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This blog is a service of Alston & Bird's tax groups – Federal, International and State and Local – and focuses on current issues and events in federal, international and state and local tax of interest to business.

International Tax ADVISORY: Land of the Freely Inverting Corporation

August 15, 2014 | Posted by Edward Tanenbaum | Topic(s): International - Corporate Tax Planning

Alston & Bird’s International Tax Group reviews congressional proposals to curb corporate inversions amid debate over the need for comprehensive tax reform.

The advisory is provided on the Alston & Bird website: http://www.alston.com/advisories/int-tax-aug-2014/

Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP

Federal Tax ADVISORY: Hook Stock Split Down

July 1, 2014 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

LTR 201404002

Rev. Proc. 2014-3 provides that the IRS won’t issue rulings on “the treatment or effects of hook equity, including as a result of its issuance, ownership, or redemption.” It defines hook equity as “an ownership interest in a business entity (such as stock in a corporation) that is held by another business entity in which at least 50 percent of the interests (by vote or value) in such latter entity are held directly or indirectly by the former entity.” But a recent ruling involved hook stock and predated the no-rule. LTR 201404002 involved a surprising but somewhat common use of Section 355 to eliminate hook stock. It requires the invention of yet another spinoff term—this time, the split-down.

The advisory is provided on the Alston & Bird website: www.alston.com/advisories/fed-tax-july-2014/  

Written by Jack Cummings, Partner, Tax | Alston & Bird LLP

International Tax ADVISORY: Taxpayer Settles for Less than 150 Percent FBAR Penalty after Jury Found Willful Failure to File

June 16, 2014 | Posted by Edward Tanenbaum | Topic(s): International - Corporate Tax Planning

This advisory discusses United States v. Zwerner, which raised important questions not only about the FBAR penalties at issue, including their constitutionality, but also about the IRS’ administration of the Offshore Voluntary Disclosure Program.

The advisory is provided in PDF on the Alston & Bird website: http://www.alston.com/advisories/june-intl-tax/  

Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP

Federal Tax ADVISORY: Last Granite Trust Ruling LTR 201419011

June 2, 2014 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

This advisory discusses GraniteTrust Co. v. U.S., which ruled that a parent’s sale of more than 20 percent of the stock of a subsidiary to an unrelated person was a proper set up for a taxable liquidation of the subsidiary, and how even though the IRS announced it would no longer rule on Granite Trust -type liquidations, there are still several rulings in the pipeline—most recently, LTR 201419011.

The advisory is provided on the Alston & Bird website: www.alston.com/advisories/fed-tax-june-2014

Written by Jack Cummings, Partner, Tax | Alston & Bird LLP

REIT Real Property Regulation Proposed

Prop. Reg. section 1.856-10 will define real property that will satisfy the income and asset requirements for REITs. It will replace Reg. section 1.856-3(d). It claims to be a clarification of existing law and not a modification that would cause significant reclassifications for existing REITs, and that seems to be true. It embodies the positions stated in the much briefer current regulation, plus several revenue rulings and letter rulings issued over the years.

The regulation aims to rationalize the process of identifying real property so that REITs can decide for themselves whether they own real property, thus taking pressure off the letter ruling process. This could be of particular assistance to taxpayers desiring to form REITs in what might the waning days before the enactment of various threatened statutory amendments curtailing the use of REITs.

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Tax ADVISORY: Notice Announces FATCA Enforcement Relief for 2014 and 2015 and Regulatory Amendments to Ease Implementation

May 15, 2014 | Posted by Edward Tanenbaum | Topic(s): International - Corporate Tax Planning

This advisory discusses the IRS’ release of Notice 2014-33, setting out additional guidance on the implementation of the Foreign Account Tax Compliance Act. The notice also announces several amendments to the FATCA regulations, which are intended to facilitate compliance. Additionally, the advisory explains the IRS’ announcement of modifications and clarifications to be made to the “Killer B” regulations under Section 367(b), which reflects the IRS’ belief that taxpayers have been misinterpreting, if not exploiting, the Killer B regulations in ways that are inconsistent with their policy.

The advisory is provided in PDF on the Alston & Bird website: www.alston.com/advisories/intl-tax-may-2014   

Written by Edward Tanenbaum, Partner, Federal & International TaxAlston & Bird LLP 

State & Local Tax ADVISORY: Several Organizations Support Equifax’s Petition for Certiorari to the United States Supreme Court

April 24, 2014 | Posted by State & Local Tax | Topic(s): State and Local Planning

This advisory discusses amicus curiae briefs filed with the United States Supreme Court in support of the Petition for a Writ of Certiorari to the Supreme Court of Mississippi in the case of Equifax, Inc., et. al. v. Mississippi Department of Revenue. Joining Equifax in its attempt to overturn the Mississippi Supreme Court’s decision were the Institute for Professionals in Taxation (IPT), the Council on State Taxation (COST) (joined in its brief by the Mississippi Economic Council and Mississippi Manufacturers Association) and the Georgia Chamber of Commerce.

