Daily Tax Update - May 17, 2016: Senate Finance Committee Holds Hearing on Corporate Integration

Senate Finance Committee Holds Hearing on Corporate Integration:  Senate Finance Committee Chairman Orrin Hatch (R-UT) held a hearing today to examine the pros and cons of corporate integration (eliminating double taxation of corporate profits).  

Statements by the Chair and Ranking Member:

The Committee heard from the following witnesses:

  • Mr. Michael J. Graetz
    Wilbur H. Friedman Professor of Tax Law and Columbia Alumni Professor of Tax Law, Columbia University
    Testimony
  • Ms. Judy A. Miller
    Director of Retirement Policy, American Retirement Association, Executive Director, American Society of Pension Professionals and Actuaries College of Pension Actuaries
    Testimony
  • Mr. Steven M. Rosenthal
    Senior Fellow, Urban-Brookings Tax Policy Center, Urban Institute
    Testimony
  • Mr. Bret Wells
    Associate Professor of Law, Law Center, University of Houston
    Testimony

Rep. Levin Introduces Anti-Inversion Bill Targeting Two Common Tax Avoidance Practices:  Today, House Ways and Means Committee ranking minority member Sander M. Levin (D-MI), released the Protecting the Corporate Tax Base Act of 2016.  The bill specifically targets two common tax avoidance practices: hopscotch lending and decontrolling.  A hopscotch loans allows a foreign parent or affiliate to bypass US taxation by borrowing deferred earnings of a newly acquired US controlled foreign corporation (CFC).  The rules would go further than those issued by the Treasury Department in April, as they would apply to any multinational company acquired by a foreign company, not just inverted companies.  

The bill would also target decontrolling, defined as a situation where a non-CFC foreign affiliate transfers a sufficient amount of property to the CFC in exchange for 50% or more of the CFC stock, resulting in the “de-controlling” of the CFC.   Under the current rules, after “de-controlling” the CFC, the non-CFC foreign affiliate can access the deferred earnings of the CFC without paying US taxes.  The new bill attributes the stock of a foreign corporation owned by a foreign person to a related US person for purposes of determining whether the US person is a US shareholder of the foreign corporation.  This determination is then used to decide whether the foreign corporation is a CFC.  

The Department of Treasury, IRS Issue Final Regulation Concerning Roth IRA Distributions:  The Department of Treasury and the IRS issued a final regulation today eliminating the requirement that each disbursement from a designated Roth IRA that is directly rolled over to an eligible retirement plan be treated as a separate distribution from any amount directly paid to the employee.  Under the new rule, if disbursements from a Roth IRA are made to both the taxpayer and to a designated account, the pretax amounts will be allocated first to the direct rollover, rather than a pro rata allocation to each.