I INTRODUCTION

Foreign persons investing in the United States have great flexibility in determining the form and taxation of their investments. However, foreign investors should note that an investment in the United States may be subject to administrative, filing and tax requirements at the state and federal levels. At the federal level, US tax can be imposed on a ‘net’ basis on US business income (using available deductions, etc.) and on a ‘gross’ withholding basis on investment income.

II COMMON FORMS OF BUSINESS ORGANISATION AND THEIR TAX TREATMENT

Foreign persons have several options with respect to the organisational form through which they conduct business in the United States (e.g., corporation formed under state law, general or limited partnership, or limited liability company). A foreign person can conduct business in the United States through either a US entity or foreign entity. However, from a tax perspective, regardless of the form chosen, the vehicle used generally will be considered either a corporation taxed at the entity level, with additional potential tax to the entity’s owner when funds are distributed; or a flow-through entity (e.g., partnerships) not subject to an entity-level tax, but with tax imposed directly at the owner (partner) level. Flow-through entities also can include entities treated as ‘branches’ for US tax purposes. The United States has far-reaching entity classification rules, the ‘check-the-box’ rules, which provide the ability in many cases to elect entity status as a corporation, partnership, etc.2

i Corporate

As a matter of corporate law, non-US investors may choose to invest in the United States either through a ‘regular’ corporation (a body corporate for state law purposes), or through a limited liability company or other entity, such as a partnership. For US federal income tax purposes, a regular corporation is subject to US tax at the corporate level. A special class of corporation that provides for ‘flow-through’ treatment (no entity-level tax) to investors, the ‘S’ corporation, is not available to non-US investors. With respect to other forms, such as LLCs, US tax rules generally permit the entity to elect to be taxed as a corporation or a flow-through entity. Other special types of investment entities, such as real estate investment trusts, generally have the status of a regular corporation and are subject to tax at the corporate level to the extent their earnings are not distributed.

Inbound businesses are often operated through a regular domestic corporation, or an entity formed in the United States that has elected to be taxed as a corporation. Operating through a domestic corporation offers a relatively simplified filing regime, in which the corporation files its tax return on IRS Form 1120, just like a domestic-owned corporation. If a single non-US investor owns 25 per cent of the voting power or value of the domestic corporation, certain additional filing requirements apply. In general, however, many investors prefer the relative anonymity and simplicity that this filing regime provides, as opposed to the filing requirements that apply if a US trade or business is conducted directly through a branch or flow-through entity. Operations through a domestic corporation also insulate a foreign corporate investor from the complex ‘branch profits’ tax (discussed below) applicable to non-corporate forms of business. There can, however, be US withholding on dividend distributions by the corporation.

ii Non-corporate

A non-US person wishing to invest in or operate a business in the United States may choose to do so through a pass-through entity (i.e., an entity not taxed at the entity level) that flows through the results of its operations to its owners. Generally, an entity with a single owner can be treated as ‘disregarded’ from its owner (that is, treated as a branch or division of its owner) or as a corporation, and an entity with multiple owners can be treated as a partnership or as a corporation. Regulations set forth general default classifications of single owner and multiple owner entities, with additional rules that generally permit the entity to adopt or change its classification, subject to certain limitations.3

Non-US partners that engage in a US trade or business through an entity treated as a partnership are treated as if they engage in a US trade or business directly, and generally are subject to US tax on their share of partnership income (regardless of whether distributed) at the same rates applicable to US partners. Generally, the partnership is obligated to withhold and pay over tax on the non-US partner’s distributive share of net business income at the maximum tax rate applicable to such person, and the non-US partner must file a tax return in the United States reporting such income and claiming credit for such withheld tax.4 As discussed below, this is one of the few areas where a US withholding tax is imposed on US business income (as opposed to US investment income).

Certain industries, such as the banking industry, typically operate directly in the United States through a branch. The United States taxes the branch on all income that is effectively connected with its US trade or business, and, in certain cases, applies special rules in computing the tax base.5 Transfers of ‘dividend equivalent amounts’ from the US branch back to the non-US home office trigger a 30 per cent branch profits tax, which may be reduced by treaty.6 The policy of the branch profits tax is to establish ‘branch–subsidiary parity’. The notion is that the United States should tax outbound remittances equally, whether they emanate from a US branch (including a partnership’s US operations) or a US corporation. Private equity investments will often be made through a pass-through entity such as a partnership, with non-US investors owning their partnership investment through a foreign or US corporate ‘blocker’ to avoid these complex rules.

III DIRECT TAXATION OF BUSINESSES

i Tax on profits
Determination of taxable profit

The United States imposes tax on ‘taxable income’, which is defined as ‘gross income’ less allowable deductions.7 Gross income is defined as gross revenues (receipts) less costs of goods sold. Allowable deductions include those for expenses that are ordinary and necessary to the conduct of the trade or business, such as salary and rental expenses of the business.8 Other expenses that may be deducted include interest expenses, depreciation and amortisation, state and local income taxes and real estate taxes, certain losses and worthless bad debts.9 A non-US person engaged in business in the United States is generally entitled to the same wide range of deductions as a US person.

Among the expenses that are non-deductible are excess interest paid to related parties (discussed further below), certain excessive employee remuneration, ‘golden parachute payments’ made to executives in connection with a corporate change in control and expenses related to the production of tax-exempt income.10

Taxable income is not based on accounting profits, but instead on the method required by the US Tax Code and applicable Treasury regulations. US corporations with assets above a certain threshold are required to reconcile their book and tax income on a separate schedule attached to their tax return.

Generally, taxpayers must compute their taxable income using the method of accounting that the taxpayer uses to compute book income.11 These methods could include the cash receipts method, the accrual method or any other permitted method. If the US Internal Revenue Service (IRS) successfully determines that the taxpayer’s method does not ‘clearly reflect’ its actual income, it may require the taxpayer to use another method. Once a taxpayer adopts a method of accounting, it generally must obtain the consent of the IRS to change its method.

US corporations and US citizens and residents are taxed on worldwide income, with deferral allowed for certain active income earned abroad by a non-US subsidiary. The United States generally grants a ‘credit’ for certain non-US income taxes incurred by US taxpayers (foreign tax credit).12

Non-US taxpayers generally are taxed only on income that is effectively connected with a US trade or business (which generally includes US-sourced income and very limited types of foreign-source income), and on US-sourced income that is passive income, such as interest, dividends, rents and royalties. Non-US persons also may generally claim a foreign tax credit for non-US income taxes paid on income that is considered effectively connected with a US trade or business (other than taxes paid to their country of residence).13

Capital and income

In general, for US corporate taxpayers there is no difference in the rate of tax applied to ordinary business income as opposed to capital gains. As discussed below, non-US persons generally are not subject to US tax on capital gains (the main exception being gains related to certain US real property and gains realised in connection with a US trade or business).