The advisory is provided in PDF on the Alston & Bird website: http://www.alston.com/advisories/equifax-petition/

Written by State & Local TaxAlston & Bird LLP 

Federal Tax ADVISORY: Federal Tax Crimes

April 1, 2014 | Posted by Federal Tax Group | Topic(s): Penalties

Few taxpayers are aware of the operations of the Criminal Investigation Division of the IRS, and rightly so. Out of hundreds of millions of tax returns filed, only 3311 persons were convicted of tax crimes in the government’s FY 2013, according to the Report of the CI Division. Nevertheless, the small number masks the extreme seriousness of tax crimes to those involved.

The advisory is provided in PDF on the Alston & Bird website: www.alston.com/advisories/fed-tax-april-2014   

Written by Federal & International TaxAlston & Bird LLP 

International Tax ADVISORY: Treasury Presents… More FATCA Regulations

March 17, 2014 | Posted by Edward Tanenbaum | Topic(s): International - Corporate Tax Planning

This advisory discusses the U.S. Treasury and IRS release of two sets of regulations relating to the Foreign Account Tax Compliance Act (FATCA). The new regulations were published in the Federal Register on March 6. Enacted by the 2010 HIRE Act, FATCA imposes a 30-percent withholding tax on certain payments to foreign financial institutions (FFIs) and passive non-financial foreign entities (NFFEs) that do not report information about their U.S. accounts and substantial U.S. owners, respectively. One set of the new regulations (T.D. 9657) modifies various provisions of the “final” FATCA regulations issued in January 2013. The other set of regulations (T.D. 9658) provides rules to coordinate the withholding and reporting regimes of Chapter 3, Chapter 61 and Section 3406 with FATCA.

The advisory is provided in PDF on the Alston & Bird website: www.alston.com/advisories/int-tax-march-2014  

Written by Edward Tanenbaum, Partner, Federal & International TaxAlston & Bird LLP 

Federal Tax Advisory: An Unusual F/D(?) Reorganization

March 3, 2014 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

This advisory discusses IRS LTR 201406005, which evidently blessed as an F or D reorganization the transfer by a subsidiary of all of its assets to its parent corporation, despite the fact that the parent had previously bought an asset from its parent by assuming a liability greater than the value of the asset.

The full advisory is provided on the Alston & Bird website: http://www.alston.com/advisories/fed-tax-march-2014/  

Written by Jack Cummings, Partner, Tax | Alston & Bird LLP

State & Local Tax ADVISORY: Litigating in the Georgia Tax Tribunal

February 7, 2014 | Posted by Clark Calhoun | Topic(s): State and Local Planning

This advisory was originally published in State Tax Notes, as part of Alston & Bird’s regular column “Audit & Beyond.” See 71 State Tax Notes 235 (January 27, 2014).

This advisory discusses the Georgia Tax Tribunal, which was created by an act of the Georgia General Assembly during the 2012 legislative session in order to establish “an independent specialized agency separate and apart from the Department of Revenue to resolve disputes between the department and taxpayers in an efficient and cost-effective manner.”

The advisory is provided in PDF on the Alston & Bird website: www.alston.com/advisories/litigating-in-georgia-tax-tribunal  

Written by Clark Calhoun, Senior Associate, State & Local Tax | Alston & Bird LLP

Federal Tax ADVISORY: Important No-Rule Changes: Rev. Proc. 2014-3

February 3, 2014 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

One of the most important bellwethers of what the IRS is thinking is the annual revenue procedure that announces the issues on which the IRS ordinarily will not rule, or never will rule, or will not rule because the issue is under study. The IRS always numbers the procedure “3” and issues it on New Year’s Day. This advisory discusses Rev. Proc. 2014-3.

The full advisory is provided on the Alston & Bird website: www.alston.com/advisories/fed-tax-feb-2014

Written by Jack Cummings, Partner, Tax | Alston & Bird LLP

International Tax ADVISORY: Domestic Subsidiary Not Taxable on Complete Liquidation into Foreign Parent, Except for Certain Intangibles

January 15, 2014 | Posted by Edward Tanenbaum | Topic(s): International - Corporate Tax Planning

This advisory discusses PLR 201348011, in which the IRS ruled that a U.S. subsidiary would not recognize gain or loss on the distribution of its assets to its foreign parent in complete liquidation—except for gain attributable to Section 936(h)(3) (B) intangibles. The letter ruling offers some positive insight on the IRS’ application of the nonrecognition exception and the general anti-avoidance rule in the Section 367 regulations.

The advisory also discusses final, temporary and proposed IRS regulations (T.D. 9650) relating to determining ownership of passive foreign investment companies (PFICs) and annual reporting requirements.

