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A Few Developments from the Past Couple of Weeks: FATCA, Stop Tax Haven Abuse Act and Monetization Strategies
August 01, 2011
Miscellaneous
Here are a few things that caught my eye when I was on vacation for the past couple of weeks in my home town of Varna, Bulgaria. I will list them in chronological order and I’ll briefly mention why I found them notable.

The Reintroduction of the Stop Tax Haven Abuse Act

This bill is not new. It was first introduced by Senator Levin in 2009 with the idea of battling corporate tax shelters. The thrust of the law was the idea of curtailing abuses by treating certain foreign corporations as domestic corporations if their management and control was within the US. Had it been enacted, this Act would have impacted the investment fund industry in many ways, including the conversion of many foreign “blocker” entities into US corporations.  The bill did not get traction but now it is being reintroduced both in the Senate (S.1346 introduced by Senator Levin) and in the House (introduced by Representative Doggett).  I personally think that it is too early to dwell on the details of these bills considering their unsuccessful track record, but it is notable that the sponsoring Congressmen envisage even tougher rules than the initially-introduced bill, including some turbo-charged FATCA related provisions. The timing of this legislation is somewhat questionable considering that both the investment fund industry and Treasury are struggling with FATCA, both as a legal framework and as a practical matter. It is even more questionable, considering the avalanche of voices that have recently called for FATCA relief, or plainly, for the repeal of FATCA. In these desperate times for the US economy one could impugn the rationale that the most complicated and loophole-proof revenue code in the world needs yet another amendment to spur economic prosperity and fiscal stability. If closing loopholes and amending the Internal Revenue Code had any tangible connection to the prosperity of the American people, the exponential growth of such loophole patches and Code amendments would clearly have lead to an exponential growth in wages, employment and lower work hours, which seems not to be the case, at least as of now.

FATCA Phased Implementation

Judging by the number of comments, law firm memos, news articles and blog entries, I am afraid that FATCA has become more popular a topic than the debt ceiling and the royal wedding of Prince William combined, so I will just mention this development in passing. Treasury released Notice 2011-53 where it provided for a phased implementation of the FATCA law. Pursuant to this Notice, registration of participating FFIs will begin no later than January 1, 2013. Withholding obligations with respect to FDAP payments will begin on January 1, 2014. FFIs that would otherwise be subject to Chapter 4 withholding will be identified as participating FFIs and therefore should not be subject to such withholding if they have registered as participating FFIs and entered into FFI Agreements by June 30, 2013. Withholding obligations of participating FFIs with respect to passthru payments will be specified in future regulations, but will begin no earlier than January 1, 2015.  The Notice further provides a guidance timeline, which stipulates that proposed regulations will be issued by December 31, 2011 and final regulations by the summer of 2012. Only time will tell what happens to FATCA and what the end product will be.

Landow v. Commissioner – The Tax Court is Merciless in Shutting down Monetization Strategies

Ever since the Calloway, 135 T.C. No. 3 (July 8, 2010) and Anschutz, 135 T.C. No. 5 (July 22, 2010) decisions the Tax Court has been ruling consistently against the taxpayer in various monetization strategies cases. The latest installment of this saga is the Landow decision, T.C. Memo. 2011-177 (July 25th, 2011). The facts here are not that much different from another recent case that I mentioned on this blog, Sollberger v. Commissioner. Both of these cases were decided based on the Calloway decision. In my Sollberger post I reasoned that a notable trend against the taxpayer is shaping up in monetization cases which is confirmed by the latest Landow decision.  The thing to keep in mind with these cases is that most of them are on appeal or will likely be appealed. It would be curious whether any of the pending appeals, in the 10th Circuit in the Anschutz case, and in the 11th Circuit in the Calloway case, would change this trend.
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Tags: Anschultz, Calloway, FATCA, FATCA and funds, FATCA and private equity, FATCA compliance, FATCA implementation, Landow v. Commissioner, monetization