Insights & News

Tax Insights, June 8, 2016
Tracking Tax News You Need to Know

June 08, 2016
IRS Rules on Transaction Involving Partnership Interest Transfer Under Section 351(e)
In Private Letter Rulings 201622001 and 201622014, the IRS ruled that the transfers of interests in certain partnerships to a newly formed limited liability company, to be taxed as a corporation and a real estate investment trust, in exchange for stock in such company will not be treated as a transfer to an investment company within the meaning of Section 351(e) (section references are to the Internal Revenue Code of 1986, as amended). In the rulings, taxpayers are limited liability companies treated as partnerships for federal income tax purposes. Taxpayers and other persons own interests in other limited liability companies also treated as partnerships for federal income tax purposes (“Partnerships”). One taxpayer will form a new limited liability company (“Company”) that will elect to be treated as a corporation and also will elect to be taxed as a real estate investment trust for federal income tax purposes. One or more private institutional investors will contribute cash to the Company in exchange for stock in the Company, and the owners of interests in the Partnerships will transfer their interests in the Partnerships to the Company in exchange for shares and/or cash. The proceeds from that private offering will be applied to pay transaction expenses, to purchase interests in the Partnerships from owners who elect to receive cash rather than shares in the exchange, and possibly to acquire additional assets (having a similar risk profile as those in the Partnerships) and establish reserves for working capital. The IRS concluded that the transfers of interests in the Partnerships to the Company in exchange for shares will not be treated as transfers to an investment company within the meaning of section 351(e).

IRS Updates FATCA Systems FAQ
The IRS has updated its frequently asked questions on the systems used for FATCA data, adding questions on the enrollment process for a direct-reporting nonfinancial foreign entity located in a Model 1 intergovernmental agreement jurisdiction, on a maintenance release and on public key certificate updates.

NYSBA Members Request Clarification of F Reorganization Regulations
The New York State Bar Association submitted a report on the Tax Section commenting on the final regulations on “F” reorganizations, published on Sept. 21, 2015. Specifically, NYSBA recommends that Treasury and the Service consider issuing guidance clarifying certain aspects of the final regulations, including, for example, (1) a de minimis presumption for issuances of stock if such issuances do not exceed 1 percent of the resulting corporation’s shares outstanding or assets (by value) immediately after the potential F reorganization; (2) that in a “drop and check” transaction pursuant to an integrated plan, the potential F reorganization begins when the stock of the transferor corporation is contributed to the resulting corporation; (3) that the prohibition on a resulting corporation holding tax attributes only looks to U.S. federal income tax attributes, and that tax attributes are not considered “property” for purposes of the final regulations; and (4) that the step transaction doctrine will only be applied to integrate steps occurring outside the “bubble” in a manner that disqualifies the transaction from F reorganization treatment, where the resulting integrated transaction is a tax-free reorganization described in the “overlap” rule of Treasury Regulations Section 1.368-2(m)(3)(iv).

IRS Releases Practice Units on FDAP Withholding and FDAP Income
The IRS made available its international practice units on chapter 3 withholding on fixed, determinable, annual or periodic payments to non-U.S. entities and on the general rules for determining the source of income to ascertain whether the United States has jurisdiction to tax fixed, determinable, annual or periodic income.

Information contained in this publication should not be construed as legal advice or opinion or as a substitute for the advice of counsel. The articles by these authors may have first appeared in other publications. The content provided is for educational and informational purposes for the use of clients and others who may be interested in the subject matter. We recommend that readers seek specific advice from counsel about particular matters of interest.

Copyright © 2016 Stradley Ronon Stevens & Young, LLP. All rights reserved.

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