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Extended Deadline for Foreign Affiliates, Abandoned Stock, Self-Employment Tax

Berdon Tax Team 06.03.2015 | eVisor

International Tax

BEA Extends Deadline for New Filers to June 30

The U.S. Bureau of Economic Analysis (BEA) recently imposed new filing requirements on U.S. persons with foreign affiliates. The BEA is an agency of the U.S. Department of Commerce. In an effort to secure current economic data on foreign affiliates, the BEA has mandated Form BE-10 filings by certain U.S. persons once every five years. These forms were previously only required if a U.S. person was contacted directly by the BEA.

The deadline for most filers was originally May 29. The BEA has now extended the deadline to June 30 for new filers (i.e., filers that have never previously filed a BEA survey for foreign investments). It is not known at this time whether the BEA will permit additional extensions beyond June 30.

Under the new rules, any U.S. person that owns, directly or indirectly, 10% or more of a foreign business enterprise (including a partnership or other unincorporated enterprise) is subject to the reporting requirements. A U.S. person is defined to include individuals, trusts, estates, partnerships, corporations, or other organizations (including private funds) that are resident in, or subject to, U.S. jurisdiction.

Failure to file a Form BE-10 can result in civil penalties of $2,500 to $25,000. In addition, willful failure to file can result in a penalty of $10,000, and, in the case of an individual, possible imprisonment for not more than one year, or both.

For more information about this new filing requirement, click here. 

Questions? Contact your Berdon advisor.

Federal Tax

Abandoned Stock May Be Treated as an Ordinary Loss

In a ruling favorable to taxpayers, the Fifth Circuit Court of Appeals in Pilgrim's Pride 1 held that a taxpayer may realize ordinary losses in a pre-2008 abandonment of stock. This decision overturned a Tax Court ruling that, under Internal Revenue Code Section 1234A, taxpayers must treat a surrender of stock as a loss from a sale of an asset. 

In the Pilgrim's Pride matter, stock originally purchased for $98.6 million received an offer of only $20 million.  Instead of accepting the low offer, the board of directors decided to abandon the securities for no consideration. The Fifth Circuit viewed Section 1234A as applying to a derivative or contractual right with respect to a capital asset and not to the direct ownership of the asset. The Pilgrim's Pride stock was owned directly, so it was held that 1234A did not apply.  

1 Pilgrim's Pride Corp. v. Commissioner, No. 14-60295 (5th Circ., 2015), Doc. 2015-4658

Questions? Contact your Berdon advisor or Saul Brenner at 212.331.7630 | sbrenner@berdonllp.com.

Active Members of an LLC Subject to Self-Employment Tax

The IRS Office of Chief Counsel (OCC) has determined in Chief Counsel Advice 201436049 that active members of an investment management company formed as a limited liability company (LLC) are not limited partners for the purposes of self-employment tax. This means that their net distributive shares of management fee income are subject to self-employment tax.

The OCC determined that the management company received its income from the investment management services of the members.  The income did not result from investments, which Congress sought to exclude from self-employment tax under Internal Revenue Code Section 1402(a)(13).  Under these conditions, the OCC viewed that the members did not qualify for the exclusion and they were subject to self-employment tax on their distributive shares of income.

Questions? Contact your Berdon advisor or Saul Brenner at 212.331.7630 | sbrenner@berdonllp.com