In a victory for foreign investors, the U.S. Tax Court issued an opinion on July 13 that changes the tax planning landscape for foreign investment in the U.S. and creates new opportunities for foreign investors to increase their after-tax returns from U.S. businesses.
Background
Since it was issued by the IRS in 1991, controversial Revenue Ruling 91-32 has guided the structuring of foreign investment in the U.S. Under the ruling, gains of a non-U.S. partner from the disposition of an interest in a partnership engaged in U.S. trade or business is income effectively connected with such U.S. trade or business ("ECI"). Practitioners have questioned the validity of this conclusion, arguing that it deviates from the general rule that gains from capital asset dispositions by non-U.S. persons are not subject to U.S. tax.
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