Losses

A US net operating loss (NOL) can generally be carried back two years and forward 20 years.14 On occasion, Congress grants an exception, such as for certain small businesses, which allows for a longer carry-back period.15 The deduction of losses is limited following certain types of ownership changes.16 An ownership change is generally deemed to occur if there is a change in the stock ownership of a corporation aggregating to more than 50 percentage points over a three-year period. In such a case, the amount of ‘pre-change’ NOLs that may be deducted in each future year is generally limited to an amount of income each year equal to the value of the target corporation immediately before the ownership change multiplied by the long-term tax-exempt rate of interest published by the IRS for the month of the ownership change.

A capital loss can only offset capital gains.17 Excess capital losses may be carried back three years and forward five years.18 Because of the shorter carry-forward period for capital losses, taxpayers may seek to accelerate a capital gain to ensure that the capital loss does not expire unused.

Non-US corporations conducting a trade or business in the United States through a branch or other fiscally transparent entity must file an appropriate and timely tax return in the United States reporting any deductions or losses to preserve their ability to use any deductions or losses in future years.19

Rates

The corporate income tax rate is graduated:20

Taxable income

Rate (per cent)

Up to $50,000

15

$50,001–$75,000

25

$75,001–$100,000

34

$100,001–$335,000

39

$335,001–$10 million

34

$10,000,001–$15 million

35

$15,000,001–$18,333,333

38

Over $18,333,333

35

As previously indicated, these corporate rates generally apply to both ordinary income and capital gains. Corporations are also subject to alternative minimum tax (AMT) to the extent that tax exceeds the regular corporate tax.21 The AMT base is broader than the regular corporate tax base (typically excluding certain deductions and credits), but the rate of tax is lower.22 AMT taxable income above a $40,000 exemption is taxed at a rate of 20 per cent, but the exemption amount is phased out for corporations with AMT taxable income in excess of $150,000, with the exemption amount fully phased out at AMT taxable income equal to $310,000. The amount by which the AMT exceeds the corporation’s regular income tax is imposed as an additional tax.

The rate of US withholding tax for outbound payments of US-sourced passive ‘investment’ income such as dividends, interest, rents and royalties is generally 30 per cent.23 This rate is subject to reduction or elimination pursuant to an income tax treaty between the United States and the recipient’s country of residence. If withholding does not properly occur, the foreign recipient of the payment must file a US tax return and pay the appropriate tax. Similarly, as discussed above, branch profits tax, if applicable, is also imposed at a rate of 30 per cent, and is subject to reduction or elimination by treaty.24

Administration

A US corporation must generally file its income tax return on or before the 15th day of the third month following the end of its taxable year, although an automatic six-month extension is available and typically taken.25 As a result, a calendar year corporation usually files its returns by the following 15 September. A foreign corporation required to file a US income tax return with respect to its conduct of, for example, a US trade or business is required to file its income tax return on or before the 15th day of the sixth month following the end of its taxable year, although an automatic six-month extension is available.26 The tax owed for the year must be paid on or before the due date of the tax return (without extensions). Further, corporations must make estimated tax payments on a quarterly basis during the year, generally in an amount each equal to 25 per cent of the required annual payment.27 Special provisions apply to corporations with assets of $1 billion or more. The total quarterly payments must equal at least the lesser of (1) 100 per cent of the tax shown on the final return for the current year or (2) 100 per cent of the tax shown on the final return for the immediately preceding taxable year. Penalties apply if the estimated tax payments are less than these safe harbour amounts. For corporations with taxable income of at least $1 million during any of the three preceding taxable years, the required annual payment must equal 100 per cent of the current year’s tax liability; that is, the preceding year’s safe harbour in point (2) above cannot be used.

The most significant taxing authority for non-US taxpayers is the IRS, a division of the US Treasury Department.28 States and local jurisdictions, such as counties and cities, may impose additional taxes.

In general, there is no regular audit cycle. Special audit regimes may apply. For example, certain eligible taxpayers may be part of the compliance assurance process (CAP), which allows compliant taxpayers to resolve certain issues on an expedited basis, with the taxpayer and the IRS agreeing to the treatment of items by the time the tax return is filed, or shortly thereafter. The IRS expanded the CAP programme in 2011 to include pre-CAP (readying taxpayers to enter the CAP programme) and post-CAP (a maintenance stage for taxpayers with a low-compliance risk and low controversy rate) stages of the process. Certain large corporations may also be under continuous audit. Although no specific length of time is used for audit cycles, US corporations, for example, are typically audited for two to four taxable years at any one time.

Before a transaction is undertaken, taxpayers may seek private letter rulings from the IRS when there is uncertainty regarding the treatment of the transaction or an item of income. Each year, the IRS publishes a revenue procedure that details the steps to be taken in requesting a private letter ruling; the revenue procedure also describes those areas in which the IRS normally will not issue a private letter ruling. This general guidance is set forth in the first revenue procedure for the year.29 In addition, the seventh revenue procedure of each year30 discusses certain international issues regarding which the IRS will not, or ordinarily will not, issue a private letter ruling. Other forms of administrative filings for rulings are available. Among the most noteworthy are the ‘pre-filing agreement’ with the IRS, and an ‘advance pricing agreement’ (APA) for transfer pricing issues with the ‘advance pricing and mutual agreement’ programme, which was formed from the recent combination of the APA Office and certain functions of the US competent authority.

If a taxpayer wishes to challenge a published IRS position on the treatment of an item, the taxpayer can minimise penalties (in the event that it ultimately fails in its challenge) by disclosing on its tax return that it is taking a position contrary to IRS guidance.31 If the IRS specifically challenges a taxpayer’s position on a tax return, the taxpayer generally has the opportunity to make an administrative appeal of the IRS determination. If the taxpayer does not succeed in its appeal, it may either file a petition in Tax Court (which does not require the taxpayer to pay the asserted deficiency), or it may pay the asserted deficiency and file a suit for refund in either a US federal district court or with the US Court of Federal Claims.

