Archive - January 2015
Partnership Interest in A Scratch-and-Dent Distressed Debt Master Fund Qualifies as a “registered form obligation”
PLR 201504004 is a bit of an esoteric ruling. It deals with the narrow issue of the availability of the Reg. 1.871-14(a) portfolio interest exemption to funds that invest in distressed securities that are not in registered form. As a background, the portfolio interest exemption provides that the receipt of interest is not subject to tax in the hands of a nonresident investor if the obligation is in registered form. Most obligations are. However, there are number of distressed obligations that are not. One such type of obligation is a scratch-and-dent mortgage. These are mortgages with...
January 26, 2015 read more
CCA 20145102F: Three Years after CCA 201104031 Taxpayers Apparently Persist on Claiming Open Transaction on the “Short Sale” Unwind of a Variable Prepaid Forward
About 3 years ago we described a ruling, CCA 201104031, disagreeing with a strategy implemented by some taxpayers in closing variable prepaid forwards (VPFs). The strategy was based on a reading of PLR 200440005 and involved the borrowing of open market shares and delivering those shares at the VPF close (instead of delivering the originally pledged VPF shares). The taxpayer who delivers the borrowed shares claims that is taking a short position and that there should be no gain recognized when the VPF is closed (the original CCA coverage could be found here). In essence, the short position...
January 14, 2015 read more
CCA 201501013 – An Inbound Fund Runs into a U.S. Lending Trade or Business Mishap of Enormous Proportions
U.S. lending trade or business is one of those issues that haunt U.S. investment fund tax advisers like the boogie man. If you get it wrong, a lot of things go bad. To outline the issue succinctly, inbound investment funds with foreign investors are generally not subject to tax on interest income and capital gains. However, if this income is derived from a U.S. lending business, the income is taxed on net basis. So, if you get it wrong, you go from a situation of no tax (for example on interest under the portfolio interest exemption), to a situation of 39.6% tax (plus possibly state tax)....
January 06, 2015 read more