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Income Shifting: Common Ownership or Control Under Code §482 in an Inbound Transaction

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Income Shifting: Common Ownership or Control Under Code §482 in an Inbound Transaction

The Large Business and International Division of the I.R.S. (“LB&I”) periodically develops international practice units (“I.P.U.’s”) that serve as training material for international examiners.  In November 2017, an I.P.U. entitled “Common Ownership or Control Under IRC 482 – Inbound” was published.  On the same date, the I.R.S. issued a sister I.P.U. for outbound transactions, “Common Ownership or Control Under IRC 482 – Outbound.”  Together, they serve as a primer for determining whether sufficient control exists between two parties to bring the arm’s length transfer pricing rules of Code §482 into play.  Stanley C. Ruchelman explains how the I.R.S. trains its examiners when determining whether a transfer pricing adjustment is appropriate. 

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Tax Concerns on Outbound I.P. Transfers: Pitfalls & Planning in Light of I.R.S. Defeat in Amazon Case

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Tax Concerns on Outbound I.P. Transfers: Pitfalls & Planning in Light of I.R.S. Defeat in Amazon Case

In the 21st century, the method of apportioning income from intangible property (“I.P.”), between the various jurisdictions in which the I.P. is developed, owned, and used or consumed, is contentious.  This was evidenced in a recent Tax Court case, Amazon.com, Inc. & Subsidiaries v. Commr., which dealt with transfer pricing rules applicable to an outbound transfer of I.P. and a related cost sharing agreement.  Philip R. Hirschfeld discusses the case in the context of Code §367(d), which relates to outbound transfers of I.P., and Treas. Reg. §1.482-7, which addresses qualified cost sharing agreements.

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§385 Regulations Adopted with Helpful Changes, but Significant Impact Remains

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§385 Regulations Adopted with Helpful Changes, but Significant Impact Remains

On October 13, 2016, the Treasury Department released final and temporary regulations under Code §385 relating to the tax classification of debt.  The new rules were proposed initially in April and were followed by a torrent of comments from Congress, business organizations, and professional groups.  In the final portion of his trilogy on debt-equity regulations, Philip R. Hirschfeld explains the helpful provisions that appear in the final regulations and cautions that not all controversial proposals were modified.

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Uproar Over Proposed §385 Regulations: Will Treasury Delay Adoption?

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Earlier this year, the U.S. Treasury Department issued comprehensive and detailed proposed regulations under Code §385 that address whether a debt instrument will be treated as true debt for U.S. income tax purposes or re-characterized, in whole or in part, as equity.  Not surprisingly, significant pushback has been encountered from members of Congress, professional bodies, and affected taxpayers.  It seems that the one-size-fits-all approach contains many defects.  Philip R. Hirschfeld and Stanley C. Ruchelman explain.

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Property Contributions to Partnerships with Related Foreign Partners

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The Tax Section of the American Bar Association recently commented on a set of proposed rules that appear in Notice 2015-54.  When adopted, these rules would limit the ability of U.S. persons to transfer appreciated property to a partnership in a tax-free transaction when the partnership has a non-U.S. person as a partner.  The I.R.S. is concerned that through special allocations of gain, built-in appreciation in contributed assets may escape taxation.  The Tax Section makes a case for additional guidance concerning the methods proposed to eliminate that result.  Philip R. Hirschfeld and Nina Krauthamer discuss the I.R.S. proposal and A.B.A. comments.

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Proposed Reporting Requirements for Foreign-Owned U.S. Disregarded Entities

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Recently-proposed regulations will require information reporting for single member L.L.C.’s that are owned by non-U.S. persons and treated as disregarded entities. Typically, this structure is used for the acquisition of an apartment by camera-shy, high net worth individuals and offshore trading companies wishing to appear as U.S. persons. The regulations are designed to supply the I.R.S. with information about the operations and ownership so that information may be exchanged with tax treaty partner jurisdictions. Philip R. Hirschfeld and Nina Krauthamer examine the proposed reporting rules.

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Related-Party Debt: Proposed Code §385 Regulations Raise Major New Hurdles

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In a follow-up piece on newly proposed anti-inversion regulations, Phillip R. Hirschfeld offers a detailed analysis of new debt equity regulations.  Mind-boggling complexity is proposed for rules in an area of the tax law that lay dormant for almost 40 years.

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3M Case to Test “Foreign Legal Restrictions” Regulations Under Code §482

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Who knows best, the I.R.S. or the U.S. Supreme Court? Refusing to give up on its position that Code §482 trumps a foreign law that caps amounts used in related-party transactions, the I.R.S. is challenging 3M, a corporation that is acting in compliance with Brazilian law. Elizabeth V. Zanet and Galia Antebi delve into a legal issue that most adviser though was settled years ago by the U.S. Supreme Court.

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International Practice Unit: License of Intangible Property from U.S. Parent to a Foreign Subsidiary

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Christine Long explains how I.R.S. examiners are encouraged to determine whether foreign subsidiaries are paying fair compensation for using I.P. owned by U.S. parent companies.

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Taxpayers Take Note: I.R.S. Publishes Audit Guides for International Examiners

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U.S.-based companies facing an I.R.S. examination of international operations may secretly wish to obtain an advance look at how I.R.S. examiners plan to carry out the examination. After all, what better way to prepare for a test than to get the questions in advance? Surprise – the Large Business & International (LB&I) Division of the I.R.S. has published its training guides for examiners.

LB&I is responsible for examining tax returns reporting international transactions, and it is in the process of revising the method by which returns are chosen for examination and the the process by which those examinations are conducted. Several aspects of the guidance will be addressed through out this edition of Insights. Stanley C. Ruchelman explains.

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