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

A live 90-minute CLE/CPE webinar with interactive Q&A

Tuesday, October 3, 2017 (in 11 days)
1:00pm-2:30pm EDT, 10:00am-11:30am PDT

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?

Learning Objectives

After completing this course, you will be able to:

  • Discern differing tax results between the IRS aggregate approach position and the Tax Court’s entity analysis
  • Recognize the impact on non-U.S. persons using foreign blocker corporations to hold U.S. partnership interests
  • Identify non-U.S. persons who may be adversely affected by the Grecian Magnesite approach
  • Determine steps tax counsel and advisers should take for both existing partnership structures and for non-U.S. persons who have reported taxable gain or loss from sale of U.S. partnership interests within the statute of limitations look-back period


Brian J. O'Connor, Partner
Venable, Baltimore

Mr. O'Connor co-chairs the firm's Tax and Wealth Planning Group and provides tax advice to partnerships and to public and closely held businesses and their owners. Before coming to Venable, he worked as attorney-advisor with the IRS Office of Chief Counsel, assigned to projects and guidance involving partnerships and S corporations.

Friedemann Thomma, Partner
Venable, San Francisco & Los Angeles

Mr. Thomma is Chair of the Firm's International Tax Practice. He focuses on corporate international tax planning and U.S. taxation of foreign operations. He has managed large-scale global structuring projects, including the design, implementation, and post-implementation phases, for companies in various industries and jurisdictions. He has also served as the primary contact for multinational corporate clients, working closely with in-house tax, legal, treasury, and accounting departments to implement international legal and tax restructuring projects and post-M&A-integration projects.

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This program is eligible for 1.5 CPE credits.

  • Field of Study: Taxes.
  • Level of Knowledge: Intermediate.
  • Advance Preparation: None.
  • Teaching Method: Seminar/Lecture.
  • Delivery Method: Group-Internet (via computer).
  • Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of verification codes announced throughout the presentation.
  • Prerequisite: Three years+ business, law or public firm experience at mid-level within the organization, overseeing and structuring U.S. taxpayers' transactions involving foreign partnerships and vice versa; supervisory authority over other attorneys, preparers/accountants. Knowledge and understanding of tax recognition standards for U.S.-sourced and effectively connected income; familiarity with U.S. and foreign partnership structures.

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