Gain on Sales of U.S. Partnership Interests by Foreign Partners After Grecian Magnesite v. Commissioner

Entity vs. Aggregate Approach to Determine if Gain is Effectively Connected U.S. Income

Recording of a 90-minute CLE/CPE webinar with Q&A

Conducted on Tuesday, October 3, 2017

Recorded event now available

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Program Materials

This CLE webinar will provide tax counsel and advisers with a critical first look at the landmark Tax Court holding in Grecian Magnesite Mining v. Commissioner that certain gain realized by a foreign partner on the disposition of a U.S. partnership interest was neither U.S.-sourced nor effectively connected income (ECI) and was thus not taxable. The panel will discuss the import of Grecian Magnesite to foreign partners owning U.S. partnership interests, as well as to taxpayers who recognized taxable gain on prior dispositions.


The Tax Court’s holding in July 2017 in Grecian Magnesite Mining, Industrial & Shipping v. Commissioner has the potential to dramatically change foreign investment in U.S. businesses structured as partnerships or LLCs. The Tax Court held a non-U.S. person’s gain from sale of its interest in a partnership engaged in a U.S. trade or business is not subject to U.S. income tax, except where required by a specific section of the Internal Revenue Code.

The court rejected the IRS 25-year position stated in Rev. Rul. 91-32, that gain realized by a non-U.S. partner on the disposition of a U.S. partnership interest engaged in a U.S. trade or business is ECI to the trade or business if a sale of the partnership’s underlying assets would cause ECI.

The court held whether such gain or loss would be U.S.-sourced as ECI would be determined using an “entity” approach, rather than the “aggregate” approach promulgated by the Service.

This holding has significant tax implications for non-U.S. partners in U.S. entities classified as partnerships. While the IRS may appeal this ruling or signal its non-acquiescence, foreign partners who have paid tax on gain from dispositions of U.S. partnership interests should consider filing claims for refunds before the statute of limitations expires.

Additionally, non-U.S. persons using blocker corporations may consider selling their equity rather than their share in the operating assets of the blocker.

Listen as our experienced panel provides a critical first look at the structuring and reporting impacts of the Grecian Magnesite holding on non-U.S. persons holding U.S. partnership interests.



  1. IRS position: Revenue Ruling 91-32: aggregate approach
  2. Tax Court holding in Grecian Magnesite: entity approach
  3. Remedial actions and tactics for non-U.S. partners paying tax on partnership sale gain
  4. Impact on existing partnership structures


The panel will discuss these and other critical issues:

  • What actions should counsel advise a non-U.S. partner who paid tax on gain within the past three years from a sale of a U.S. partnership based on an aggregate approach to ECI determination?
  • What is the potential impact of Grecian Magnesite's entity approach on domestic and/or foreign blocker corporations investing in U.S. partnerships?
  • Which partnership structures will continue to require the aggregation approach to determining source and ECI of partnership sale gain amounts?
  • What should tax counsel consider for existing partnership structures in light of the Grecian Magnesite holding?


O'Connor, Brian
Brian J. O'Connor


Mr. O'Connor co-chairs the firm's Tax and Wealth Planning Group and provides tax advice to partnerships...  |  Read More

Thomma, Friedemann
Friedemann Thomma


Mr. Thomma is Chair of the Firm's International Tax Practice. He focuses on corporate international tax planning...  |  Read More

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