Archive - January 2011
New Details on the Upcoming Voluntary Disclosure Program
I posted not long ago on this blog that a new voluntary disclosure program is in the cards. It appears that the new program will be officially announced very soon. Few days ago Kristen A. Parillo had a piece on TNT reporting some of the details of this new program. The views expressed were mainly those of Leslie DeMarco, special agent in charge of the CI's Los Angeles field office. The article was titled "IRS Official Previews Process for New Offshore Disclosure Program" and could be found on TNT's website, 2011 TNT 18-2.The article covers a lot of points but to me the most interesting...
January 28, 2011 read more
Robucci v. Commissioner - Tax Planning No Good, the Tax Court Says
Here is a case that the Tax Court published yesterday that applies equally to investment fund related tax planning and any other tax motivated planning taxpayers may engage in. I personally have always viewed the disregarding of corporate entities by the IRS as a tough nut to crack, but in this case they did it quite successfully, and not only that, but they managed a double whammy by hitting the taxpayer with a Section 6662(a) penalty. So what happened in this case? In Robucci v. Commissioner, T.C. Memo. 2011-19, a psychiatrist sought the tax planning advice of an attorney/CPA on how to...
January 25, 2011 read more
Treasury Official: Payments Under Fixed-term Revolvers Likely to Qualify For FATCA Exemption
on Friday, January 21, 2011, a Treasury Department official gave his views on the treatment of an important issue under FATCA that affects the PE and VC industries. According to the Bureau of National Affairs' Daily Tax RealTime service, the official--Itai Grinberg, an attorney-adviser in Treasury's Office of International Tax Counsel--stated that he believed that payment obligations under revolving credit agreements outstanding as of March 18, 2012 would not be subject to FATCA's withholding tax regime, so long as such credit agreements have a finite term. Based on Mr....
January 24, 2011 read more
Proposed Legislation - Credit for Investments in Small Technology Innovation Companies
Few weeks ago Rep. Rush D. Holt, D-N.J introduced H.R. 133, the Creating Jobs From Innovative Small Businesses Act of 2011. If this legislation passes, which should not come as a surprise considering Congress's earnest efforts to jumpstart the economy, it would offer an income tax credit of up to $100,000 for investments in small technology innovation companies. The credit will be part of the general business credit and will come as newly enacted Section 45S. The credit will be afforded for qualified equity investments which includes original issue of stock or capital interest in a...
January 24, 2011 read more
PitchBook Issues its Much Anticipated PE Breakdown Report
Previewed in this space earlier this month, financial research firm PitchBook released its 2011 Annual Private Equity Breakdown this week. In sum, the report is a mixed bag. While the report touts a $50 billion 4Q 2010 PE investment figure (more than 4 times the amount invested in 4Q 2009 and more than 6 times invested in 2Q 2009 at the bottom of the economic downturn), it cautions about a $485 billion capital overhang (the amount of funds raised raised by PE funds that remain uncalled) as well as a portfolio company overhang (PE firms owned an all-time high 5,994 U.S. companies at...
January 20, 2011 read more
Yet Another Upbeat Private Equity Report
BDO, one of the largest tax, accounting and consulting companies in the country, released on January 12, 2011 a report titled Private Equity Fund Managers are Expecting a Bigger and Better 2011. For this survey BDO reached out to over 100 senior executives at U.S. PE firms. The key theme of the survey is that 2010 was better than the last few years and that managers are very upbeat for year 2011, i.e. they expect to close a lot more new deals. What is somewhat astonishing about the survey is that 69 percent of the managers are actually expecting that deal flow will surpass the 2007...
January 18, 2011 read more
NY City Bar Requests Guidance Regarding Publicly Traded Partnerships
On January 10, 2011 the NY City Bar issued a report and request for guidance regarding publicly traded partnerships (PTPs). Most funds do not fall within the category of PTPs but some do. To name a few fund/PTPs - Fortress Investment Group (FIG), The Blackstone Group (BX) and KKR Financial Holdings LLC (KFN). Under Code Section 7704, PTPs are taxed as corporations unless they qualify for some of the safe harbors enumerated in that section. Most funds rely on the so called "90-10 safe harbor." Under this safe harbor a PTP is not treated as a corporation if 90% of its income is qualifying...
