The latest updates and insights on tax law
Introduction
On May 3, 2023, the United States Tax Court held in ES NPA Holding, LLC v. Commissioner, T.C. Memo. 2023-55, that the taxpayer’s receipt of interests in a partnership in exchange for services rendered to the sole owner of the business before it became a partnership was for the benefit of the future partnership and, therefore, was a profits interest (rather than a capital interest). The taxpayer did not provide ongoing services to the partnership.
Today, December 19, 2021, Senator Joe Manchin (D., W.Va.) said that he opposes the Build Back Better Act, which effectively prevents its passage. While there are no immediate prospects for the Build Back Better Act to become law, future tax acts tend to draw upon earlier proposals. With a view…
On Wednesday, April 28th, the White House announced the American Families Plan, the “human capital” infrastructure proposal. The American Families Plan would spend $1.8 trillion, including $800 billion in tax cuts over ten years, offset by $1.5 billion in new taxes over the same period. This blog…
On October 7, 2020, the U.S. Internal Revenue Service (“IRS”) and Treasury Department released final regulations[1] providing guidance on the rules imposing withholding and reporting requirements under the Code[2] on dispositions of certain partnership interests by non-U.S. persons (the “Final Regulations”). The Final Regulations expand and modify proposed regulations[3] that were published on May 13, 2019 (the “Proposed Regulations”), and which we described in a prior Tax Talks post.[4] Unless otherwise specified, this post focuses on the differences between the Proposed Regulations and the Final Regulations affecting transfers of interests in non-publicly traded partnerships.
Enacted as part of the “Tax Cuts and Jobs Act,” Section 1446(f) generally requires a transferee, in connection with the disposition of a partnership interest by a non-U.S. person, to withhold and remit ten percent of the “amount realized” by the transferor, if any portion of any gain realized by the transferor on the disposition would be treated under Section 864(c)(8) as effectively connected with the conduct of a trade or business in the United States (“Section 1446(f) Withholding”).[5]
Prior to issuing the Proposed Regulations, the IRS had issued Notice 2018-08 and Notice 2018-29 to provide interim guidance with respect to Section 1446(f) Withholding.
On April 23, 2020, the Treasury Department and the Internal Revenue Service (the “IRS”) issued proposed regulations (the “Proposed Regulations”) under Section 512(a)(6) of the Internal Revenue Code (the “Code”). Section 512(a)(6) was enacted as part of the 2017 Tax Cut and Jobs Act (the “TCJA”) and requires exempt organizations (including individual retirement accounts)[1] to calculate unrelated business taxable income (“UBTI”) separately with respect to each of their unrelated trades or businesses, thereby limiting the ability to use losses from one business to offset income or gain from another.
In the Finance Act 2018, the UK Government enacted a number of changes to the information required in partnership returns that raised the concern of undue and impracticable administrative burden being imposed on UK investment fund partnerships.
The changes covered a number of areas, including requiring a UK partnership that had partnerships amongst its partners and could not identify all of its “indirect partners” to provide computation statements on four bases covering UK resident individuals and companies and non-UK resident individuals and companies. Given that many fund partnerships have other partnerships amongst their investors and that it is likely to be difficult (if possible) to obtain information on all indirect partners, this change will increase the return information that must be provided to HM Revenue & Customs (“HMRC”).
On May 13, 2019, the U.S. Internal Revenue Service (“IRS”) and Treasury Department published proposed regulations providing guidance on the rules imposing withholding and reporting requirements under the Code[1] on dispositions of certain partnership interests by non-U.S. persons (the “Proposed Regulations”). The Proposed Regulations expand and in important ways modify earlier Notice 2018-29[2] on dispositions of non-publicly traded partnership interests.[3] Unless otherwise specified, this post focuses on the aspects of the Proposed Regulations affecting transfers of interests in non-publicly traded partnerships.
Enacted as part of the “Tax Cuts and Jobs Act”, Section 1446(f) generally requires a transferee, in connection with a disposition of a partnership interest by a non-U.S. person, to withhold and remit 10 percent of the “amount realized” by the transferor, if any portion of any gain realized by the transferor would be treated as effectively connected with the conduct of a trade or business in the United States under the substantive sourcing rule of Section 864(c)(8).[4]
Prior to issuing the Proposed Regulations, the IRS issued Notice 2018-08 and Notice 2018-29 to provide interim guidance with respect to these withholding and information reporting requirements. On December 27, 2018, the IRS issued proposed regulations under Section 864(c)(8), providing rules determining the amount of gain or loss treated as effectively connected gain or loss with a U.S. trade or business.
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.
On November 26, 2018, the Internal Revenue Service (the “IRS”) and the U.S. Department of the Treasury (the “Treasury”) issued proposed regulations (the “Proposed Regulations”) under section 163(j) of the Internal Revenue Code (the “Code”).[1] Section 163(j) limits the deductibility of net business interest expense to 30% of “adjusted taxable income” plus “floor plan financing interest expense” for taxable years beginning after December 31, 2017.
The Proposed Regulations generally apply to taxable years ending after the date the Proposed Regulations are published as final regulations. However, taxpayers may elect to apply the Proposed Regulations retroactively to a taxable year beginning after December 31, 2017 so long as the taxpayer and any related parties consistently apply the Proposed Regulations to those taxable years.
This post provides background and a general 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. Click to read more about the Proposed Regulations.
A number of states have recently proposed or passed new laws related to state-level taxation, some of which are taxpayer-friendly and some of which are expected to impose additional tax burdens on taxpayers. They vary in subject from efforts by states to mitigate the new federal limitation on the deductibility of state and local taxes to proposed changes to state income taxation of “carried interest.” This update reflects some of those recent proposals and laws.
This website uses third party cookies, over which we have no control. To deactivate the use of third party advertising cookies, you should alter the settings in your browser.
