The Proskauer Tax Blog

Proposed FDII Regulations under Section 250

I. Introduction.

On March 4, 2019, the Internal Revenue Service (the “IRS”) and the Department of the Treasury (the “Treasury”) released proposed regulations (the “Proposed Regulations”) regarding the deduction for “foreign-derived intangible income” (“FDII”) under section 250 of the Internal Revenue Code.[1] Section 250 was enacted in 2017 as part of the tax reform act.[2] Very generally, section 250 provides domestic corporations with a reduced effective 13.125% tax rate on FDII, which is a formulary proxy for a domestic corporation’s intangible income attributable to foreign sales and services.[3] The reduced tax rate for FDII is intended to encourage U.S. multinationals to retain intellectual property in the United States rather than transfer it to a foreign subsidiary where it could generate global intangible low-taxed income (“GILTI”), which is taxable at a 10.5% rate. The Proposed Regulations also would permit individuals who make a section 962 election with respect to their controlled foreign corporation (“CFCs”) to benefit from the reduced 13.125% rate on the GILTI earned by those CFCs.

The Proposed Regulations are generally effective for taxable years ending on or after March 4, 2019.

This post provides both background to and a summary of some of the most important aspects of the Proposed Regulations. For more information, please contact any of the Proskauer tax lawyers listed on this post or your regular Proskauer contact. Continue Reading

“Passthrough Deduction” Regulations Finalized

By David S. Miller, Jo Habenicht, Amanda H. Nussbaum, Richard M. Corn, Michael Fernhoff, Mitchell Gaswirth, Martin T. Hamilton, Malcolm Hochenberg, Scott S. Jones, Mary B. Kuusisto, Arnold P. May, Jeremy Naylor, Alan Parnes, Jamiel E. Poindexter and Stuart Rosow on March 11, 2019 Posted in IRS, Partnership Taxation, RIC (BDCs), Tax Cuts and Jobs Act, Tax Reform, U.S. Legislation

On January 18, 2019, the U.S. Department of Treasury (“Treasury”) and the Internal Revenue Service (the “IRS”) released final regulations (the “Final Regulations”) regarding the “passthrough deduction” for qualified trade or business income under section 199A of the Internal Revenue Code.[1] The Final Regulations modify proposed regulations (the “Proposed Regulations”) that were released in August 2018. The Final Regulations apply to tax years ending after February 8, 2019, but taxpayers may rely on the Proposed Regulations for taxable years ending in calendar year 2018.

Section 199A was enacted in 2017 as part of the tax reform act.[2] Generally, section 199A provides a deduction (the “passthrough deduction”) of up to 20% for individuals and certain trusts and estates of certain of the income from certain trades or businesses that are operated as a sole proprietorship, or through certain passthrough entities. The passthrough deduction provides a maximum effective rate of 29.6%.

This post provides background and summarizes some of the most important changes from the Proposed Regulations to the Final Regulations. For more information, please contact any of the Proskauer tax lawyers listed on this post or your regular Proskauer contact.

Extension of FBAR Filing Deadline for Certain Filers

By Martine Seiden Agatston, Michael Fernhoff, Abraham Gutwein, David S. Miller and Amanda H. Nussbaum on February 11, 2019 Posted in International Taxation

On December 4, 2018, FinCEN issued Notice 2018-1, extending the filing deadline for the Report of Foreign Bank and Financial Accounts, FinCEN Form 114 (FBAR), for certain individuals with signature or other authority over (but no financial interest in) employer-owned foreign financial accounts to April 15, 2020. FinCEN has provided similar extensions over the previous six years.[1] This new extension applies to reporters with signatory authority during the 2018 calendar year and to those individuals whose reporting deadline was extended under prior notices (such as certain employees or officers of investment advisers registered with the U.S. Securities and Exchange Commission (SEC) who have signature authority over, but no financial interest in, certain foreign financial accounts).[2] All other filers must still file by April 15, 2019, although FinCEN will grant an automatic extension until October 15, 2019.

Tags: FBAR

Proposed Rental Business Safe Harbor under Section 199A

By Richard M. Corn, David S. Miller, Stuart Rosow, Amanda H. Nussbaum, Michael Fernhoff, Timothy Donovan and Elizabeth Johnston Wytock on February 7, 2019 Posted in IRS, Real Estate, Tax Cuts and Jobs Act, Tax Reform

On January 18, the Internal Revenue Service (“IRS”) and the U.S. Department of the Treasury issued final regulations (the “Final Regulations”) on the “pass through” deduction under section 199A[1] of the Internal Revenue Code (the “Code”). Very generally, section 199A provides individuals with a deduction of up to 20% of income from a domestic “trade or business” operated as a sole proprietorship or through a partnership, S corporation, trust, or estate. The Final Regulations define trade or business as “a trade or business under section 162, other than the trade or business of performing services as an employee.”[2]

Prior to the issuance of the Final Regulations, taxpayer commenters expressed uncertainty as to whether a rental business qualified as a trade or business under section 199A—based on a long-standing uncertainty as to whether, and to what extent, a rental real estate business was a trade or business for purposes of section 162.