In addition, in certain cases where the IRS has proposed adjustments that result in a taxpayer being subject to double taxation or that should appropriately give rise to a correlative adjustment for a related person in a foreign country, the taxpayer may invoke the mutual agreement procedure of an applicable US tax treaty to attempt to resolve the issue.

Tax grouping

An affiliated group of US corporations may elect to file a consolidated income tax return.32 Non-US corporations generally are not ‘includible members’ in an affiliated group (with exceptions for certain Canadian and Mexican corporations), and therefore are not included in the consolidated group.33 The stock ownership requirements for an affiliated group are that the common parent must directly own at least 80 per cent of the stock (by vote and value) of at least one subsidiary in the group, and each other subsidiary in the group must be at least 80 per cent directly owned (by vote and value) by one or more of the other members of the group. An election made by the common parent to file a consolidated return applies to all corporations for which the ownership requirements are met. The common parent files the US tax return for the consolidated group.34

Under the theory that a consolidated group is a unified entity, assets, losses, dividends and interest can generally move within a group without current tax cost.35 The consolidated group rules focus, however, on an item of income’s location, and therefore intercompany transactions will ultimately trigger tax when the item is no longer capable of being reflected in the consolidated group. Income and losses of a group member generally give rise to adjustments in the stock of that member held by other members.36

In general, a consolidated group determines its income tax liability by computing the separate taxable income of each member as if it were filing a separate return, but excluding income and deductions that are determined on a group basis; and computing income and deductions on a group basis, such as the NOL deduction.37 Credits, determined on a group basis, may be available to offset the consolidated income tax liability. Each member of the group is jointly and severally liable for the total tax liability of the entire group.38

Losses incurred by a corporation while it is a member of the group are available to offset another member’s income. Losses incurred before a corporation joins a consolidated group are subject to ‘separate return limitation year’ rules, generally permitting use of such losses only to the extent of the corporation’s contribution to the consolidated group’s positive net income. Special limitations also apply to ‘dual consolidated losses’, generally defined as an NOL of a domestic corporation (or component thereof) that is also subject to tax in a foreign country.39 Thus, for example, a US corporation tax resident in the United Kingdom generally cannot offset its NOL against another member’s income unless it elects to use the loss only in the United States. If such an election is made, the loss could be used in the United Kingdom after five years, provided that UK law permits the loss to be claimed.

ii Other relevant taxes

The United States does not impose a VAT or sales tax at the federal level, although many states, counties and cities do impose a sales tax on the sale of goods. The United States also does not impose stamp duty, capital duties, registration taxes or net wealth taxes. US employers have payroll tax obligations, including paying obligations for US social security and Medicare taxes and withholding from employee wages.40 The United States has considered a federal VAT (or similar tax) from time to time, either as an additional tax or as a replacement for income tax. So far, however, no such tax has been enacted.

IV TAX RESIDENCE AND FISCAL DOMICILE

i Corporate residence

The United States does not generally employ the concept of corporate ‘residency’ based on the seat of management. Instead, how a corporation is taxed is generally based on its place of incorporation, and not where it is managed or controlled. In some circumstances, a non-US corporation can elect to be treated as a US corporation,41 or in some cases generally designed to prevent a perceived abuse, a foreign corporation may be deemed to be a US corporation.42

In recent years, certain members of Congress have periodically proposed legislation that would define a corporation’s residency for US tax purposes based on where it is managed and controlled. This legislation, if ever enacted, would represent a significant change in the US tax treatment of both US and non-US corporations. In addition, the prior Obama administration enacted changes to the corporate residence rules that significantly expanded the scope of existing anti-abuse provisions, which potentially cause non-US-incorporated entities to be treated as US corporations for tax purposes, in particular when such non-US-incorporated entities have engaged in cross-border business combination transactions with US corporations.

ii Branch or permanent establishment

If a non-US person conducts sufficient activities in the United States, it will be ‘engaged in a US trade or business’, and income that is ‘effectively connected’ to such business generally is subject to net basis tax.43 The threshold of activities needed to constitute a US trade or business is not precisely defined, but factors derived from case law include whether there are ‘regular and continuous’ activities within the United States, including through employees or agents. To secure greater tax parity between a US subsidiary and a US branch, a 30 per cent ‘branch profits’ tax may apply when the US branch makes distributions (or is deemed to make distributions) to its home office.44 This is the same rate of US withholding tax that applies to dividend distributions by US corporations. Just as US tax treaties may reduce withholding tax on corporate distributions, so do they provide for a common, reduced rate of withholding that applies to branch remittances. Some US treaties even provide for the complete elimination of branch profits tax. The United States no longer imposes a ‘secondary’ withholding tax on dividends paid by a non-US corporation.

If the non-US entity is a resident of a jurisdiction with which the United States has an income tax treaty, the entity will generally become subject to tax on its ‘business profits’ that are attributable to a US permanent establishment (PE) maintained by the non-US entity. The PE standard generally requires a non-US entity to have a greater nexus with the United States than is required to be considered ‘engaged in a US trade or business’. The relevant treaty and domestic law provide rules regarding the definition of a PE and, if a PE exists, the amount of income and expenses that are attributable to that PE and subject to US tax. The rules for attributing income and capital to a PE are generally based on OECD standards, and may result in differing amounts of income and deduction than under the US rules that apply in determining the non-US entity’s effectively connected income. US tax treaties generally require a non-US entity to consistently apply either the PE rules or the US effectively connected rules in determining its income subject to US tax.

V TAX INCENTIVES, SPECIAL REGIMES AND RELIEF THAT MAY ENCOURAGE INWARD INVESTMENT

i Holding company regimes

The United States does not have a specific holding company regime, participation exemption or exemptions for receipt of non-US income (e.g., a ‘territorial’ tax system, although one has been considered). Potential double taxation is generally addressed with respect to non-US income paid to a US person or branch of a non-US corporation through the US foreign tax credit regime and the relief from double taxation articles of US tax treaties.

