Daily Tax Update - September 10, 2014: Senators Charles Schumer and Richard Durbin Introduce Anti-Inversion Bill

Senators Charles Schumer and Richard Durbin Introduce Anti-Inversion Bill:  Senators Charles Schumer (D-NY) and Richard Durbin (D-IL) introduced a bill earlier today aimed at combating corporate inversions.  The bill, “Corporate Inverters Earnings Stripping Reform Act of 2014,” focuses on earnings stripping, a process by which US subsidiaries can take tax deductions on interest payments from loans from a foreign parent.  Specifically, the bill eliminates the interest expense deduction carryforward and excess limitation carryforward, repeals the debt-to-equity safe harbor, reduces the permitted net interest expense from 50 percent to 25 percent of the subsidiary’s adjusted taxable income, and requires companies that have already inverted to get IRS preapproval annually on terms of related-party transactions occurring within the 10-year period after an inversion. 

Treasury and IRS Will Amend Section 1298(f) Regulations:  Notice 2014-51 announces that the Treasury Department and the IRS will amend the regulations under Section 1298(f) of the Internal Revenue Code to provide guidance concerning US persons that hold PFIC stock within the meaning of Section 1297(a) that is marked to market under Section 475 or another chapter 1 code provision other than Section 1296.  Specifically, the amendment will provide an exception from the reporting requirements of Treas. Reg.  § 1.1298-1T with respect to PFIC stock that is marked to market under a non-Section 1296 mark-to-market regime.  The exception will not be available to the extent PFIC stock held by a US person is not in fact marked to market for any reason, including, for example, because it is treated as held for investment or as a hedge under Section 475.

Notice 2014-51 will be published in Internal Revenue Bulletin 2014-40 on Sept. 29, 2014.