Tax Talk - Volume 3, No. 3 - October 2010


In This Issue: 2 Prepaid Forward Plus Stock Loan Equals Sale According to U.S. Tax Court; 2 IRS Issues Initial Guidance on FATCA Withholding and Reporting; 4 IRS Issues Economic Substance “Guidance”; 4 ISDA 2010 HIRE Act Protocol; 5 Small Business Jobs Act Affects; Source Rules for Guarantee Fees 5 Medicare Tax—On the Sale of a Principal Residence?; 6 Did You Catch That, Again?; 7 The Classroom—Fixed-to-Floaters; 8 Press Corner; and 8 MoFo in the News.

Editor’s Note

In the third quarter 2010, the Tax Court released its opinion in Anschutz Company v. Comm’r, 135 T.C. No. 5 (July 22, 2010), holding that the variable prepaid forward contract plus the stock loan at issue was a sale for U.S. federal income tax purposes. The IRS also issued much anticipated guidance on the new Foreign Account Tax Compliance Act (“FATCA”) withholding and reporting rules and guidance (albeit limited) on the codification of the economic substance doctrine. The International Swaps and Derivatives Association also released a protocol on new Section 871(l) (redesignated recently as Section 871(m) by H.R. 1586) addressing withholding tax on certain cross-border equity swaps. FATCA withholding and reporting, economic substance, and Section 871(l) were part of new legislation enacted into law in March 2010.

In other news, we report on the revenue raiser in the Small Business Jobs Act that affects the source rules for guarantee fees. We also clarify how the Medicare tax applies to the sale of taxpayer’s principal residence. And in our regular feature, The Classroom, we discuss the U.S. federal income taxation of fixed-to-floaters, specifically, those instruments that pay interest at a single fixed rate followed by a floating rate.

Please see full newsletter below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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