Importantly, unlike some other countries, the United States does not generally impose any tax on the sale of capital assets (such as stock) by non-US persons. One key exception to the general rule relates to the sale of certain ‘US real property interests’ (USRPI),45 which may require the purchaser to withhold 10 per cent of the consideration paid for the property.46 No withholding is required if the non-US person transfers stock in a non-US corporation that holds the USRPI. Other important exceptions relate to deferred payments for property or services, and the sale of assets that are used (or within the prior 10 years were used) in a US trade or business (e.g., depreciable assets).47 Generally, the US taxation of such income or gain from such payments or sales is determined based on the facts existing when the property or service was provided, without regard to whether the non-US entity is engaged in a US trade or business in the taxable year the income or gain is received. The United States does not impose a withholding tax on ‘portfolio interest’, discussed further below.

ii IP regimes

Research and development (R&D) expenses may be deducted in the year incurred or amortised over five years.48 The United States provides a 20 per cent R&D credit for expenses that exceed a base amount determined by reference to a percentage of the taxpayer’s average annual gross receipts for the preceding three taxable years.49 This provision is temporary but is frequently extended. At the time of writing, it has expired for amounts paid or incurred on or after 1 January 2015, but legislation to renew or permanently extend such credit has been proposed. Nevertheless, current tax reform efforts may inhibit further temporary extensions of this credit.

iii State aid

A taxpayer may deduct certain income attributable to ‘qualified domestic production activities’.50 These activities include certain income derived from:

  • a property that was manufactured, produced, grown or extracted by the taxpayer in whole or in significant part within the United States;
  • b qualified films produced by the taxpayer;
  • c electricity, natural gas or potable water produced by the taxpayer in the United States;
  • d construction activities performed in the United States; or
  • e engineering or architectural services performed in the United States for construction projects located in the United States.

The deduction equals 9 per cent of the lesser of the taxpayer’s income from qualified production activities or the taxpayer’s taxable income, but in either case is limited to 50 per cent of the wages the taxpayer pays during the year that are properly allocable to domestic production gross receipts. For taxpayers with income from oil-related production activities, the deduction is generally capped at 6 per cent.

iv General

Certain tax credits (particularly for renewable energy) and accelerated depreciation deductions can reduce the tax cost of running a US business.51 Additionally, states and local jurisdictions may have investment incentives.

The relatively extensive advance pricing and mutual agreement programme (discussed further below), which can include ‘bilateral’ agreements with other taxing jurisdictions, may help minimise tax controversy for an inbound investor. Investors also benefit from the fact that the United States does not generally impose any tax on the sale of capital assets by non-US persons, unless the asset is a ‘US real property interest’.52

VI WITHHOLDING AND TAXATION OF NON-LOCAL SOURCE INCOME STREAMS

i Withholding on outward-bound payments (domestic law)

A US person must generally withhold 30 per cent of the gross amount of certain US ‘investment’ income paid to non-US persons, such as dividends, interest and royalties, and certain dividend equivalent amounts.53 This statutory rate, however, can be reduced or eliminated by an applicable bilateral treaty. Many US bilateral treaties reduce the withholding tax rates on interest or royalties to zero. A recent treaty trend has been to reduce the withholding tax on certain dividend distributions to zero if certain ownership and holding period requirements are met. In certain cases, the US tax rules treat certain payments or distributions by foreign persons (e.g., a foreign partnership) as US-sourced income subject to withholding.54

ii Domestic law exclusions or exemptions from withholding on outward-bound payments

A portfolio interest exception applies to eliminate US withholding tax on certain interest payments to non-US corporations and individuals.55 This exception is fairly broad and operates as a matter of domestic US tax law, regardless of the application of any bilateral treaty. The interest recipient must establish its ability to claim the exception by providing documentation to the payer. The exception does not apply to:

  • a interest paid to a 10 per cent shareholder of the payer and certain other related persons;
  • b interest paid to a controlled foreign corporation (CFC) that is a related person;
  • c payments to certain foreign banks;
  • d payments on non-registered instruments (i.e., bearer bonds); and
  • e contingent interest (i.e., dependent on metrics related to sales, profits, etc.).

In limited circumstances, a foreign person receiving an interest or dividend payment may be exempt from withholding when it receives the payment from a domestic corporation with a significant portion of its gross income from non-US sources.56 A recent statutory change eliminated these rules in most cases.

Outside of the treaty context, or unless the recipient is a non-US sovereign, the United States does not have exemptions from withholding on outbound dividend or royalty payments. Certain income of non-US sovereigns is exempt from US federal income tax, including income received from investments in the United States of stocks and bonds or other US securities, and income from financial investments held in the execution of governmental, financial or monetary policy.57 The exemption does not apply to income derived from a commercial activity, any income received by or from a controlled commercial entity, or income from the disposition of an interest in such entity.58

iii Double tax treaties

The United States has approximately 60 income tax treaties covering 68 countries. The treaty network is most extensive in Europe, is expanding in Asia (e.g., negotiations are ongoing with Vietnam), and is limited in South America and Africa. Generally, these income tax treaties reduce the US withholding tax on dividends, interest and royalty payments to residents of a treaty country, provided that the beneficial owner is a resident of the treaty country and meets the anti-treaty shopping provision (i.e., the limitation on benefits (LOB) provision) of the applicable treaty. The current negotiating position of the United States is reflected in its 2016 model income tax convention, which contains certain significant changes from the prior 2006 model income tax convention. The changes generally deny treaty benefits on payments by expatriated entities (generally, US companies that have engaged in an ‘inversion’ transaction), where income is subject to a special tax regime in the country of receipt and where a country reduces its tax rates below a certain threshold. The United States typically uses its own US model treaty rather than, for example, the OECD model, as the starting point for negotiations.

With respect to dividends, the US position is generally to provide for a maximum of 5 per cent withholding if the shareholder holds 10 per cent or more of the US resident corporation, and 15 per cent in all other cases. In an increasing number of US treaties, the United States has agreed to forgo withholding on dividends if the shareholder holds 80 per cent or more of the US tax-resident corporation. This elimination of US dividend withholding tax typically requires updated LOB and exchange of information provisions.

With respect to interest and royalty payments, the general US position is to eliminate withholding.

