Section 1446 Tax for Fiscal Year Partnerships in 2013

a-13-30
Announcement 2013-30

Partnerships that have effectively connected taxable income (ECTI) allocable to a foreign partner must file a 2012 Form 8804, Annual Return for Partnership Withholding Tax (Section 1446), for any taxable year that begins in 2012. In all such cases, the 2012 Form 8804 continues to apply the tax rates in effect in 2012 for purposes of determining the amount of section 1446 withholding tax that partnerships must pay for taxable years beginning in 2012.

Foreign partners in a fiscal year partnership with a taxable year ending in 2013 nonetheless must pay tax on their distributive share of the partnership’s ECTI based on the tax rates in effect in the taxable year of their inclusion as determined under section 706(a).

This Announcement is effective for partnership taxable years beginning in 2012.

DRAFTING INFORMATION
The principal author of this announcement is Ronald M. Gootzeit of the Office of Associate Chief Counsel (International). For further information regarding this announcement contact Ronald M. Gootzeit at (202) 622-3860 (not a toll-free call).

SEC private fund adviser exams- what to expect – Ernst & Young – United States

SEC private fund adviser exams- what to expect – Ernst & Young – United States: “SEC private fund adviser exams: what to expect
The SEC’s newly issued regulations under Dodd-Frank has made their examinations more stringent, requiring private fund advisers to meet more thorough disclosure standards. To ace their SEC exam, advisers must be ready.”

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Deloitte | EU Law Based Withholding Tax Claims |Private Equity Funds | Focus on Risk Management

Deloitte | EU Law Based Withholding Tax Claims |Private Equity Funds | Focus on Risk Management:

EU Law Based Withholding Tax Claims

Private equity funds – a focus on risk management

Over recent years there has been a significant amount of activity in the European Union (EU) regarding the compatibility of EU Member State dividend withholding tax legislation with European law, particularly where the Member State in question chooses to tax a non-resident investor at a higher rate than a comparable resident investor. This has led to a vast number of claims being filed against EU Member States by portfolio investors, both within and outside the EU.
Although there have been prior decisions from the European Court Justice (ECJ) relating to certain portfolio investors (e.g. portfolio investments), which are very helpful, the position of certain investment vehicles has not been considered specifically until now. 
Please listen in to a recent webcast where Deloitte’s top professionals will help you stay current with ECJ developments, as well as give you guidance and practical insights. 
Specific topics to be covered include:
  • Technical issues and an overview of ECJ case
  • Implications for other countries
  • ASC 740 (formerly FIN 48) considerations
  • U.S. reporting issues for mutual funds, hedge funds, and private equity
As used in this document, “Deloitte” means Deloitte LLP, and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.



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Australian investment manager regime Legislation introduced into Parliament

Asset Management Tax Alert

Deloitte

On June 21, 2012, the Australian government released the long awaited legislation to give effect to part of the Australian investment manager regime (IMR). The bill will be debated by the Astralian Parliament shortly.

The bill addresses the so-called ‘FIN 48’ measure or ‘Element 1’ of the IMR. This will broadly, provide an exemption for all eligible income and gains of widely held foreign funds for periods up to June 30, 2011 where the fund has not lodged a tax return or had an assessment made of their income tax liability. This legislation gives effect to the government announcement of December 17, 2010.

Further, the measures will provide an exemption for all eligible income and gains of widely held foreign funds which would otherwise be Australian assessable income of the fund only because they are attributable to a permanent establishment in Australia which arises solely from the use of an Australian based agent, manager or service provider. This measure is referred to as the ‘conduit income’ measure or ‘Element 2’ of the IMR. This measure will apply from July 1, 2010. This gives effect to the government announcement of January 19, 2011.

