Monday, August 10, 2009

IRS Extends FBAR Filing Deadline For Signatories and Foreign Fund Investors

On August 7, 2009, the IRS issued Notice 2009-62 to extend the deadline of filing Form TD F 90-22.1 (“FBAR”) in two limited situations. The extension applies to U.S. persons who have signature authority over, but no financial interest in, foreign financial accounts, and to U.S. persons with respect to investment in foreign “commingled funds” such as hedge funds. Under the Notice, these signatories and investors have until June 30, 2010 to file the FBAR for 2008 and prior years. A U.S. person not eligible for the extension under the Notice generally must file the FBAR by June 30, but if such person was unaware of the filing obligations until recently, the extended September 23, 2009 deadline announced by the IRS earlier this year may apply.

The IRS has recently indicated that “commingled funds” that are treated as “financial accounts” include mutual funds, hedge funds, and even private equity funds. However, there is no official guidance as to whether and under what circumstances an equity interest in a foreign entity should be treated as a “financial account” subject to FBAR reporting. The Treasury Department now intends to issue regulations to provide clarification. Such regulations may address when an interest in a foreign entity should be subject to FBAR reporting, whether the principles of “passive foreign investment company” should apply, and whether duplicative filing should be exempt. Similarly, such regulations may also address whether a signatory should be exempt from an FBAR obligation when the owner of the account files the FBAR, and whether officers and employees with only signature authority should not be required to file duplicative FBAR forms. Interested persons can submit comments and suggestions to the IRS and the Treasury Department by October 6, 2009.

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Monday, August 3, 2009

Treasury Begins Accepting Applications for Grants With Respect to Certain Renewable Energy and Innovative Energy Technology Projects

On July 31, 2009, the Treasury Department announced that it is now accepting applications for cash grants (the “Grant”) which will essentially monetize tax credits that would otherwise be available to certain renewable energy and innovative energy technology projects. Generally, properties eligible for the Grant are depreciable properties that are, among others, part of an electricity production facility using wind, biomass, geothermal or solar energy, or certain power plants using fuel cells or microturbines. Earlier, on July 9, 2009, the Treasury Department has issued the much anticipated guidance titled “Payments for Specified Energy Property in Lieu of Tax Credits under the American Recovery and Reinvestment Act of 2009”. This guidance sets forth in detail the procedures and requirements of applying for the Grant.

The Grant will be in an amount equal to 10% or 30% of the tax basis of the eligible property, depending on the types of the property. It is available only to an eligible property (1) that is placed in service in 2009 or 2010, in which case the application must be submitted before October 1, 2011; or (2) the construction for which began in 2009 or 2010 and is placed in service before the end of the applicable tax credit period, in which case the application must be submitted after the construction commences but before October 1, 2011. The applicant must be the owner (or the lessee if certain conditions are met) of the property and must have originally placed the property in service. Tax-exempt organizations, governmental bodies and certain cooperative lenders or electric companies, as well as pass-through entities that have any such person as a direct or indirect partner (collectively, the “Disqualified Persons”), are not eligible for the Grant. However, a taxable corporation would be eligible even if it is owned by one or more Disqualified Persons. Disqualified Persons can also own indirect interest in a pass-through entity through such taxable corporations (“Blocker Corporations”).

Under the guidance, some or all of the Grant would generally have to be repaid to the Treasury Department if the property is disposed of (or deemed to be disposed of when a direct or indirect interest in the applicant is sold), or ceases to be eligible property, within five years from the date the property is placed in service. Importantly, however, the trigger of the recapture provided in the guidance is narrower than the rules applicable to investment tax credits. With respect to a Grant, a property can be sold to any entity that is not a Disqualified Person without triggering the recapture, provided that the buyer agrees to be jointly liable with the applicant for any recapture. Therefore, a sale to any Blocker Corporation, or to any pass-through entity in which Disqualified Persons only have indirect interest through Blocker Corporations, could avoid the recapture.

The guidance issued by the Treasury Department is extensive and addresses many other procedural as well as substantive issues. For example, under the guidance, generally a Grant payment would not constitute income to the applicant, but a lessee who receives the Grant must include ratably in gross income over the five year recapture period an amount equal to 50 % of the Grant. Taxpayers who are interested in the program should carefully consider all benefits and consequences with respect to their particular circumstances.

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Sunday, August 2, 2009

Germany to Require Disclosures of Offshore Business Relations

Both houses of Germany's Parliament have passed a law to "combat tax fraud and other harmful tax practices." Under the law, German taxpayers that do business with a "tax haven" country or jurisdiction must disclose their business relations to Germany's tax authorities. In addition, the tax authorities may require such taxpayers to provide an affidavit confirming the completeness and correctness of their disclosure. The law allows German tax authorities to (1) deny withholding tax relief, application of the "flat tax" regime for certain interest income or exemptions for dividends paid to and capital gains realized by residents of tax haven countries or jurisdictions and (2) under certain circumstances, limit deductibility of business expenses for payments made to businesses that reside in tax haven countries or jurisdictions.

For purposes of the law, "tax haven" countries or jurisdictions are those (1) with which Germany has entered into a treaty for the avoidance of double taxation (or concluded a treaty but the treaty is not yet in force), but the treaty does not contain an exchange of information article comparable in scope to Art. 26 of the OECD Model Tax Convention (2005) or (2) with which Germany has not entered into a treaty and that do not otherwise provide for an exchange of information comparable in scope to Art. 26 of the OECD Model Tax Convention (2005).

The law entered into force on August 1, 2009.

Link (text in German)

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Court of Claims Considers Whether a Limited Liability Company Interest is a Limited Partnership Interest For Purpose of Passive Activity Rules

On July 20, the Court of Federal Claims, in a question of first impression, addressed the issue of whether a member's interest in a limited liability company ("LLC") taxed as a partnership for U.S. federal income tax purposes is treated as a limited partnership interest for purposes of the passive activity rules under section 469. If a member's interest in an LLC is treated as a limited partnership interest, certain limitations apply in determining whether such member's share of the LLC's losses are "passive activity" losses.
Link

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NYSBA Recommends One-Year Delay for Certain FBAR Filings

In a letter dated July 17, the New York State Bar Association's ("NYSBA") Tax Section urged the IRS and Treasury Department to provide a one-year postponement for the FBAR reporting requirement for filers with "non-traditional financial accounts." A non-traditional financial account includes investments in offshore hedge funds and private equity funds. Alternatively, the NYSBA Letter suggests that the IRS not require FBAR filings in connection with non-traditional accounts for previous years and reconsider the conditions for qualifying for the September 23 filing deadline extension.
Link

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