The table at Appendix I, below, summarises the withholding rates applicable to dividend, interest and royalty payments under the double taxation treaties concluded by the United States.

iv Taxation on receipt

The United States permits US corporations to credit foreign income taxes (or taxes imposed in lieu of a foreign income tax) against the US tax liability on non-US dividends and other income flows.59 In general, many non-US withholding taxes are creditable in the United States provided that certain requirements (such as a minimum holding period) are met. If a US corporation owns at least 10 per cent of the total voting power of a foreign corporation’s stock, the US corporation may claim a ‘deemed paid’ credit for foreign taxes that the foreign corporation actually paid on its income, once the US corporation receives a dividend (or is deemed to receive a distribution under the US anti-deferral regime) from the foreign corporation.60 If a US corporation claims a deemed paid credit, it must also increase its income in the year the dividend is received by the amount of the foreign taxes deemed paid, whether or not the US corporation, after application of various limitation provisions, is able to use the credit to reduce its US tax liability.61

v Foreign Account Tax Compliance Act (FATCA)

FATCA is a complex reporting regime intended to encourage US persons to report ownership of offshore accounts; however, the provisions affect, inter alia, non-US entities and financial institutions receiving payments from US sources, directly or indirectly. Under FATCA, withholding at a rate of 30 per cent would apply to certain payments to (or through) certain financial institutions (including investment funds), unless such institution:

  • a enters into, and complies with, an agreement with the IRS to report, on an annual basis, information with respect to interests in, and accounts maintained by, the institution that are owned by certain US persons or by certain non-US entities that are wholly or partially owned by US persons and to withhold on certain payments;
  • b if required under an intergovernmental agreement between the United States and an applicable foreign country, reports such information to its local tax authority, which will exchange such information with the US authorities; or
  • c otherwise qualifies for an exemption.

Similarly, certain amounts payable to a non-financial non-US entity generally will be subject to withholding at a rate of 30 per cent, unless such entity certifies that it does not have any ‘substantial United States owners’, provides certain information regarding the entity’s ‘substantial United States owners’ or otherwise qualifies for an exemption. The Treasury Department has entered into agreements for the implementation of FATCA with the competent authorities of other countries, including Canada, France, Germany, Italy, Japan, Spain, Switzerland and the United Kingdom, which agreements modify certain of these provisions.

VII TAXATION OF FUNDING STRUCTURES

Entities may be funded with capital contributions or with debt funding, but there must be some member with an equity interest in the entity. The US tax rules generally permit a deduction for interest payments made on indebtedness,62 but do not permit a deduction (or deem a deduction) on capital infused in an entity in exchange for equity. Regardless of the entity’s form, contributions of cash or property when forming an entity are generally tax free for the contributor and the receiving entity.

i Characterisation of funding as debt or equity

The characterisation of an instrument as debt or equity for US federal income tax purposes generally depends on all the surrounding facts and circumstances. Because the US Tax Code does not contain a single defined set of standards for purposes of distinguishing between debt and equity, taxpayers generally rely on case law and certain published pronouncements of the IRS to guide them in making general debt–equity determinations. Courts and the IRS have articulated certain factors that are relevant in determining whether an investment, analysed in terms of its economic characteristics, constitutes risk capital largely subject to the performance of the issuer’s business (thus making the investment more like equity) or, alternatively, exhibits the characteristics of a bona fide loan that is expected, or may be compelled, to be repaid in full (thus making the instrument more like debt).

In an effort to discourage ‘earnings stripping’ out of the United States, on 13 October 2016 the US Treasury Department and the IRS issued final and temporary Treasury regulations under Section 385 of the Internal Revenue Code that materially impact the treatment of certain related-party debt issued by issuers that are domestic corporations (including disregarded entities and certain partnerships owned by domestic corporations).63 These new regulations generally operate to convert certain instruments that are otherwise classified as indebtedness for US federal income tax purposes into equity (and thus convert interest and principal payments on such debt as distributions on equity). The new regulations generally apply to convert into equity debt instruments issued by domestic corporations (including disregarded entities and certain partnerships owned by domestic corporations) to certain related parties (such as a non-US parent corporation or a non-US finance entity that is directly or indirectly owned by the same parent corporation that owns the domestic issuer) if:

  • a such instruments are issued without satisfying certain documentation requirements;
  • b such instruments are issued in certain prohibited transactions, such as a distribution of the instrument to a related party; or
  • c if the issuer of such instrument engages in certain prohibited transactions, such as a distribution of property to a related person that is funded by or occurs within three years before or after the issuance of such instrument.

The Trump administration is considering whether to modify or eliminate these regulations. The decision may turn, in part, on whether and how the US federal income tax reform is implemented, which, at the time of writing, is under consideration by the US Congress.

ii Thin capitalisation

Deductions for interest on debt held or guaranteed by certain related foreign entities that are not subject to US tax (or are subject to a reduced US treaty withholding rate) may be limited. If the debtor corporation has a debt-to-equity ratio in excess of 1.5:1 (generally computed on an amortising cost rather than fair market value basis), then ‘net interest expense’ on certain debt is deductible only to the extent of 50 per cent of a special ‘adjusted taxable income’ base (determined without regard to depreciation, interest expense and net operating loss carry-overs, i.e., essentially net cash flow).64 The excess interest expense that this rule disallows, however, generally will be carried forward indefinitely to subsequent tax years until used.

In recent years, certain members of Congress have proposed legislation that would place further restrictions on the deductibility of interest paid by a US corporation on debt held or guaranteed by certain related non-US entities, by, inter alia, reducing the 50 per cent limitation, eliminating the 1.5:1 debt-to-equity safe harbour, and restricting the carry forward of excess interest and excess limitation.

iii Deduction of finance costs

Interest deductions may be limited if the interest is:

  • a paid with respect to certain acquisition indebtedness that is subordinated and convertible into equity, and the issuer’s debt-to-equity ratio exceeds two-to-one, or projected earnings do not exceed three times the interest on the acquisition debt;65
  • b paid on certain high-yield obligations;66
  • c payable either in cash or equity of the issuer (or a related party);67 or
  • d related to tax-exempt income (e.g., debt incurred to acquire tax-exempt securities).68

Finance costs may generally be deducted by a US debtor, although certain rules may require that these costs be capitalised if related to inventory property or deducted over the term of the financing.

iv Restrictions on payments

The ability to pay dividends is governed by state, not US federal, law. Many states, such as Delaware, do not impose burdensome restrictions on the ability to pay dividends. In general, a corporation needs either ‘surplus’ or net profits from the fiscal year in which the dividend is paid (in the latter case, provided that capital represented by outstanding stock of classes having a preference upon the distribution of assets is not impaired).69 It is important to note, however, that the definitions of ‘dividend’ for state law and US federal income tax law are not coterminous. For example, a distribution could constitute a dividend under state law because it is paid out of ‘surplus’, while it may not constitute a taxable dividend for US federal income tax purposes because the corporation has no ‘earnings and profits’ (a tax concept that roughly corresponds with taxable income, plus adjustments).70

v Return of capital

Distributions are treated first as taxable ‘dividends’ to the extent the distributing corporation has ‘earnings and profits’; distributions beyond this amount are tax-free ‘return of capital’ distributions; any distribution amounts greater than a taxpayer’s capital are treated as capital gain (generally not taxable for a non-US person).71

VIII ACQUISITION STRUCTURES, RESTRUCTURING AND EXIT CHARGES

i Acquisition

Taxable acquisitions of US corporations are frequently structured as cash mergers, whereby a non-US acquiring corporation funds a transitory US merger subsidiary with equity and debt, after which the merger subsidiary merges with and into the US target corporation, with the latter surviving. The acquisition debt resides with the US target corporation after the transaction, providing a means to reduce the US tax base.

