On December 23, 2024, in Denham Capital Management LP v. Commissioner (T.C. Memo. 2024-114), the Tax Court reaffirmed its earlier ruling in Soroban Capital Partners LP v. Commissioner (161 T.C. No. 12.) that active limited partners of a state law limited partnership are not entitled to the “limited partner exception”
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
Tax Court Holds That Active Limited Partners of State Law Limited Partnerships May Be Subject to Self-Employment Tax
Introduction
Section 1402(a)(13) of the Internal Revenue Code provides that the distributive share of “limited partners, as such” from a partnership is not subject to self-employment tax.[1] Managers of private equity and hedge funds are routinely structured as limited partnerships to exclude management and incentive fees from self-employment
State Tax on Trust Income Based Solely on In-State Residence of Beneficiaries Found Unconstitutional
On June 21, 2019, the United States Supreme Court decided North Carolina Dept. of Revenue v. Kimberly Rice Kaestner 1992 Family Trust (hereinafter, “Kaestner”).[1] In a unanimous opinion delivered by Justice Sotomayor, the Court held that under the Fourteenth Amendment’s Due Process Clause,[2] a state may
Tax Court Rules that Extensions of Variable Prepaid Forward Contracts Do Not Result in Taxable Exchanges
Last week, in McKelvey v. Commissioner¸[1] the U.S. Tax Court held that the extension of a typical variable prepaid forward contract (“VPFC”) did not give rise to a taxable exchange to the obligor because a VPFC is solely an obligation, and not property, within the meaning of section 1001 of the Internal Revenue Code. The Tax Court also noted this result is consistent with the usual treatment of a VPFC as an “open transaction”. This decision is very good news for an obligor under a VPFC (that is, the party required under the contract to deliver cash or stock at the end of the term of the VPFC), that wishes to extend a VPFC without tax consequences. If the decision is upheld on appeal under the Tax Court’s reasoning, the case would seem to apply equally an obligor that extends a conventional option, and could even provide a basis for debtors to argue that a modification of their debt does not give rise to an exchange (and thus, does not give rise to cancellation of indebtedness income) notwithstanding Treasury regulations section 1.1001-3. However, the Tax Court’s reasoning in McKelvey is in some tension with other authorities and, if taken at face value, could create opportunities for significant tax deferral on a wide variety of financial products.
IRS Eliminates Requirement to Submit Copy of Section 83(b) Elections with Tax Return
The IRS adopted final regulations that no longer require taxpayers who have made Internal Revenue Code §83(b) elections to attach a copy of the election to their annual federal income tax return.
Under §83, restricted stock granted in connection with the performance of services generally becomes taxable as ordinary income
Sun Capital Court Finds Co-Investing Funds Part of Controlled Group and Liable for Portfolio Company’s Pension Liabilities
In a decision that could have far-reaching implications for private investment funds, a District Court held that co-investing funds were part of a portfolio company’s controlled group and that the funds were thus liable for that portfolio company’s multiemployer plan withdrawal liability.
- The District Court essentially substituted the statutory 80%
Federal Appellate Court Rules that Certain Foreign Currency Options Are Subject to the Section 1256 Mark-to-Market Regime
Recently, in Wright v. Commissioner, the United States Court of Appeals for the Sixth Circuit has reopened the question of the application of Section 1256[1] to foreign currency options (and also, possibly, to foreign currency swaps or other, similar foreign currency derivatives). Section 1256 requires a taxpayer