EFTA01799691.pdf

From: Erika Kellerhals Sent: Tuesday, January 25, 2011 3:53 AM To: Jeffrey Epstein Subject: Re: I'm not ignoring you - but you probably also don't want to hear tha= you were in my junk folder : ) sorry. interesting information below o= 881- have to pull legislative history on initial enactment because still=no definition of obligation: Section 881(b) provides exemptions from, or reductions of, withho=ding tax and branch profits tax on certain U.S.- source income received by =orporations organized in U.S. possessions. As one of the conditions for su=h treatment in certain cases, section 881(b)(1)(C) sets forth a "base-=rosion" test requiring that no substantial part of the possessions corpo=ation's income be used to satisfy obligations to "persons" who are n=t bona fide residents of such a possession or of the United States. Sectio= 937(a) provides in relevant part that for purposes of section 881(b), exc=pt as provided in regulations, a "person" is a bona fide resident if t=e person satisfies the requirements of section 937(a). For purposes of the=base-erosion test, §1.881-5T(f)(4)(i) defines a bona fide resident of a =ossession by reference to §1.937-1T, which provides that only a natural =erson, rather than a juridical person, may qualify as a bona fide resident=of a possession. Similarly, §1.881-5T(f)(4)(ii) defines bona fide reside=ts of the United States for purposes of the base-erosion test as including=only certain individuals who are citizens or residents of the United State=. Commentato=s observed that the interaction of these rules in the proposed and tempora=y regulations could result in disqualifying income from the withholding ta= exceptions in any situation where the possessions corporation makes payme=ts to satisfy obligations to persons other than individuals. These comment=tors further noted that many common business arrangements would run afoul =f the base-erosion test if corporations cannot constitute bona fide reside=ts. The IRS an= Treasury agree that such results would be undesirable and unintended. In =he context of section 881(b), the IRS and Treasury believe that the statut=ry terms persons and bona fide residents should not be interpreted as limi=ed to individuals. Accordingly, the final regulations additionally provide=that a corporation, or a business association that is treated as a corpo=ation for tax purposes, may qualify as a bona fide resident of a relevant =ossession or the United States for purposes of the base-erosion test if it=is created or organized in that jurisdiction. The final regulations reflec= that section 937(a) and the regulations under that section are intended t= apply only to individuals in determining whether a person is a bona fide =esident of a possession within the meaning of section 881(b)(1)(C). Note that =he IRS and Treasury believe that the words "direct or indirect" in sec=ion 881(b)(1)(C) (and §1.881-5(c)(3)) would authorize an anti-abuse rule=that prohibits payments to possessions corporations that are a part of bac=-to-back loan arrangements or other base erosion schemes. Accordingly, the=IRS and Treasury are strongly considering including such an anti-abuse rul= when finalizing the remaining proposed and temporary regulations under se=tion 881(b). It is expected that any such anti-abuse rule would be retroac=ive to January 31, 2006. EFTA_R1_00138551 EFTA01799691 Commentato=s also proposed that the final regulations adopt a special rule whereby pu=licly traded corporations may qualify for favorable tax treatment without =egard to the conditions under section 881(b)(1), including the base- erosi=n test. A similar rule is provided under section 884(e)(4)(B) and §1.884= 5(d) under the branch profits tax. However, the final regulations do not =dopt such a special rule in this context. The IRS and Treasury note that s=ction 881(b) does not grant authority to depart from the statutory conditi=ns of section 881(b)(1), including the base-erosion test. On Fri, Jan 21= 2011 at 5:24 AM, Jeffrey Epstein <[email protected] <mailto:[email protected]» wrote: any thought on the 881 indirect issue The information conta=ned in this communication is confidential, may be attorney-client privi=eged, may constitute inside information, and is intended only for the use of the a=dressee. It is the property of Jeffrey Epstein =br>Unauthorized use, disclosure or copying of this communication or any=part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, p=ease notify us immediately by return e-mail or by e-mail to [email protected], =nd destroy this communication and all copies thereof, including all attachm=nts. copyright -all rights reserved Erika A. Kellerh=ls, P.C. St. Thomas, VI 00802 (=ffice) (cell) (fax) Notice: This communication may contain privileged =r other confidential information. If you are not the intended recipient= or believe that you have received this communication in error, please do =ot print, copy, re-transmit, disseminate, or otherwise use this informatio=. Also, please indicate to the sender that you have received this e-mai= in error, and delete the copy you received. Thank you. 2 EFTA_R1_00138552 EFTA01799692 Required by the IRS: Any tax advice in this em=il (including any attachments) is not intended to be used, and cannot be u=ed, for the purpose of avoiding penalties under the Internal Revenue Code =r promoting, marketing, or recommending to another party any transaction o= matter presented herein. 3 EFTA_R1_00138553 EFTA01799693