Section 892 Income Tax Exemption for Sovereign Wealth Funds

Leveraging New Regulations to Avoid Taxation for Commercial Activities

Recording of a 110-minute premium CLE/CPE webinar with Q&A

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Conducted on Tuesday, May 1, 2012

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Course Materials

This teleconference will provide tax law advisors with a review of pending tax rule changes affecting sovereign wealth funds and other foreign-controlled entities seeking private U.S. investments that won't endanger federal income tax exemption. The panel will offer approaches to avoid exemption-spoiling classifications.

Description

Foreign governments receiving U.S. source income may qualify for an exemption from federal income tax under IRC Sec. 892. However, the privilege is spoiled when income derives from commercial activity, which has been applied in an "all or nothing" manner, triggering tax for the slightest or inadvertent activity.

The U.S. Treasury and IRS recently introduced changes that would ease the harshness of the commercial activity limitation for sovereign wealth funds and similar entities and announced that the proposed changes may be relied upon.

The changes offer a different approach to commercial activity that clarifies activities by a foreign government and its investment entity that will result in U.S. tax bills. This creates new planning opportunities for counsel to sovereign wealth funds.

Listen as our panel of tax practitioners discusses the investment planning changes for sovereign wealth funds and other entities under the revised approach to the commercial activity limitation under the Sec. 892 federal income tax exemption. The panel will analyze the specific rule changes and offer approaches for leveraging the opportunities presented.

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Outline

  1. Sovereign wealth funds and the IRC Sec. 892 tax exemption
    1. Commercial activity limitation
    2. "All or nothing" approach
    3. Problems created for sovereign wealth funds under the traditional approach
  2. Proposed rule changes
    1. No partnership attribution to limited partners
    2. Investing/trading in financial instruments
    3. Inadvertent commercial activity
    4. Partnership
    5. Disposition of interests in U.S. real property
    6. Annual determination of controlled commercial entity status
  3. Leveraging the proposed rule changes

Benefits

The panel will review these and other key questions:

  • What kinds of commercial activity have traditionally triggered disqualification for Sec. 892 tax exemption and what has changed?
  • What is the status of the "all or nothing" rule following the proposed regulations?
  • How can sovereign wealth funds and other entities leverage the revised approach to determine whether the tax exemption applies?

Following the speaker presentations, you'll have an opportunity to get answers to your specific questions during the interactive Q&A.

Faculty

John T. Lillis
John T. Lillis
Partner
White & Case

He works on a broad range of transactions regarding tax issues, including investment fund formation and joint ventures...  |  Read More

Jeremy Naylor
Jeremy Naylor
Partner
White & Case

He is assigned to the firm's Tax Department and Investment Funds Group. His client work addresses domestic and...  |  Read More

Peter Ritter
Peter Ritter
Partner
O'Melveny & Myers

His practice covers a broad range of federal income tax matters, with a focus on the tax aspects of capital markets...  |  Read More

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