We will issue a more detailed Alert in due course summarizing the key concepts and implications. In particular, the definitions of “IMR income” and “widely held” will be critical to determine whether the legislation achieves the government’s objectives.
For more information, please contact

Ted Dougherty
National Hedge Fund Tax Leader
Deloitte Tax LLP
+1 212 436 2165
edwdougherty@deloitte.com

David Watkins
Client Service Executive, Australia Desk
Deloitte Tax LLP
+1212 436 5867
davwatkins@deloitte.com

SEC Staff Clarifies Hedging Ramifications of Modifications to Derivative Contracts Made in Response to the Dodd-Frank Act

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United States
Audit and Enterprise Risk Services
Financial Reporting Alert 12-3 
May 15, 2012
In a recent letter to the International Swaps and Derivatives Association, the staff of the SEC’s Office of the Chief Accountant clarified whether certain modifications made to derivative contracts in response to provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”) would affect an entity’s hedging relationships.
The question posed to the staff stems from the requirement in ASC 815-25-401 and ASC 815-30-40 under which a hedging relationship must be discontinued when the hedging derivative “expires or is sold, terminated, or exercised.” The letter describes the following situations in which an entity may legally change or “novate” the counterparties to the hedging derivative contract:
  • Title VII of the Act may require an entity to clear certain derivatives through a central counterparty (e.g., through a clearing organization or agency). To do so, the entity may need to novate derivatives executed in the over-the-counter (OTC) market to replace the original counterparties to the contract with the central counterparty. Furthermore, although the Act does not require clearing of preexisting contracts, an entity still may choose to clear such contracts through a central counterparty.
  • Under Section 716 of the Act, to maintain “federal assistance,” certain entities2 will be prohibited from participating in certain types of derivative transactions. To achieve operational efficiencies, an entity may choose to move existing derivative portfolios from one separate legal entity to another within its consolidated group that is permitted to participate in those types of derivative transactions. Such a move may require the entity to novate the contracts to change the legal counterparties.
The question is whether, under ASC 815, such changes of the legal counterparties to a hedging derivative contract should be treated as a contract termination and trigger discontinuation of the existing hedging relationship. 
In the letter, the SEC staff indicated that a novation of a bilateral OTC derivative contract “on the same financial terms” would not have to be deemed a termination, and that existing hedging relationships could continue, in the following situations “provided that other terms . . . of the contract have not been changed . . . :
  • For an OTC derivative transaction entered into prior to the application of the mandatory clearing requirements [of the Act], an entity voluntarily clears the underlying OTC derivative contract through a central counterparty, even though the counterparties had not agreed in advance (i.e., at the time of entering into the transaction) that the contract would be novated to effect central clearing.
  • For an OTC derivative transaction entered into subsequent to the application of the mandatory clearing requirements [of the Act], the counterparties to the underlying contract agree in advance that the contract will be cleared through a central counterparty in accordance with standard market terms and conventions and the hedging documentation describes the counterparties’ expectations that the contract will be novated to the central counterparty.
  • A counterparty to an OTC derivative transaction who is prohibited by Section 716 of the Act (or expected to be so prohibited) from engaging in certain types of derivative transactions novates the underlying contract to a consolidated affiliate that is not insured by the FDIC and does not have access to Federal Reserve credit facilities.”
In applying this guidance, a registrant should remember the following:
  • Changes to an OTC contract’s terms that result directly from a novation would not trigger discontinuance of hedge accounting (e.g., if the collateral requirements changed because the central counterparty has different requirements than the original counterparties to the derivative contract).
  • This staff guidance could be affected by the FASB’s deliberations in its project on accounting for financial instruments and hedging. The staff has requested the FASB to consider these issues in its deliberations.
Registrants are encouraged to discuss any questions about this guidance with their professional advisers.
__________________
1   For titles of FASB Accounting Standards Codification references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”
2   The limitation applies to certain FDIC-insured institutions and other entities that have access to “federal assistance,” including banks, thrifts, and U.S. branches of foreign banks.

Extension of Time to Make and Election under IRC 754

Private Letter Ruling 201213006

This is in response to a letter dated June 16, 2011, submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election under § 754 of the Internal Revenue Code.