Generally, there is no US withholding tax when a non-US corporation acquires a US corporation. However, if the US corporation is a ‘US real property holding corporation’, then the acquiring corporation generally would be obligated to withhold 10 per cent of the consideration paid to any non-US sellers.72

ii Reorganisation

The United States has very flexible rules that permit merging and demerging (or ‘spinning off’) corporations on a tax-free basis.73 Mergers, stock combinations or asset acquisitions generally can be implemented on a tax-free basis within the United States. If a non-US entity acquires the stock or assets of a US corporation, there are several requirements that must be satisfied. These rules are focused on preventing an ‘inversion’, whereby a US corporation moves to a non-US jurisdiction with substantial continuity of its existing shareholder base, and, somewhat related, the loss of US taxing jurisdiction over corporate assets. If a transaction violates anti-inversion rules, the US shareholders or the US target could be subject to tax or, in certain cases, the non-US acquiring corporation could actually be treated as a US corporation for all US federal income tax purposes.74 Generally, foreign-to-foreign reorganisations do not give rise to US tax, except in certain cases where there is significant (i.e., controlling) US ownership of the acquired or target foreign corporation before but not after the transaction.75

iii Exit

Relocating outside the United States is an issue of great interest to many US taxpayers, especially given the relatively high US corporate tax rates and broad tax base. If a US corporation wishes to exit the United States, either its stock or assets must be transferred to a non-US corporation. Two different sets of rules limit a US corporation’s ability to ‘invert’ to a non-US jurisdiction.

The Section 367 Internal Revenue Code rules tax US shareholders on gain in stock of a US corporation that is transferred to a foreign corporation, unless several requirements are met. These requirements include that the foreign acquiring corporation be at least as valuable as the US target corporation, and conduct an active foreign trade or business. Further, a US parent corporation generally will recognise gain on assets that it transfers to a foreign acquiring corporation even if the transaction otherwise qualifies as a non-taxable asset reorganisation. For this reason, it generally is necessary to transfer the stock, rather than assets, of a US corporation that wishes to exit the US.

The Section 7874 Internal Revenue Code rules apply at the entity level, and can treat a foreign acquiring corporation as a US corporation for all US federal income tax purposes if:

  • a the foreign acquiring corporation acquires substantially all the assets (either directly or through a stock acquisition) of the US target corporation (or substantially all the properties constituting a trade or business of a US partnership);
  • b at least 80 per cent of the stock of the foreign acquiring corporation is owned by former shareholders of the US target corporation (or US partnership) by reason of having owned the US target; and
  • c the foreign acquiring corporation’s expanded affiliated group lacks ‘substantial business activities’ in the jurisdiction in which the foreign parent corporation is incorporated. Treasury regulations finalised in 2015 require that at least 25 per cent of a foreign acquiring corporation’s expanded affiliated group’s employees, assets and income be located or derived from the relevant foreign jurisdiction for there to be substantial business activities in such foreign jurisdiction.76

Alternatively, if the above requirements are satisfied but the ownership continuity is at least 60 per cent (but less than 80 per cent), then the foreign acquiring corporation is respected as a foreign corporation; however, the US target will not be able to use any attributes (such as losses or foreign tax credits) against any gain that the US target corporation recognises (or royalty income it receives from affiliates) by reason of property transfers during the 10 years that follow the inversion. In addition, in 2016 the Treasury Department and the IRS issued temporary regulations that generally make it more difficult to satisfy the above-mentioned ownership thresholds and restrict the ability of such multinational corporate groups that do successfully invert to efficiently access their global cash flow and integrate their non-US operations.77

A special excise tax may also apply to certain stock compensation of insiders or large shareholders of a US corporation that inverts to a foreign jurisdiction.78

A non-US person’s disposition of assets used in a US trade or business will be subject to US tax;79 however, a disposition of stock in a US or foreign corporation conducting a US business will generally not give rise to US tax unless, in the case of stock of a US corporation, the corporation is considered a US real property holding corporation.80

Entities operating in partnership form are generally able to relocate their business to a foreign partnership without US tax.

IX ANTI-AVOIDANCE AND OTHER RELEVANT LEGISLATION

i General anti-avoidance

Anti-avoidance doctrines developed through common law (i.e., court decisions) include the ‘step transaction’ doctrine, the ‘business purpose’ requirement (imposed on reorganisations and spin-offs) and the ‘economic substance’ doctrine. In 2010, Congress codified the common law ‘economic substance’ doctrine with substantial penalties for transactions subject to the provision (discussed further below).81 This codification had been contemplated for some time and was controversial within the tax community. Anti-deferral rules discussed immediately below are generally aimed at income received in low-tax jurisdictions. The United States also seeks to police treaty shopping in low-tax jurisdictions by negotiating for a strict ‘limitation on benefits’ in its treaties.

ii Controlled foreign corporations (CFCs)

The US CFC regime is expansive and imposes current US tax on ‘subpart F income’,82 an umbrella term that comprises:

  • a passive income (foreign personal holding company income);83
  • b income earned in a jurisdiction resulting from related party transactions where there may be little activity and value added in the foreign jurisdiction where the CFC is created or organised (sales and service income);84
  • c income from processing, transporting or distributing oil or gas when the activities are in a foreign country other than the one where the oil or gas was extracted;85 and
  • d certain insurance income.86

The CFC regime also reaches ‘bad’ income, such as certain ‘boycott’ income;87 illegal bribes, kickbacks or other payments paid to a government official or employee;88 and income from certain countries with which the United States has strained relations (e.g., Iran and North Korea).89

