Daily Tax Update - December 28, 2009

THE DAILY TAX UPDATE WILL BE PUBLISHED ON A PERIODIC BASIS UNTIL CONGRESS RECONVENES ON JANUARY 19TH.

TREASURY EXTENDS THROUGH 2010 TAX RELIEF FOR CFC LOANS AND “READILY MARKETABLE” SECURITIES: Today, in Notice 2010-12, the Treasury and Internal Revenue Service (the “Service”) extended the application of Notice 2008-91, under which short-term loans from controlled foreign corporations (“CFCs”) to their US parent corporations do not trigger tax under subpart F, to taxable years beginning before January 1, 2011. Notice 2008-91 provides that obligations held by a CFC and collected within 60 days are not required to be treated as “obligations” that would constitute an investment in US property under section 956.

  • Notice 2008-91 applied to the first two taxable years of a foreign corporation ending after October 3, 2008. Notice 2009-10 extended the relief to the third consecutive taxable year of a foreign corporation, if any, that ends after October 3, 2008 and on or before December 31, 2009. Notice 2010-12 applies to the taxable year of a CFC immediately following the last taxable year of the CFC to which Notice 2008-91 could have applied, but not to any taxable years beginning on or after January 1, 2011.
  • According to Notice 2010-12, “[t]he Treasury Department and the Service do not anticipate extending the application of the regulations described in Notice 2008-91 to any additional periods.”
  • Notice 2010-12 also extends through 2010 Rev. Proc. 2008-26, which provides that the Service will not challenge whether a security is readily marketable for purposes of the readily marketable security exception of section 956(c)(2)(J) if the security is of a type that was readily marketable at any time within three years prior to May 27, 2008 (the effective date of the revenue procedure). Notice 2010-12 and Rev. Proc. 2008-26 are intended to address uncertainty regarding whether a security is “readily marketable” when current market conditions and liquidity constraints have led to declining markets for some securities that were readily marketable under ordinary market conditions.  
  • For additional information, contact Philip R. West - pwest@steptoe.com

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE
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