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Deloitte | EU Law Based Withholding Tax Claims |Private Equity Funds | Focus on Risk Management

Deloitte | EU Law Based Withholding Tax Claims |Private Equity Funds | Focus on Risk Management:

Over recent years there has been a significant amount of activity in the European Union (EU) regarding the compatibility of EU Member State dividend withholding tax legislation with European law, particularly where the Member State in question chooses to tax a non-resident investor at a higher rate than a comparable resident investor. This has led to a vast number of claims being filed against EU Member States by portfolio investors, both within and outside the EU.
Although there have been prior decisions from the European Court Justice (ECJ) relating to certain portfolio investors (e.g. portfolio investments), which are very helpful, the position of certain investment vehicles has not been considered specifically until now.

Please listen in to a recent webcast where Deloitte’s top professionals will help you stay current with ECJ developments, as well as give you guidance and practical insights. 
Specific topics to be covered include:
  • Technical issues and an overview of ECJ case
  • Implications for other countries
  • ASC 740 (formerly FIN 48) considerations
  • U.S. reporting issues for mutual funds, hedge funds, and private equity

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FATCA – Bullets for privatekequity and hedge funds

FATCA-Bullets for privatekequity and hedge funds:

“The most significant impact of FATCA for the private equity and hedge fund industry will be on non- U.S. funds. The definition of FFI is quite broad, and appears to include virtually all non-U.S. investment vehicles, includi.g foreign feeder funds, foreign stand-alone funds and blocker corporations as well as foreign alternative investment vehicles, regardless of being offered or traded publicly.

It is expected that FATCA compliant counterparties (banks, broker/dealers, custodians, etc.) are unlikely to transact with non-FATCA compliant funds. As such, these funds should consider becoming participating FFIs by entering into an FFI Agreement with the IRS. “

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Tax Controversy Updates: IRS issues new Form 1065X and revised Form 8082

IRS Insights:

The IRS released new Form 1065X, Amended Return or Administrative Adjustment Request (AAR), which will change how many partnerships and real estate mortgage investment conduits (REMICs) amend previously filed tax returns. The Form 1065X will also be used by TEFRA partnerships as an Administrative Adjustment Request (AAR). The Form 1065X is to be used by partnerships, including electing large partnerships (ELPs), and REMICs to file an amended return or AAR in instances where the entity is not required to file, or has not elected to file, electronically. Additionally, the IRS released a revised Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR).

Historically, the procedures for correcting an item reported on an original Form 1065 or 1065-B varied depending on the type of partnership making the correction. Partnerships subject to the TEFRA procedures (TEFRA partnerships) were instructed to make corrections to original partnership returns by making an AAR on a Form 8082 to be filed by the Tax Matter Partner (TMP) on behalf of the partnership. The TMP could elect to have the AAR treated as an amended partnership return (substitute return treatment) or a claim on behalf of the partners for refund or credit relating to a partnership item. Non-TEFRA partnerships were instructed to make corrections to originally filed returns by filing a revised Form 1065 and checking the amended return box. The Form 1065 filed by a non-TEFRA entity is treated as an informational return, and as a result the partners in the non-TEFRA partnership would file an amended return on their own with a copy of a revised Schedule K-1 distributed by the partnership to report the impact of the partnership adjustment.

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Partners Treatment of Discharged Excess Non-Recourse Debt

Revenue Ruling 2012-14

ISSUE
How do partners treat the partnership’s discharged excess nonrecourse debt in measuring insolvency under § 108(d)(3) of the Internal Revenue Code?

FACTS
X, an investor other than a partnership, and Holdco, a corporation, are equal partners in PRS, a partnership for federal tax purposes.  In Year 1, PRS borrows $1,000,000 from Bank and signs a note payable to Bank for $1,000,000 that bears interest at a fixed market rate payable annually.  The note is secured by real estate
valued in excess of $1,000,000 that PRS acquires from Seller, in part with the proceeds of the note.  The note is a nonrecourse liability within the meaning of § 1.752-1(a)(2) of the Income Tax Regulations.  Neither PRS nor its partners (X and Holdco) are personally liable on the note.

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