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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IRS Provides Additional Guidance on Corporate Inversions
On January 17, 2014 Treasury and the IRS published temporary regulations under section 7874, the Code’s anti-inversion provision, implementing guidance previously announced in Notice 2009-78. The temporary regulations generally define “disqualified stock” i.e., stock that is not taken account in applying the section 7874 ownership test. These temporary regulations follow the 2009 notice for the most part and are effective retroactively to September 17, 2009. The temporary regulations contain a taxpayer-favorable de minimis rule that previously had not been announced, as well as surprising news that the IRS and Treasury are considering expanding the scope of section 7874.
IRS Concludes That Dividends Paid by Cypriot Corporation Qualify under Section 1 (h) (11)
In a Chief Counsel Advice memorandum, CCA 201343019, issued September 10, 2013, the Office of Associate Chief Counsel (International) considered whether a dividend paid by a Cypriot corporation to a U.S. shareholder was “qualified dividend income” (QDI) for purposes of section 1(h)(11). The CCA is significant because Cypriot corporations are common in many private equity (as well as other investment) structures, and the government previously had not addressed how to apply section 1(h)(11) to dividend paid by a foreign corporation that has no U.S. source income.
First Circuit’s Opinion in Sun Capital is Disquieting for Investors in Private Equity
On July 24, 2013 the Court of Appeals for the First Circuit issued an opinion in Sun Capital Partners III, et. al. v. New England Teamsters & Trucking Industry Pension Fund finding that one of the three appellee private equity funds had a “trade or business” for purposes of determining whether the funds were liable for pension liabilities of a bankrupt company that the funds owned. This decision has been disquieting to investors in private equity funds (especially those in the First Circuit) because it is the first case to find such funds as having a trade or business under the pension law and thus potentially liable for certain pension liabilities of their portfolio companies.