Mr. Cope monitors the development of U.S. tax law daily through postings on government websites, daily tax publications, monthly tax journals, tax newsletters, tax conferences and meetings of professionals organizations in New York and Washington. Each month he publishes the Tax Insights Blog, which describes and analyzes significant U.S. tax developments (e.g., judicial decisions, regulations, proposed tax legislation) having cross-border tax consequences. The blog's content should be of interest to U.S. businesses with foreign operations and businesses headquarted outside the United States with U.S. investments or U.S. operations.
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Appellate Court Limits Reach of U.S. Insurance Excise Tax
A recent decision by the United States Court of Appeals for the District of Columbia, Validus Reinsurance, LTD v. United States, limits the scope of section 4371, which imposes an excise tax on premiums paid with respect to certain insurance and reinsurance policies written to cover U.S. risks. The appellate court found that the U.S. excise tax cannot be imposed on premiums paid with respect to wholly foreign retrocessions. The case is of interest because it is an example of the courts reading a statute to circumscribe the IRS’s taxing jurisdiction.
New Proposed Regulations Would Further Tighten U.S. Taxation of Dividend Equivalents
On December 5, 2013 the Treasury and the IRS issued proposed regulations under section 871 (m) (the “2013 Proposed Regulations”) addressing the taxation of cross-border payments of “dividend equivalents” (i.e., payments that are not in the form of a dividend but have the economics of a dividend). These regulations replace proposed regulations issued in January 2012 (the “2012 Proposed Regulations”). Also on December 5, the IRS finalized temporary regulations issued in 2012. These regulations (the “Final Regulations”) are effective for payments made through December 31, 2015. Thus, for the next two years the current rules governing the taxation of dividend equivalents continue in effect.
D.C. Circuit Rules for Unlucky Korean Gambler
On July 9, 2013 the Court of Appeals for the D.C. Circuit, reversing the Tax Court, issued an opinion in favor of the taxpayers in the case of Sang J. Park and Won Kyung O v. Commissioner.The issue in Park was how to compute the Korean taxpayers’ gains from playing slot machines in the United States. Overall Mr. Park lost money playing slot machines while in the United States, but the IRS asserted Mr. Park was taxable on each bet he had won, with no deduction for his many lost bets. The government argued that because nonresident aliens are taxed on a gross basis on their FDAP income (i.e., they are denied deductions) this was the correct result. The court did not agree.