the Qsub election for the subsidiary terminates, under Rev. Rul. 64-250 the “S” election does not terminate upon an “F” reorganization. The second chart is Example 9, where the sale of a Qsub by... Read more →

Situational Chart of Rev. Rul. 78-401 - No Meaningful Reduction In The Shareholder's Proportionate Interest

Below is a chart of Rev. Rul. 78-401 in which the I.R.S. held that a stock redemption which reduced the majority shareholder’s interest from 90% down to 60% was not essentially equivalent to a dividend as defined in Code §302(b) because there was not a “meaningful reduction in the shareholder's proportionate interest.” Consequently, the redemption was treated as a Code §301 distribution (typically a dividend) and was not treated as a sale or exchange. The... Read more →

I.R.S. Rules Commission Income From Sales is Not FBCSI

Last week the I.R.S. published PLR 201332007 which concluded that commissions received by the disregarded entity of a controlled foreign corporation was not foreign base company sales income (“FBCSI”) because the disregarded entity made a substantial contribution through the activities of its employees to the manufacture of Products that were manufactured by unrelated parties. See Treas. Reg. §1.954-3(a)(4)(i) and (iv). A chart of the structure is shown below (click on the image to enlarge): Read more →

Barnes Group - Structured Repatriation Was a Dividend

Last month the Tax Court issued its opinion in Barnes Group, Inc. v. Commr., T.C. Memorandum 2013-109. In the case, Barnes indirectly owned 100% of ASA, a Singapore controlled foreign corporation. ASA had excess cash that Barnes wanted to repatriate to the U.S. However, Barnes would have had to pay U.S. tax if ASA had distributed the cash as a dividend to Barnes, or if ASA had loaned the cash to Barnes. Barnes sought advice... Read more →

International PLRs & CCA’s of the 51st week of 2012

Last week the IRS published the following Private Letter Rulings and Chief Counsel Advice relating to international taxation. PLR 201251003: Shares of a domestic corporation were transferred to foreign corporation in order to deconsolidate the domestic corporation. Code §1502. PLR 201251005: A real estate investment trust’s (REIT’s) deemed inclusions as Subpart F Income under Code §951 and passive foreign investment company (“PFIC”) inclusions under Code §1293 are considered qualifying income under Code §856(c)(2). In addition,... Read more →

10 Free New Tax Charts (Feburary 2012)

Last week we added 10 free charts to www.andrewmitchel.com, including 4 charts previously published on this blog. The recently added charts can be found here. The charts include the following: Dagres (Business Bad Debt Deduction for Private Equity Fund Manager) Goosen (Golfer Endorsement Fees: Part Royalties & Part Services, Part U.S. Source Part Foreign Source) Rev. Rul. 86-138 (Separate Statement of Items for Tiered Partnerships) PLR 201122002 (Migration, “Uncheck” of DE & Downstream Merger into... Read more →

Loan With “Kicker” is a USRPI

Treas. Reg. §1.897-1(c) defines the term “United States real property interest” (“USRPI”) to mean any interest, other than an interest solely as a creditor, in either: (i) real property located in the United States or the Virgin Islands, or (ii) a domestic corporation unless it is established that the corporation was not a U.S. real property holding corporation within the period described in section 897(c)(1)(A)(ii). Treas. Reg. §1.897-1(d)(2) provides that an interest in real property... Read more →

Goosen v. Commr. - Golfer Endorsement Fees

In a recent Tax Court case, 136 T.C. No. 27 (2011), the court was asked to determine the U.S. taxation of certain endorsement fees and bonuses received by a professional golfer --- Retief Goosen (a.k.a. the “Iceman”). Goosen received golf tournament prize winnings as well as on-course and off-course endorsement fees. For U.K. tax purposes, Goosen’s income was paid to two corporations in which he entered into employment agreements. A portion of this income was... Read more →

Dagres - Ordinary Loss for Bad Debt of Private Equity Fund Manager

Below is a chart of a recent Tax Court case. The Tax Court described in detail the structure of typical private equity fund, with a 2% fee and a 20% profits interest being received by the fund managers. A PDF version of the chart can be found at Dagres.  Read more →