With respect to foreign personal holding company income, a key exception is the ‘same country exception’ whereby certain payments of dividends, interest and royalties between corporations in the same jurisdiction do not give rise to current tax in the United States.90 Additional temporary exceptions are provided for payments received from related CFCs that are not attributable to subpart F income, and ‘qualified banking or financing income’.91

A foreign corporation generally is a CFC if more than 50 per cent of the vote or value of the foreign corporation is owned by ‘United States shareholders’,92 which are defined as US persons owning at least 10 per cent of the voting power of all classes of stock entitled to vote of the foreign corporation.93 Another anti-deferral regime applies, without regard to the level of US ownership, to a foreign corporation classified as a ‘passive foreign investment company’ (PFIC).94 A foreign corporation is classified as a PFIC with respect to any US shareholder if at least 75 per cent of its gross income is passive income or if at least 50 per cent of its assets are passive assets.

iii Transfer pricing

The US transfer pricing regime is based upon the familiar tax principle that transactions between commonly controlled entities must be priced at ‘arm’s length’. There is no precise definition of what constitutes common control. Penalties of up to 40 per cent may apply if a taxpayer’s price deviates significantly from the ultimately determined arm’s-length price. Taxpayers can avoid penalties by preparing contemporaneous documentation of a reasonable choice of method to determine the appropriate price. Regulations also provide detailed descriptions of methods, and the taxpayer is required to use the ‘best method’ to determine the appropriate price. For sales of tangible property, these methods include:

  • a the comparable uncontrolled price method;
  • b the resale price method;
  • c the cost-plus method;
  • d the comparable profits method;
  • e the profit-split method; and
  • f the unspecified methods.95

For transfers of intangible property, a fundamental principle is that the income received must be ‘commensurate with the income attributable to the intangible’. The methods include:

  • a the comparable uncontrolled transaction method;
  • b the comparable profits method;
  • c the profit-split method; and
  • d the unspecified methods.96

Fairly recent guidance has also been provided regarding transfer pricing of controlled services transactions.97 The methods include:

  • a the services-cost method;
  • b the comparable uncontrolled services price method;
  • c the gross services margin method;
  • d the cost of services-plus method;
  • e the comparable profits method;
  • f the profit-split method; and
  • g the unspecified methods.

A very significant element of the transfer pricing regulations pertains to ‘cost sharing’, where parties develop and own IP based on their share of cost and risk, comparable to the terms unrelated parties would adopt.98 The major benefit of a qualified cost-sharing agreement is that the IRS is limited to adjusting the ‘inputs’ or allocated costs of the IP development, and cannot adjust the potentially much larger ‘outputs’ (i.e., income) attributable to the cost-shared IP.

As discussed in further detail below, many taxpayers find it advantageous to enter into an APA with the IRS, which generally precludes the IRS from challenging the relevant transfer pricing for a specified period contained in the agreement.

iv Tax clearances and rulings

Taxpayers may seek private letter rulings when there is uncertainty regarding the treatment of a transaction or an item of income. Each year the IRS publishes a revenue procedure that details the steps to be taken in requesting a private letter ruling; the revenue procedure also describes those areas in which the IRS normally will not issue a private letter ruling. Tax clearances are not required for the acquisition of a US business.

The IRS will also enter into APAs with taxpayers to ensure that transfer pricing is not challenged. A taxpayer may also be able to enter into a pre-filing agreement, which ensures that the IRS will not challenge how a taxpayer reports certain positions on its return for a specified number of years. US tax treaties generally contain a provision that allows for a ‘competent authority agreement’, which grants the benefit of a treaty article the terms of which are not otherwise technically satisfied.

X YEAR IN REVIEW

As of the time of writing, there have been limited US international tax developments in 2017 that have been enacted. However, at present, the US Congress is considering substantial tax reform proposals that would significantly alter the taxation of business income earned in the United States, as well as the taxation of multinational corporate groups with operations in the United States. Certain key aspects of the reform proposals are discussed below in Section XI. If adopted, these proposals would represent a major change in the taxation of business income in the United States.

Aside from proposed tax reform, the Trump administration ordered a review of significant tax regulations that were implemented in 2016, including those regulations related to the reclassification of certain debt instruments as equity for US federal tax under Section 385 of the Internal Revenue Code to curb ‘earnings stripping’.99 The ‘documentation’ portion of these rules has been delayed until 2019,100 and the Treasury and the IRS are continuing to review these regulations, which may be revoked or modified.

XI OUTLOOK AND CONCLUSIONS

In November 2017, Republicans in the House of Representatives introduced a new business tax reform bill as HR 1, the ‘Tax Cuts and Jobs Act’. Republicans in the Senate also began working on their own version of such a bill. At the time of writing, HR 1 had been adopted in the House of Representative, and a similar (but not identical) reform proposal was under consideration in the US Senate. Such proposed legislation would make sweeping changes to the US taxation of both ‘inbound’ and ‘outbound’ investments. Certain key aspects of the tax proposals include:

  • a a reduction of the corporate tax rate to as low as 20 per cent;
  • b immediate expensing of certain capital expenditures;
  • c significant limitations on the deductibility of interest expense, including a provision limiting interest deductions by US members of an international financial reporting group to a proportionate share of such group’s worldwide debt;
  • d a one-time tax, at a reduced rate, on the accumulated earnings of non-US subsidiaries of US corporations;
  • e adoption of a dividend exemption for dividends paid by non-US subsidiaries of US corporations;
  • f a ‘minimum tax’ on the earnings of non-US subsidiaries of US corporations;
  • g a 20 per cent excise tax on certain deductible payments by US corporations paid to non-US affiliates unless such non-US affiliates elect to treat the payment as subject to US tax as income effectively connected to a US trade or business;
  • h a reduction of the tax rate on certain business income earned through pass-through entities; and
  • i modification or repeal of certain business deductions and credits.

As of the time of writing, these proposals had not yet been enacted, and they remained the source of significant debate in the US Congress.

