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Obamacare Funding Challenge, Tax Inversions Targeted, Boost For Condos

Berdon Advisors 11.20.2014 | eVisor

Supreme Court to Consider Challenge that Could Defund Obamacare

On November 7, the U.S. Supreme Court agreed to hear a challenge to the subsidies that are fundamental to supporting the Affordable Care Act (ACA).1 The appeal, filed by four residents of Virginia, looks to block subsidies in 36 states that are funded by tax credits.

The plaintiffs argue that the ACA was not intended to provide subsidies to federally-operated exchanges in states that had refused to establish them.  A decision to block these subsidies would be a severe blow to the financial underpinnings of Obamacare that would impact millions of Americans and send shockwaves across the insurance markets.  The Court is expected to decide by June 2015. 

1King v. Burwell, U.S., No. 14-114, cert granted 11/7/14

Treasury Looking to Take Down Tax Inversions

In an inversion, a United States-based multinational replaces its U.S. parent with a foreign parent to minimize or avoid U.S. taxation on some or all profits.  Now, the Treasury Department is taking steps to restrain and eventually eliminate this practice by reducing the economic benefits.

Treasury’s strategy is to keep inverted businesses from accessing the foreign subsidiaries’ overseas earnings without paying U.S. tax.  Among the approaches will beto prevent the use of “hopscotch loans” which involve repatriating foreign earnings by having controlled foreign corporations make loans to their new foreign parent, instead of the U.S. parent.  

Treasury will also act to prevent a decontrolling strategy where the new foreign parent buys enough stock in the controlled foreign corporation to take control away from the former U.S. parent. This gives the foreign parent access to the deferred earnings of the foreign subsidiary without paying tax. These rules apply to deals closed on September 22, 2014 and thereafter.

ILSA Requirement Abolished for Condo Developers

President Obama gave condominium developers a boost by signing an amendment exempting them from the demands of the Interstate Land Sales Full Disclosure Act of 1968 (ILSA).

Developers of new condos or time-shares with at least 99 units will no longer have to register their buildings with the U.S. Department of Housing and Urban Development.  Compliance with ILSA had been both time-consuming and costly for condo developers — requiring detailed disclosures to buyers and unpopular contract provisions.

ILSA  was rarely used until the real estate crisis of the Great Recession when it was employed by condo buyers to terminate purchase contracts and recieve a refund of their deposits.  While ILSA was designed as an anti-fraud measure, consumers are still protected by numerous other offering plan requirements.

Expats Squeezed by the Demands of FATCA

The Federal government’s aggressive crackdown on overseas tax evaders and money launderers is putting a financial and emotional strain on thousands of individual U.S. expatriates. Reacting to the strict requirements of the Foreign Account Tax Compliance Act (FATCA), financial institutions and brokerage houses have closed the accounts of some expats. A survey by Democrats Abroad, ”FATCA: Affecting Everyday Americans Every Day” , reveals other expat issues, among them:

  • Strained Personal Relationships: Spousal and partner relationships have been damaged  stemming from the need to reorganize finances and reluctance to have joint accounts.
  • Negative Impact on Career Path:  New reporting demands have impacted an expat’s ability to start a new business and advance within their employer’s organization. Employees may also be reluctant to take overseas assignments.
  • Curbed Investment/Retirement Planning: Expats have become gun-shy when looking at investment and retirement planning options for fear of violating FACTA and Foreign Bank and Financial Account Report (FBAR) rules.

Out of frustration, some expats have or are considering renouncing their U.S. citizenship.

Questions? Contact your Berdon advisor or Saul Brenner at 212.331.7630 |