Net Capital Gains as Investment Income

IRS Private Letter Ruling 201214004

This is in response to your letter requesting permission to revoke an election made by Trust pursuant to § 1.163(d)-1(c) of the Income Tax Regulations to treat net capital gain income as investment income under §§ 163(d)(1) and 163(d)(4)(B) of the Internal Revenue Code for Year 1.

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Exercise of Put Options

IRS Technical Advice Memorandum 201214021

INTERNAL REVENUE SERVICE
NATIONAL OFFICE TECHNICAL ADVICE MEMORANDUM
January 10, 2012
Number:  201214021
Release Date:  4/6/2012
Third Party Communication: None
Date of Communication: Not Applicable
Index (UIL) No.: 1001.00-00, 1234.01-00
CASE-MIS No.: TAM-131174-11

ISSUE:
Whether Taxpayer’s exercise of the Puts resulted in closed and completed transactions for federal income tax purposes.

CONCLUSION(S):
Taxpayer’s exercise of the Puts resulted in closed and completed transactions for federal income tax purposes.

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Net Capital Gains as Investment Income

IRS Private Letter Ruling 201214004

This is in response to your letter requesting permission to revoke an election made by Trust pursuant to § 1.163(d)-1(c) of the Income Tax Regulations to treat net capital gain income as investment income under §§ 163(d)(1) and 163(d)(4)(B) of the Internal Revenue Code for Year 1.

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Exercise of Put Options

IRS Technical Advice Memorandum 201214021

INTERNAL REVENUE SERVICE
NATIONAL OFFICE TECHNICAL ADVICE MEMORANDUM
January 10, 2012
Number:  201214021
Release Date:  4/6/2012
Third Party Communication: None
Date of Communication: Not Applicable
Index (UIL) No.: 1001.00-00, 1234.01-00
CASE-MIS No.: TAM-131174-11

ISSUE:
Whether Taxpayer’s exercise of the Puts resulted in closed and completed transactions for federal income tax purposes.

CONCLUSION(S):
Taxpayer’s exercise of the Puts resulted in closed and completed transactions for federal income tax purposes.

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Deloitte | United States Tax Alert – 11 May 2012 | International Tax – Treasury creates new exception from §956 for certain swap payments by CFC dealers

Deloitte | United States Tax Alert – 11 May 2012 | International Tax:

By Harrison Cohen, Jo Lynn Ricks and Robert Rothenberg

On 10 May 2012, the U.S. Internal Revenue Service (IRS) and Treasury Department issued temporary regulations1 creating a new exception under §956 of the Internal Revenue Code. The regulations set forth conditions under which upfront swap payments made by a controlled foreign corporation (CFC) to a U.S. person will not give rise to an investment in “United States property” (U.S. property), and therefore will not subject the U.S. shareholders of the CFC to U.S. tax that would otherwise apply. Taxpayers may apply this new exception retroactively.

The new exception applies to an obligation deemed to arise from an upfront payment made by a CFC that is a securities or commodities dealer in connection with a notional principal contract (NPC) cleared through a registered clearinghouse. The new exception applies to payments made on or after 11 May 2012; taxpayers may also apply the new exception to payments made prior to 11 May 2012.

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Overview of South Africa’s new dividends tax

World Tax Advisor:

South Africa’s Secondary Tax on Companies (STC) regime came to an end on 1 April 2012 when it was replaced with a dividends tax. Unlike most countries, where dividends are taxed at the shareholder level, the STC was levied on the company declaring the dividends. The regime’s replacement with a dividend withholding tax was designed to align the taxation of dividends in South Africa with international practice.

The dividends tax is levied at a rate of 15% as compared to the STC rate of 10%, and the rate can be reduced under a tax treaty. The recipient of the dividends is liable for the tax, which will be collected via a withholding obligation by the dividend-paying company. Any STC credits a company had as of the day before the effective date of the dividends tax may be utilized within a five-year period from the effective date (although this period is proposed to be reduced to three years).