The full alert is provided on the Alston & Bird website: www.alston.com/advisories/int-tax-1-15-14  

Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP

Federal Tax Advisory: Statutory Interpretation Still Lives

January 2, 2014 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

This advisory discusses United States v. Woods, where the Supreme Court of the United States ruled that the substantial valuation misstatement penalty could be determined in a TEFRA audit and applied when the audited partnership was found to violate the economic substance doctrine. To the Fifth Circuit, that meant that the partnership was a sham that did not exist for federal income tax purposes. Because the partnership did not exist, the partners could not have any basis in their partnership interest. When they reported having any basis at all, that basis must have been more than 400 percent greater than zero and the penalty applied.

The full alert is provided on the Alston & Bird website: http://www.alston.com/advisories/fed-tax-stuatuory-interpretation-571-US/    

Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP

Section 336(e) and S Corporations

The regulations issued in 2013 putting Section 336(e) into effect allow a result like that of a Section 338(h)(10) election when the buyer is not a corporation. Like the Section 338(h)(10) election, the Section 336(e) election can be made by shareholders selling an S corporation, as well as when one corporation sells the stock of another corporation. Therefore, unlike Section 338(h)(10), a Section 336(e) election can be made in a case like this:

Example 1: A and B each own 50 percent of the stock of S corporation. Partnership Private Equity Firm (PPEF) wants to buy the stock and have a Section 336(e) election made. A and B arrange to be partners of PPEF, and each will own five percent of PPEF after the sale.

This scenario may not be that unusual when the buyer is an investment partnership acquiring a high-growth target. It raises several issues that can prevent use of the Section 336(e) election.

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International Tax ADVISORY: Treasury Issues New Final and Proposed Regulations on Dividend Equivalent Transactions

On December 4, 2013, the U.S. Treasury issued final and proposed regulations under Section 871(m) of the Code. The final rules extend the current definition of “notional principal contracts” (NPCs) to payments made before January 1, 2016, while the proposed regulations introduce rules that may modify the scope and application of Section 871(m)’s resourcing rule for “dividend equivalent” payments.

Also, in Chief Counsel Advice 201349015 (CCA), released December 6, 2013, the IRS advised on the proper reporting of U.S. taxable income and the proper standard for determining the “compulsory amount” of creditable foreign taxes imposed on transactions between a U.S. corporation and its foreign disregarded entity (DRE) or branch.  

The full alert is provided on the Alston & Bird website: www.alston.com/advisories/int-tax-adv-dec-2013   

Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP

Federal Tax ADVISORY: Tax Reform Update

December 2, 2013 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

Tax reform has been in the offing ever since the 2008 elections. It took a back seat to more pressing national problems for a few years, but calls for major tax legislation have become more frequent and believable. One source of the calls has been the White House when seeking a “grand bargain” on taxes and spending programs, which so far have fallen on deaf ears in Congress. The other sources have been various interest groups and members of Congress who are thinking of tax reform in other terms. Now, Senator Baucus has released drafts of several specific proposals. This advisory reviews what form tax reform can take in general. We will discuss the specific Baucus proposals in later issues.

The full advisory is provided on the Alston & Bird website: www.alston.com/advisories/fed-tax-dec-2013  

Written by Jack Cummings, Partner, Tax | Alston & Bird LLP

Internal Spinoffs

LTR 201347005 is a straightforward ruling on multiple internal spin-offs of Controlled holding one of the two businesses of a domestic group. The spins only push Controlled up to two levels below the Parent, and do not appear to involve any unusual features. The stated reason for the spins is to allow the spun business to grow and avoid some regulatory burdens. The spinoffs had occurred before the ruling was issued.

Why did this taxpayer go to the trouble to obtain these rulings? The only hint is the fact that the group previously experienced losses. An Investor previously bought common, preferred and debt of the Parent. The cash received was contributed down to parts of the business that was not spun off.

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International Tax ADVISORY: IRS Releases New FATCA Guidance, Including Draft FFI Agreement

November 15, 2013 | Posted by Edward Tanenbaum | Topic(s): International - Corporate Tax Planning

This advisory discusses Notice 2013-69, which includes a long-awaited draft Foreign Financial Institution (FFI) Agreement, as well as additional guidance under the Foreign Account Tax Compliance Act (FATCA). In addition to the draft FFI Agreement for participating FFIs and those FFIs subject to a Model 2 intergovernmental agreement (IGA), the Notice contains guidance on forthcoming revisions to the FATCA regulations.

The full alert is provided on the Alston & Bird website: www.alston.com/advisories/int-tax-11-15-13

Written by Edward Tanenbaum, Partner, Federal & International Tax | Alston & Bird LLP

Federal Tax ADVISORY: Buying Assets

November 1, 2013 | Posted by Jasper L. (Jack) Cummings | Topic(s): Federal - Corporate Tax Planning

This advisory discusses the buying and selling of businesses—the most common corporate transaction with tax consequences, and argues that buyers should not be unduly wary of asset acquisitions.

The full advisory is provided on the Alston & Bird website: www.alston.com/advisories/federal-tax-buying-assets/ 

Written by Jack Cummings, Partner, Tax | Alston & Bird LLP

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