Implications of court opinion for private equity funds | KPMG | GLOBAL

Implications of “Grecian Magnesite Mining” opinion for private equity funds

Implications of court opinion for private equity funds

The U.S. Tax Court in “Grecian Magnesite Mining Co. v. Commissioner” rejected the IRS position set forth in Rev. Rul. 91-32 that a foreign partner is generally subject to U.S. tax on gain from the sale of an interest in a partnership to the extent the gain is attributable U.S. trade or business assets of the partnership.

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Private equity fund sponsors accustomed to using U.S. blocker corporations to hold investments in U.S. operating companies classified as partnerships for federal tax purposes need to consider whether foreign blocker corporations have become relatively more attractive for this purpose in light of the court’s opinion. Private equity fund sponsors also need to consider whether there are opportunities for their foreign blocker corporations, or fund partners, to file refund claims with respect to tax paid or withheld in connection with prior sales of interests in portfolio companies that were treated as partnerships for U.S. tax purposes and that were engaged in U.S. trades or businesses.

 

Read an August 2017 report [PDF 95 KB] prepared by KPMG LLP: What’s News in Tax: Implications of the Tax Court’s Opinion in Grecian Magnesite Mining Co. v. Commissioner for Private Equity Funds

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