In their article in the Journal of Passthrough Entities, Noel Brock and Joseph Calianno discuss issues raised by the Subpart F income partnership blocker transaction described in Notice 2009-7. This article discusses possible IRS’s challenges to this type of transaction and possible taxpayer response. In the recent notice, the IRS indicates that the partnership blocker transaction is a transaction of interest. A fact pattern illustrative of this transaction would be a situation in which a U.S. taxpayer (“Taxpayer”) wholly owns two CFCs, (“CFC1” and “CFC2”). CFC1 and CFC2 are partners in a domestic partnership (“USPartnership”). USPartnership owns 100 percent of the stock of another CFC (“CFC3”). Some or all of the income of CFC3 is Subpart F income (as defined in Code Sec. 952). As part of the transaction, Taxpayer takes the position that the Subpart F income of CFC3 currently is included in the income of USPartnership (which is not subject to U.S. tax) and is not included in the income of Taxpayer. (The Notice does not discuss whether Taxpayer takes the position that CFC3 has previously taxed earnings and profits under Code Sec. 959 as a result of USPartnership’s section 951(a) income inclusion that may be distributed without further taxation under Code Sec. 959.) The Taxpayer likely would assert that USPartnership serves as a “blocker” to it indirectly owning CFC3 through CFC1 and CFC2 and having a Code Sec. 951(a) income inclusion (i.e., attribution stops at the first U.S. person, which would be USPartnership). The result of the claimed tax treatment is that income that otherwise would be taxable currently to Taxpayer as a result of CFC3’s Subpart F income is not taxable to Taxpayer because of the interposition of a domestic partnership in the structure. Interestingly, the IRS did not designate this transaction as a listed transaction nor did it specifically state that the transaction does not work. Instead, the IRS states that the transaction has the potential for tax avoidance or evasion.

In the International Tax Journal, Michael Miller explains the important FBAR reporting requirements. Each United States person who has a financial interest in or signature authority over any foreign financial account, including bank, securities or other financial accounts, in a foreign country must report that relationship each calendar year on or before June 30th of the succeeding year, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year. Many taxpayers opened foreign financial accounts without the benefit of tax professionals and are failing to comply with the FBAR disclosure rules. Penalties for FBAR violations can be severe. Under recent changes to the FBAR penalty regime, a civil penalty for non-willful violations can be imposed up to $10,000, per violation. For willful violations, the penalty can be up to the greater of $100,000 or 50 percent of the account balance, per violation. Criminal penalties, which can result in fines of up to $500,000 and imprisonment of up to 10 years, may be in imposed in conjunction with civil penalties.

The primary purpose of every good succession plan is to provide the seller or retiring owner with options and opportunities. The best succession plan is the one that offers you the most personal and business choices. In his article in CPA Practice Management Forum, August Aquila explains that one of the greatest barriers to the successful succession plan is the business owner’s reluctance to give up control. This article explains why the key to successful succession planning is client transition and the confidence that the business will continue to prosper after the original owner moves on.

In this article from the Journal of Practical Estate Planning, Eric Manterfield explains that a carefully crafted gift agreement can lend clarity to a donor’s gift by specifying the donor’s vision of the charity’s use of the gift and in the event this vision becomes irrelevant to the charity’s mission, acceptable alternative uses.