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.
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
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.