January 17, 2011 read more
No Peace for Noncompensatory Partnership Options
I opened TNT today and what do I see - a piece by Monte Jackel titled Reprise of the Noncompensatory Option Regs. 2011 TNT 7-7. So in essence, in this article, Mr. Jackel disagrees with major components of the noncompensatory partnership options regulations. Honestly, I did not read the whole article, although I am sure, as always Monte’s analysis is comprehensive and thoughtful. To me, the import of this was more in the vain, “Oh, here we go again.” To those that are not aware, the noncompensatory proposed regulations have been proposed since 2003. The fact that a regulation has...
January 11, 2011 read more
PFIC Ownership - Facts and Circumstances Test, the IRS Reminds US
January 09, 2011 read more
NYSBA Issues Report No. 1228 on Codification of the Economic Substance Doctrine
I personally find most of the NYSBA reports to be very comprehensive and informative. This report does not differ in this respect. The report addresses the codification of economic substance, an issue that has been talked about in length, and rightfully so. I recently wrote a separate piece on Notice 2010-62, the first eagerly awaited Treasury guidance on the issue. As I mentioned in that note, economic substance has an universal tax implication that is not limited only to the tax exposure of private equity, venture capital and hedge fund. As to funds, the report highlights...
January 07, 2011 read more
Defining “Publicly Traded” for Sec. 1273 Purposes – Proposed Regulations Shed New Light
In Federal Register Volume 76, Number 5 (Friday, January 7, 2011) Treasury issued Proposed Regulation 1.1273-2(f) (REG-131947-10). The regulation changes the definition of “publicly traded” for purposes of determining “Issue Price” under Sec. 1273 of the Code. The determination of “Issue Price” has various tax implications on both private equity and hedge funds. It is common practice for funds to invest in various types of debt, both publicly and privately held. Moreover, once the debt is purchased by the fund, it is often modified. Typically, if the modification is...
January 07, 2011 read more
FATCA has been an extremely popular topic among U.S. tax practitioners. Unfortunately, however, many foreign financial institutions (FFI) seem to be oblivious to the long arm of FATCA and have not started to prepare for FATCA implementation by introducing procedures for complying with this new legislation. A colleague of mine, Richard Kando from Navigant Consulting, Inc sent me a FATCA whitepaper that deals with creating internal procedures for FATCA implementation. As the paper notes, the process could be mindboggling and despite the January 1st, 2013 effective date, FFIs should...
January 06, 2011 read more
Tax Reform Talk - Continued
Just one day after we posted about the increased chatter about the need for a tax reform and its allegedly impending inclusion in Obama's 2012 budget, the National Taxpayer Advocate released its annual report to Congress. The key issue and the number one priority in tax administration identified in the report is the need for a tax reform. The report goes on emphatically to proclaim that "The Time for Tax Reform is Now." The key culprits leading to this desperate need for a change hardly come as a shocker. The report lists "the complexity of the tax code as the most serious problem...
January 06, 2011 read more
Tax Reform Talk
Today there was a good piece on Tax Notes on the topic of tax reform. This particular topic is near and dear to my heart. The piece was titled "Republicans Expect to See Tax Reform in Obama's 2012 Budget" and could be found at www.taxanalysts.com. In essence the short article points out that Republicans expect to see some form of tax reform proposal in Obama's fiscal year 2012 budget. The article goes on to quote Congressman Steny H. Hoyer (MD-5) saying that "[t]he tax code is inefficient, cumbersome, complicated, costly for Americans and American business." This is surely one way...
January 05, 2011 read more
How did Private Equity do in 2010?view more
PitchBook is in the process of rolling out its annual private equity deal numbers and on Monday they posted a short preview of its upcoming Annual Private Equity Breakdown 2011 report which will be released next week. The authors of this blog, just as many other tax professionals, are looking for an uptick in private equity business, and the preliminary numbers seem to suggest that such an uptick is in place. According to Pitchbook business in 2010 was up compared to 2009 but nowhere near close to the 2005-2007 years. Year 2010 however showed a moderate use of leverage, which is...
January 04, 2011 read more