Minor memos

Minor memos

April 01, 2013 | By Keith Martin in Washington, DC

The IRS is asserting more frequently on audit that US companies should receive fees from foreign affiliates for whom they guarantee repayment of debts or performance of contracts. The fee income must be reported on US tax returns. Such guarantees may also create complications for any US multinational using an offshore holding company to defer US taxes on foreign earnings until the earnings are repatriated to the United States. The guarantees can trigger a deemed repatriation of earnings or subject income a foreign subsidiary earns from providing offshore services to current US tax as if the services had been performed from the United States . . . . The Congressional Budget Office told a House Science subcommittee in March that 74% of the estimated $16.4 billion that will be spent on energy-related tax incentives in fiscal year 2013 will go to energy efficiency and renewable energy as compared to nuclear energy, oil and gas. However, incentives for oil and gas production are permanent and have been in the US tax code since 1916, while most incentives for renewable energy have either already expired or are scheduled to do so in the next few years . . . . The IRS ruled that a partnership was created between a US company and a foreign affiliate, even though customers dealing with the “partnership” thought they were dealing with the US company. The foreign affiliate took an X% interest in profits from the US company’s branches in a region in exchange for a cash investment equal to the same X% of the branches’ market value. No separate legal entity was created. All property remained held in the name of the US company. The ruling is Private Letter Ruling 201305006. The IRS made it public in February.