The South African Revenue Service (SARS) recently issued a Frequently Asked Questions document that sets out the salient points of the new dividends tax and how the tax operates.

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Recent Guidance: Final Regulations on Reporting Interest Paid to Nonresident Aliens

IRS Insights:

The Treasury has issued final regulations providing that payments of interest on a deposit maintained at a U.S. office of a financial institution and paid to any nonresident alien individual are subject to information reporting.

This new reporting requirement is expected to assist in efforts to combat offshore tax evasion. First, the regulations ensure that the IRS can exchange information relating to tax enforcement with other jurisdictions in appropriate circumstances. Second, the regulations will facilitate intergovernmental cooperation in implementing the Foreign Account Tax Compliance Act (FATCA), by better enabling the IRS to reciprocate information exchange with foreign governments for tax administration purposes. Finally, the reporting requirement will make it more difficult for U.S. taxpayers with U.S. deposits to falsely claim to be nonresidents in order to avoid U.S. taxation on their deposit income.
The IRS currently only exchanges deposit information on an automatic basis with Canada. Although no new automatic exchanges are identified, in addition to the final regulations, Treasury released Rev. Proc. 2012-24 identifying countries with which the U.S. has information exchange agreements in place.

The final regulations slightly modified the proposed regulations based on comments received. First, the final regulations eliminate the requirement to inform the nonresident individual that the information may be furnished to the government of the country where the recipient individual resides. In addition, the final regulations clarify that payors and middlemen may rely on an individual’s address as provided in Form W-8BEN, Beneficial Owners Certificate of Foreign Status for U.S. Tax Withholding, for purposes of determining the individual’s country of residence unless the payor or middleman knows or has reason to know that the information is unreliable.

The final regulations apply to payments of interest made on or after January 1, 2013

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Printer Friendly Tax Controversy Updates: Chief Counsel Notice Issued on Economic Substance Doctrine

IRS Insights:

The IRS Office of Chief Counsel (Counsel) recently issued Notice 2012-008 setting forth procedures for Counsel’s involvement in cases involving the application of the economic substance doctrine, either as codified in IRC Section 7701(o) or under common law.

First, the notice provides instructions regarding Counsel’s role during an examination that involves the application of the economic substance doctrine, including any penalties. During the ordinary course of an examination, Counsel should provide timely assistance with respect to the economic substance doctrine and any related penalties upon request by the IRS. In addition, Counsel should consider the factors outlined in prior Large Business & International (LB&I) directives, even if the case originates from an operating division other than LB&I, and applicable case law. Furthermore, the notice states that if the transaction was the subject of one or more private letter rulings or determination letters, the Associate Chief Counsel office with jurisdiction over the transaction should be requested to review the applicable rulings or letters, and, if appropriate, should revoke them. The notice provides that this procedure should be followed even if the letter ruling or determination does not address the economic substance doctrine.

Second, the notice provides that IRS attorneys shall coordinate with Division Counsel Headquarters and the Office of the Associate Chief Counsel (Procedure and Administration) as part of the review of a proposed statutory notice of deficiency or a proposed notice of final partnership administrative adjustment that concludes that a transaction lacks economic substance.

Third, before raising the doctrine of economic substance or any related penalties as a new issue in Tax Court or in a defense or suit letter to the Department of Justice, attorneys shall coordinate with Division Counsel Headquarters and the Office of the Associate Chief Counsel (Procedure and Administration).

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Tax Controversy Updates: Deadline for receipt of FBAR: June 30, 2012

IRS Insights:

U.S. persons are required to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, (FBAR) annually if they have a financial interest in or signature authority over financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts (reportable accounts) exceeds $10,000 at any time during the calendar year. U.S. persons filing an FBAR for 2011 are required to meet the June 30, 2012, filing date. Filers should note that June 30th falls on a Saturday this year, so FBARs should actually be received by the Treasury Department by June 29, 2012. There is an extension of time to file available only to certain categories of filers as addressed in FinCEN Notices 2012-1, 2011-1, and 2011-2, as discussed in the March edition of IRS Insights.

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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

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