Although a Chief Counsel Advice by IRS is not law, a most recent advice casted alert to non-U.S. partners. In determining the taxability of an offshore partnership with a U.S. manager through whom the partnership conducted all activities, the IRS found that the commercial lending and underwriting activities conducted through the U.S. manager were attributable partnership, the level of which were so considerable that it was in line with the principle of a trade or business. The structure of such partnership was not exempt from taxability because of the inapplicability of the Section 864(b) safe harbors. This conclusion has subjected the non-U.S. partners to U.S. income taxes.

See Charles Rubin, “IRS Hammers Offshore Lending and Underwriting Structure,” RubinOnTax.com (January 10, 2015).

Posted by Jiaqi Wang, Associate Editor, Wealth Strategies Journal.