10 Free New Tax Charts (June 2011)

Today we added 10 free charts to www.andrewmitchel.com. The recently added charts can be found here. The charts include the following: Soreng (Disproportionate Circular Flow of Cash Not Disregarded) Rev. Rul. 68-183 (Sale to Trust Treated as Contribution to Trust) Rev. Rul. 69-142 (B Reorganization Treated As Separate From Exchange of Debentures) Rev. Rul. 69-608, Situation 1 (Constructive Dividend for Corporate Assumption of Shareholder Liability) Rev. Rul. 76-454 (Constructive Dividend as Part of 351 Exchange)... Read more →

10 Free New Tax Charts (Jan. 2011)

Today we added 10 free charts to www.andrewmitchel.com. The recently added charts can be found here. The charts include the following: Rev. Rul. 69-265, Situation 1 (Stock Convertible Into Parent Shares Busted Triangular C Reorganization) Rev. Rul. 70-271, Situation 1 (C Reorg: Gain on Stock Used To Discharge Liabilities) Rev. Rul. 85-13 (Grantor Trust Not Treated as Separate Entity) Reg. 1.707-1(c), Example 1 (Fixed Guaranteed Payment For Services) Reg. 1.707-1(c), Example 3 (Fixed Guaranteed Payment... Read more →

10 Free New Tax Charts

Today we added 10 free charts to www.andrewmitchel.com. The recently added charts can be found here. The charts include the following: Canal Corp. (Disguised Sale to Partnership Under Section 707(a)(2)(B)) Forsythe (Special Allocation Allowed Only to the Extent of EROL) Proctor & Gamble (Japanese Withholding Taxes on Royalties Related to Korean Sales Were Not Compulsory Payments) Rev. Rul. 78-408 (B Reorganization Treated As Separate From Exchange of Warrants) Rev. Rul. 84-68 (Parent Payment of Bonuses... Read more →

New Section 956 Foreign Tax Credit Blending Rule

Earlier this week, President Obama signed into law H.R. 1586. This new law has several important changes to U.S. international tax rules. Today’s blog post discusses the new Section 956 foreign tax credit blending rule. The new law adds a new subsection (subsection (c)) to Code § 960. Under this new rule, if there is a Section 956 inclusion where the U.S. shareholder will be allowed to claim deemed paid foreign tax credits (i.e., a... Read more →

Hybrid Entities and Reverse Hybrid Entities

U.S. tax planners often refer to “hybrid entities” and “reverse hybrid entities.” This blog entry briefly discusses the meaning of these terms. From a U.S. tax perspective, a hybrid entity is an entity that is “fiscally transparent” for U.S. tax purposes but not fiscally transparent for foreign tax purposes. In general, an entity is fiscally transparent if the entity’s current year profits are currently taxable to the owners of the entity, regardless of whether the... Read more →

Subpart F Income Partnership Blocker Update

On May 14, 2010, the Treasury Department and I.R.S. published Notice 2010-41, indicating that they intend to issue regulations that will classify certain domestic partnerships as foreign partnerships for purposes of identifying the “United States shareholders” of a controlled foreign corporation (“CFC”) that are required to include in gross income the amounts specified under Code § 951(a) (“Subpart F Income”) of such CFC. On December 29, 2008, the Treasury Department and the I.R.S. issued Notice... Read more →

I.R.S. Rulings on Manufacturing Branch Rule

Late last year the I.R.S. published PLR 200942034 and PLR 200945036. Both of these private letter rulings deal with the manufacturing branch rules of Code § 954(d)(2) and Treas. Reg. § 1.954-3(b). The rulings provide useful insights regarding how the actual effective tax rate and the hypothetical effective tax rate should be measured. The effective tax rates are computed by considering deductions available under local law. Consequently, deductions as interest on net equity for local... Read more →

Tax Chart Shape & Color Conventions

On our sister website (www.andrewmitchel.com) we have published over 1,100 tax charts. Many shapes and colors are used in the charts. Heretofore, we have not published a comprehensive legend of the shapes and colors we use. In this blog posting, we explain many of the conventions that we use on our charts. Of course, with over 1,100 charts there are exceptions to these general rules. Shapes Shapes are used in the charts primarily to designate... Read more →