To provide some certainty for taxpayers potentially entitled to the pass-through deduction, the IRS released Notice 2019-07 (the “Notice”) in conjunction with the Final Regulations. The Notice proposes a safe harbor under which taxpayers (including partnerships and S corporations owned by at least one individual, estate, or trust) may treat a “rental real estate enterprise” as a trade or business solely for the purposes of the section 199A deduction. Because the Notice would provide a safe harbor—and not a substantive rule—failure to meet the tests set forth in the Notice does not necessarily mean a rental real estate business is ineligible for the section 199A deduction. If the Notice standards are not met, then the general test under section 162 would need to be met for such a business.[3] However, in certain other contexts, tax professionals and the IRS have viewed safe harbors as establishing the bounds of the substantive law; it remains to be seen whether taxpayers will claim the pass-through deduction for real estate leasing activities that fail to satisfy the safe harbor.

UK Tax Round Up: January 2019

By Stephen Pevsner, Robert E. Gaut and Catherine Sear on February 2, 2019 Posted in UK Tax

Welcome to the January 2019 edition of the UK Tax Round Up. With the political focus continuing to be dominated by Brexit, this month has been reasonably quiet on the UK tax front. There have nevertheless been some noteworthy developments.

Please view this month’s issue of the UK Tax Round Up.

Tags: Finance Bill, UK Tax Round Up

Proposed Anti-Hybrid Regulations under Sections 267A, 245A, and 1503(d)

By David S. Miller, Martin T. Hamilton, Stuart Rosow, Amanda H. Nussbaum, Michael Fernhoff and Sean M. Webb on January 25, 2019 Posted in International Taxation, IRS, Tax Cuts and Jobs Act, Tax Reform

On December 20, 2018, the Internal Revenue Service (the “IRS”) and the Department of the Treasury (the “Treasury”) released proposed “anti-hybrid” regulations (the “Proposed Regulations”) under sections 267A, 245A(e), and 1503(d) of the Internal Revenue Code.[1] Sections 267A and 245A(e) were enacted in 2017 as part of the tax reform act.[2] Very generally, these sections deny U.S. tax deductions associated with a financial instrument, transaction, or entity that is treated differently under the tax laws of the United States and the tax laws of another country. Such an instrument, transaction, or entity is referred to as a “hybrid”; and sections 267A and 245A(e) are referred to as “anti-hybrid” provisions. Hybrids, by exploiting the differences between tax laws, can be used to claim tax benefits in multiple countries or achieve “double nontaxation”.

The Proposed Regulations will generally be retroactively effective from January 1, 2018 if they are finalized by June 22, 2019.[3] If they are not finalized by that date, then they will be effective as of December 20, 2018. The deadline for comments on the Proposed Regulations is February 26, 2019.[4]

This post provides both a summary and detailed explanation of some of the most important aspects of the Proposed Regulations. For more information, please contact any of the Proskauer tax lawyers listed on this post or your regular Proskauer contact. Continue Reading

The Proposed BEAT Regulations

By David S. Miller, Stuart Rosow, Amanda H. Nussbaum, Martin T. Hamilton, Michael Fernhoff and Sean M. Webb on December 31, 2018 Posted in Base Erosion and Profit Shifting, BEAT, IRS, Tax Cuts and Jobs Act, Tax Reform

On December 13, 2018, the Internal Revenue Service (the “IRS”) and the Department of the Treasury (the “Treasury”) released proposed regulations (the “Proposed Regulations”) with respect to the “base erosion and anti-abuse tax” (the “BEAT”) under section 59A of the Internal Revenue Code.[1]

The BEAT was enacted in 2017 as part of the tax reform act.[2] The BEAT is an additional tax that has the effect of a minimum tax on certain large U.S. corporations that make deductible payments to foreign related parties. The BEAT is designed to prevent these U.S. corporations from using deductible payments to reduce (or “base erode”) their corporate tax liability.

The Proposed Regulations clarify which taxpayers are subject to the BEAT and how the BEAT rules apply. The Proposed Regulations are generally effective for taxable years after December 31, 2017, and a taxpayer may rely on them before they are finalized so long as the taxpayer applies them consistently for all taxable years before they are finalized.

This post provides background and summarizes some of the most important aspects of the Proposed Regulations. For more information, please contact any of the Proskauer tax lawyers listed on this post or your regular Proskauer contact.