Appendix I: Domestic and treaty rates for dividends, interest and royalties

Dividends

Interest

Royalties

Individuals, corporations

Qualifying corporation*

Domestic rates

%

%

%

%

Companies

30

30

0/30

30

Individuals

30

N/A

0/30

30

Treaty rates

%

%

%

%

Armenia†

0

Australia

15

0‡/5

10

5

Austria

15

5

0

0/10

Azerbaijan†

0

Bangladesh

15

10

10

10

Barbados

15

5

5

5

Belarus†

0

Belgium

15

0‡/5

0

0

Bulgaria

10

5

5

5

Canada

15

5

0

0/10

China

10

10

10

10

Cyprus

15

5

10

0

Czech Republic

15

5

0

0/10

Denmark

15

0‡/5

0

0

Egypt

15

5

15

15

Estonia

15

5

10

5/10

Finland

15

0‡/5

0

0

France

15

0‡/5

0

0

Georgia†

0

Germany

15

0‡/5

0

0

Greece

0

0

Hungary

15

5

0

0

Iceland

15

5

0

0/5

India

25

15

15

10/15

Indonesia

15

10

10

10

Ireland

15

5

0

0

Israel

25

12.5

17.5

15

Italy

15

5

10

0/5/8

Jamaica

15

10

12.5

10

Japan

10

0‡/5

10

0

Kazakhstan

15

5

10

10

Korea

15

10

12

15

Kyrgyzstan†

0

Latvia

15

5

10

5/10

Lithuania

15

5

10

5/10

Luxembourg

15

5

0

0

Malta

15

5

10

10

Mexico

10

0‡/5

15

10

Moldova†

0

Morocco

15

10

15

10

Netherlands

15

0‡/5

0

0/15

New Zealand

15

15

10

10

Norway

15

15

0

0

Pakistan

15

0

Philippines

25

20

15

15

Poland

15

5

0

10

Portugal

15

5

10

10

Romania

10

10

10

10/15

Russia

10

5

0

0

Slovak Republic

15

5

0

10

Slovenia

15

5

5

5

South Africa

15

5

0

0

Spain

15

10

10

5/8/10

Sri Lanka

15

15

10

5/10

Sweden

15

0‡/5

0

0

Switzerland

15

5

0

0

Tajikistan†

0

Thailand

15

10

15

8/15

Trinidad and Tobago

15

Tunisia

20

14

15

10/15

Turkey

20

15

15

5/10

Turkmenistan†

0

Ukraine

15

5

0

10

United Kingdom

15

0‡/5

0

0

Uzbekistan†

0

Venezuela

15

5

10

5/10

* Generally, the lower non-zero rate applies if the corporate shareholder owns at least 10 per cent of the voting stock of the US corporation. The text of the treaty should be consulted.

† The treaty concluded between the United States and the former USSR.

‡ The zero per cent rate generally applies if the corporate shareholder owns 80 per cent or more of the voting stock of the US corporation for a 12-month period and qualifies under certain provisions of the limitation on benefits article of the treaty. The text of the treaty should be consulted.

1 Hal Hicks and Moshe Spinowitz are partners and Robert C Stevenson is an associate at Skadden, Arps, Slate, Meagher & Flom LLP.

2 Treasury Regulation, Section 301.7701-3.

3 Ibid.

4 Section 1446.

5 Section 882.

6 Section 884.

7 Sections 11 and 63.

8 Section 162.

9 Sections 163 to 166.

10 Sections 162(m), 280G, 265.

11 Section 446.

12 Sections 27 and 901.

13 Section 906.

14 Section 172.

15 Section 172(b)(1)(H).

16 Section 382.

17 Section 1211.

18 Section 1212.

19 Section 882(c). A similar rule also applies to non-corporate persons, Section 874(a).

20 Section 11.

21 Section 55.

22 Section 56.

23 Sections 1441 and 1442.

24 Section 884.

25 Sections 6072(b) and 6081.

26 Section 6072(c).

27 Section 6655.

28 Section 7803.

29 For example, Revenue Procedure 2018-1.

30 For example, Revenue Procedure 2018-7.

31 Treasury Regulation, Sections 1.6662-3 and -4; IRS Forms 8275 and 8275-R.

32 Section 1501.

33 Sections 1504(b) and 1504(d).

34 Treasury Regulation, Section 1.1502-77.

35 Treasury Regulation, Section 1.1502-13.

36 Treasury Regulation, Section 1.1502-32.

37 Treasury Regulation, Section 1.1502-11.

38 Treasury Regulation, Section 1.1502-6.

39 Section 1503(d).

40 Sections 3102, 3111 and 3301.

41 See, e.g., Sections 953(d), 897(i), 1504(d).

42 See, e.g., Sections 269B and 7874.

43 See, e.g., Section 882.

44 Section 884.

45 Section 897.

46 Section 1445.

47 Section 864(c)(6) and (c)(7).

48 Section 174.

49 Sections 38 and 41.

50 Section 199.

51 Sections 48 and 168.

52 Section 897.

53 Sections 871(m), 1441 and 1442. Further, amounts paid by US corporations or non-corporate US residents for guarantees issued after 27 September 2010 are treated as US-sourced payments subject to withholding. Section 861(a)(9).

54 Sections 861(a)(1)(B).

55 Sections 871(h) and 881(c).

56 Sections 861(a)(1)(A) and 871(i)(2)(B).

57 Section 892(a)(1).

58 Section 892(a)(2).

59 Sections 27 and 901.

60 Sections 902 and 960.

61 Section 78.

62 Section 163.

63 See TD 9790.

64 Section 163(j).

65 Section 279.

66 Section 163(e)(5).

67 Section 163(l).

68 Section 265.

69 8 Del C, Section 170.

70 Sections 312 and 316.

71 Section 301(c).

72 Section 1445.

73 Sections 368 and 355.

74 Treasury Regulation, Section 1.367(a)-3(c); Section 7874(b); Section 367(a)(5).

75 Treasury Regulation, Section 1.367(b)-4.

76 Treasury Regulation Section 1.7874-3. Regulations also require that the foreign parent’s tax residence be located in the relevant foreign jurisdiction.

77 Treasury Regulation Sections 1.7874-5T et seq.

78 Section 4985.

79 Sections 882 and 864(c)(7).

80 Sections 897 and 1445.

81 Section 7701(o).

82 Section 952.

83 Section 954(c).

84 Section 954(d).

85 Section 954(a)(5).

86 Section 953.

87 Section 952(a)(3).

88 Section 952(a)(4).

89 Section 952(a)(5).

90 Section 954(c)(3).

91 Section 954(c)(6) and (h).

92 Section 957.

93 Section 951(b).

94 Sections 1291 to 1298.

95 Treasury Regulation, Section 1.482-3.

96 Treasury Regulation, Section 1.482-4.

97 Treasury Regulation, Section 1.482-9.

98 For recent guidance, see TD 9441.

99 See Section VII.i for a brief description of these rules.

100 Notice 2017-36, 2017-33 IRB 208.