On April 17, 2025, the U.S. Internal Revenue Service (the “IRS”) issued Notice 2025-23 (the “Notice”), announcing its intention to withdraw the recently released final regulations final regulationsthat classify certain partnership related party basis shifting transactions and substantially similar transactions as “transactions of interest”. The Notice provides taxpayers and their
Final Regulations Issued for Certain Partnership Related Party Basis Adjustment Transactions
Introduction
On January 10, 2025, the Treasury Department and the U.S. Internal Revenue Service (the “IRS”) released final regulations (the “regulations”) classifying certain partnership related party basis adjustment transactions and substantially similar transactions as transactions of interest, a type of reportable transaction, which requires disclosure for the taxpayer and its
Senators Crapo and Wyden Release Draft Bipartisan Taxpayer Rights Legislation
I. Introduction
On January 30, 2025, Mike Crapo (R-ID), the Chairman of the Senate Finance Committee, and Senator Ron Wyden (D-OR), the Ranking Member of the Senate Finance Committee released a discussion draft of the “Taxpayer Assistance and Service Act” (the “bill”), a bipartisan taxpayer rights bill intended
Final Regulations Issued on Allocation of Partnership Liabilities Under Section 752
Introduction
On December 2, 2024, the U.S. Department of the Treasury (“Treasury”) and the Internal Revenue Service (the “IRS”) published final regulations (the “Final Regulations”) on section 752[1] regarding the allocation of partnership recourse liabilities in situations in which multiple partners and related parties bear part or all of
Tax Proposals Potentially Being Considered by the U.S. House Budget Committee in Reconciliation
On January 17, 2025, multiple news outlets and other sources reported the existence of a memorandum circulated by the U.S. House of Representatives Budget Committee to the House Republican Caucus (the “Memorandum”) containing an extensive list of budget proposals that may be considered in connection with the new Congress’s widely expected budget reconciliation legislation. The Memorandum, which is publicly available via link from a number of news outlets,[1] contains approximately fifty pages of proposals covering a wide range of policy areas and enumerating scores of potential specific legislative proposals (along with estimated budget effects in most cases), some of which are seemingly mutually exclusive. Included in the memo are a number of tax-related proposals, including tariff proposals, which are briefly set forth below.
Trump Administration Disavows the OECD Global Tax Deal
On January 20, 2025, the White House issued a memorandum (the “Memorandum”)[1], announcing that the “Organization for Economic Co-operation and Development (OECD) Global Tax Deal” (the “Global Tax Deal”) has “no force or effect in the United States” and disavowing “any commitments” previously made by the United States
Treasury and IRS Announce New Attack on Partnership Basis-Shifting Structures and Establishment of “Passthrough Working Group” to Develop Further Partnership Guidance.
On June 17, 2024, the IRS announced the formation of a dedicated group in the Office of Chief Counsel specifically focused on developing guidance on partnerships, which is expected to work with a new “passthrough working group” being established in the Large Business and International Division of the IRS. At the same time, Treasury and the IRS launched an attack on a specific partnership strategy involving so-called “basis bump” or “basis shifting” transactions involving related parties through a combination of guidance challenging the substance of such arrangements and declaring such arrangements to be “transactions of interest” that are subject to the strict disclosure requirements of the “reportable transaction” rules.1
Supreme Court Rules on Moore v. U.S. – Upholds Mandatory Repatriation Tax
On June 20, 2024, the U.S. Supreme Court ruled 7-2 that the so called mandatory repatriation tax under Internal Revenue Code Section 965 (“MRT”) is constitutional.
Justice Kavanaugh wrote the majority opinion. Justice Thomas (joined by Justice Gorsuch) dissented. Justice Barrett (joined by Justice Alito) and Justice Jackson delivered separate
Summary of the Biden Administration’s Fiscal Year 2025 Green Book Tax Proposals
On March 11, 2024, the Biden Administration released the Fiscal Year 2025 Budget, and the “General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals,” which is commonly referred to as the “Green Book.” The Green Book summarizes the Administration’s tax proposals contained in the Budget. The Green Book is not
Tax Court holds that an offshore fund is engaged in a U.S. trade or business
On November 15, 2023, the U.S. Tax Court held in YA Global Investments v. Commissioner[1] that a non-U.S. private equity fund (YA Global) with a U.S. asset manager that bought equity and convertible debt of U.S. portfolio companies was engaged in the conduct of a trade or business within the United States for U.S. federal income tax purposes, all of its income was “effectively connected” to that trade or business, and the fund (which was treated as a partnership for U.S. federal income tax purposes) was liable for penalties and interest for failing to withhold with respect to its non-U.S. corporate feeder fund partner.
- YA Global made loans and convertible loans and entered into standby equity distribution agreements (“SEDAs”) to purchase equity. It entered into hundreds of these transactions over the years in question. YA Global described itself as providing underwriting services, its manager received structuring fees and banker’s fees, and YA Global itself received commitment fees. The Tax Court held that YA Global provided services, and therefore was engaged in a trade or business in the United States for tax purposes.
- The case provides a reminder that labels matter and taxpayers should not assume that they will be able to assert a substance argument which conflicts with their own form. For example, the outcome of the case may have been different had YA Global received all of the fee income that was paid to its manager and if the upfront payments had not been labeled as “fees”. It certainly would have been easier to argue such income was earned for the provision of capital rather than for services if the income actually had been earned by the entity providing the capital and if the income was not called “fees”. Where it is not possible to adopt a corporate form that is consistent with the intended tax treatment, it also can be helpful for the parties to agree on the tax treatment of the payment and explicitly state that agreed intention in the transaction documents.
- The IRS argued that YA Global’s manager should be treated as YA Global’s agent merely because it was acting on behalf of YA Global. However, the court declined to adopt such a broad standard, instead holding that it is the power to provide interim instructions that made the manager YA Global’s agent. The court found that YA Global had that power based on a provision in its governing documents requiring it to promptly advise its manager of any relevant investment restrictions. It is doubtful that future courts will follow this very narrow view of agency, and, therefore, funds should not rely on it. However, funds whose managers have full discretion to invest on their behalf will have a second defense against an assertion that they are engaged in a U.S. trade or business.
- YA Global held many of its securities for 12-24 months, told its investors that it sought “capital appreciation”, and had returns similar to venture capital funds (some investments doubled in value and a large number experienced losses). Despite this, the court held that YA Global was a “dealer in securities” for purposes of section 475, and that its portfolio companies were “customers”. Again, YA Global’s characterization of its own business to these portfolio companies as being a low-risk spread business likely worked against it.