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Tax News
Archive - May 2011
In PLR 201111002 the Service Approves an Alternative Method for Basis Recovery in a No-Cap Earnout
In PLR 201111002 the Service Approves an Alternative Method for Basis Recovery in a No-Cap Earnout
Earnouts are very common in private equity and venture capital deals. The fund could be exposed to the earnout as a seller or a buyer of a portfolio company. An earnout is basically a contingent installment sale whereby some future payments depends on the profitability of the portfolio company. If the fund is a seller, one of the threshold questions is whether to report under the Section 453 installment method or whether to elect out of it. Often it is advantageous to report under the installment method.  However, reporting under the method could present certain traps for the unwary such...
May 27, 2011 read more
Retroactive QEF Election Granted in PLR 201120009
Retroactive QEF Election Granted in PLR 201120009
This ruling does not present any new law, but is the most recent one in the retroactive qualified electing fund (QEF) line of authorities, so I decided to use it as a platform to cover the issue on this blog. Investment fund participants ought to be familiar with the passive foreign investment company (PFIC) and QEF rules. These are anti-deferral rules that could cause the investor to have reporting obligations and more importantly, convert capital gains to ordinary income. Like many other Internal Revenue Code provisions, these rules are overly-complex and not always clear or intuitive....
May 25, 2011 read more
District Court Rejects Fund Managers' Attempt to Recharacterize Service Contract as Partnership Relationship
District Court Rejects Fund Managers' Attempt to Recharacterize Service Contract as Partnership Relationship
As may be divined from the site's name, our main goal here is to keep the reader apprised of new developments in the world of taxation that are relevant to the taxation of investment funds and the various fund participants.  Sometimes, the developments take the form of truly new law in the form of IRS regulations or precedential case law; other times, it may be a new case or ruling that simply adds to a larger body of law in an important area.  The opinion of the U.S. District Court for the Southern District of Texas in Rigas v. United States, 107 AFTR 2d 2011-788 (C. D. Tx. 5/2/2011),...
May 13, 2011 read more
FATCA Implementation: Take Two
FATCA Implementation: Take Two
I've posted quite a bit about FATCA on this blog. Among these posts was a FATCA implementation report by Navigant prepared in the aftermath of Notice 2010-60 and sent to me by my colleague Rich Kando. This first report could be found here.  Subsequent to the second round of guidance on FATCA, Notice 2011-34, Navigant, as many other service providers and advisors, prepared an updated implementation report.  Just as with the first report, I think that Navigant has done a pretty good job of making sense out of these Notices, to the extent possible, and of creating some implementation...
May 12, 2011 read more
The Private Equity and Venture Capital Tax Manual
The Private Equity and Venture Capital Tax Manual
This blog post is pretty much a shameless self-promotion of the private equity tax book that I’ve been working on for the last few years. It started with the idea of creating a tool that could help me in working on private equity and venture capital deals. At one point I realized that there are too many tax issues that come up in this field, and that there isn’t one unified source that outlines all the issues and discusses their practical implication. I’ve been working in the field since 2005 (first as a tax clerk at BSF, and then as a tax lawyer) and have been very fortunate to be...
May 12, 2011 read more
TIC Form SLT: Yet another Treasury form befalls the investment fund industry
TIC Form SLT: Yet another Treasury form befalls the investment fund industry
This form comes courtesy of Treasury’s latest effort to ensure more timely and accurate measurement of aggregate holdings of long-term securities.  The concept here is not new. Some investment managers surely are familiar with the TIC reporting.  Treasury International Capital (TIC) already requires monthly data on holdings of short-term securities, on purchases and sales of long-term securities, and annual data on holdings of long-term securities (via the so called TIC S Forms, including Forms S, SHC, SHCA, SHL, and SHLA).  As Treasury explains, now, certain funds, investment managers...
May 11, 2011 read more
May investment managers rely on proposed regulations after the Renkemeyer decision, and does Renkemeyer really matter?
May investment managers rely on proposed regulations after the Renkemeyer decision, and does Renkemeyer really matter?
As many may know, May is the time when the Tax Section of the ABA meets for its semi-annual meeting (usually in DC). Often there are excellent discussions and observations that are worth noting. This one has to do with the Renkemeyer case that Matt covered here when the Tax Court decision first came out.  Apparently, as reported by Shamik Trivedi of TNT, the decision was a topic at the Partnership and LLCs session of the meeting. I did not attend this meeting, but judging by the report, it seems that some practitioners were concerned, and read Renkemeyer to suggest that taxpayers cannot...
May 11, 2011 read more
Worthless Intangibles and Section 197(f)(1)
Worthless Intangibles and Section 197(f)(1)
Recently the IRS released CCA 20111101F where it rejected several arguments raised by the taxpayer that worthless goodwill associated with acquired Section 197 intangibles (in this case franchises) should be deductible under Section 165 of the Code. The facts of the ruling were not too elaborate.  The taxpayer acquired certain assets from an automotive dealer including goodwill related to five different franchise rights. Subsequent to the sale, the taxpayer received notice that two of the franchises were being terminated.  The taxpayer claimed that the goodwill associated with the...
May 01, 2011 read more