Tax Refund Opportunities for Foreign Taxpayers

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For over 25 years, Foreign Taxpayers who sold their interests in US partnerships engaged in a U.S. trade or business have paid U.S. income tax on the gain on sale under IRS Revenue Ruling 91-32.

On July 13, 2017 the Tax Court, in Grecian Magnesite Mining v. Commissioner overturned that position. The case may significantly change how non-U.S. investors invest in U.S. businesses and also allow for refund opportunities.

While Foreign Taxpayers have generally not paid tax on gains from the sale of U.S. stock in corporations, they have been taxed on their gains from the sales of partnership interests (including LLCs taxed as partnerships). U.S. real property interests have been and are still taxed to non-U.S. persons, whether the interest is held in a corporation, partnership, LLC or directly.

The importance of this case cannot be overstated. Many transactions have been or will be completed where nonresidents and/or foreign corporations have sold or will sell interests in U.S. businesses held through partnerships or entities treated as U.S. partnerships for tax purposes.

The case should enable taxpayers who were advised to and did pay a tax on the basis of that ruling to seek a refund.

For more information on how any of these changes might impact you or your business, please contact Timothy Devlin, Tax Services Leader, at [email protected]

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