On March 9, 2022, President Biden signed an Executive Order entitled “Executive Order on Ensuring Responsible Development of Digital Assets” that outlines a whole-government strategy to ensure responsible innovation in digital assets, including cryptocurrencies. The Executive Order identifies six principal policy objectives regarding digital assets: protect U.S. consumers, investors and businesses; protect U.S. and global financial stability; mitigate illicit finance and national security risks; reinforce the United States as a leader in the global financial system; promote equitable access to safe and affordable financial systems; and support innovation that promotes responsible development and use of digital assets.

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In Tax Notes, tax partner Kat Gregor, tax counsel Brittany Cvetanovich and Elizabeth Smith, and associates Maggie Heine and Michelle Perry offer a response to a recent article in the publication concerning whether damages in a civil suit that alleges sexual abuse or rape are includible in the recipient’s taxable income. The Ropes & Gray tax attorneys challenge the factors that the article’s authors argue which determine the taxability of such a settlement, analyzing IRS guidance and case law regarding the taxation of settlement payments.

Boston Bar Association (BBA) Virtual CLE: Taxation of Cryptocurrency: IRS Guidance, State and Local Tax Approaches, and Enforcement Trends: Elizabeth Smith, tax counsel, is panelist during this BBA webinar. This webinar will provide an introduction to tax issues related to cryptocurrency. The presentation will begin with an overview of the taxonomy relevant to digital assets, and then cover key tax questions that arise in connection with cryptocurrency through the lens of existing IRS guidance. Panelists will also discuss state and local tax approaches to cryptocurrency taxation, and conclude with an overview of enforcement trends in the space.

Please Join Us!  ABA/IBA/IFA Virtual 22nd Annual U.S. and Europe Tax Practice Trends Conference: Ropes & Gray is a sponsor of the ABA/IBA/IFA Virtual 22nd Annual U.S. and Europe Tax Practice Trends Conference, taking place March 28-April 1, 2022.  Tax partner Andrew Howard is a panelist on “The Changing Face of US Investment Into Europe.” The panel will cover recent changes in US rules and potentially new tax legislation as well as key changes in Europe, including EU Shell company directives and new centralized withholding regimes.   If interested in attending, please register here.

 

On February 7, 2022, the IRS’s Large Business & International Division (“LB&I”) announced a new compliance campaign focusing on partnership losses in excess of a partner’s basis.  The campaign will center on ensuring that partners reporting flow-through losses from partnership have adequate outside basis to deduct them. If a partner does not have adequate outside basis in its partnership interest, Section 704(d) requires the losses to be suspended.  The IRS explained that the campaign was identified through data analysis performed by LB&I and through suggestions from IRS employees.  The campaign aims to improve return selection and identify issues with the greatest risk of non-compliance.

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On January 24, 2022, the U.S. Supreme Court ruled in Hughes v. Northwestern University that the plaintiff-participants will get another opportunity to assert that the Northwestern retirement plan fiduciaries violated ERISA’s duty of prudence based on the following: the number of investment options included on the plan menu; the decision to contract with multiple recordkeepers who put proprietary products into the plans; and the presence of investment options that were high-cost yet underperformed. The Court issued a narrow, unanimous opinion written by Justice Sotomayor (with Justice Barrett not taking part), which vacated the Seventh Circuit’s decision and remanded for further proceedings so that the participants’ allegations may be reevaluated as a whole.

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Andrew Howard, Ropes & Gray tax partner, outlines his thoughts on the likely impacts on private equity of the ‘ATAD 3’ EC proposal, designed to prevent the misuse of shell entities for tax purposes

If adopted, the “Directive laying down rules to prevent the misuse of shell entities for tax purposes”, aka “ATAD 3” or the “Unshell Directive”, will deny the benefits of European directives and also the benefit of double tax treaties to EU-based holding companies which fail to meet minimum substance requirements from 2024. Per the draft directive, this applies not just to equity holding companies, but to holding companies for all forms of passive income including income from debt, IP and real estate.

Access to treaties or directives is generally important for holding companies because it is likely that this will ensure that withholding taxes, and in some cases capital gains, will be applied predictably and at the lowest achievable rate applied by the relevant jurisdiction. Continue Reading ATAD 3 – How Will Private Equity Measure Up?

In the latest installment of our Ropes & Gray podcast series addressing emerging issues for fiduciaries of 401(k) and 403(b) plans to consider as part of their litigation risk management strategy, ERISA and benefits partner Josh Lichtenstein, counsel Sharon Remmer, and associate Jon Reinstein continue the discussion from our prior episode about the Department of Labor’s proposed regulation pertaining to ERISA investment duties and environmental, social, and governance (ESG) considerations, by focusing on (i) how the rule might change the market for retirement plan investing and (ii) what impact it could have on plan investment committees and asset managers who manage plan assets.

On December 8, the Financial Crimes Enforcement Network (“FinCEN”), within the U.S. Department of the Treasury, published proposed regulations, Beneficial Ownership Information Reporting Requirements (the “Proposed Rule”),1 to implement the beneficial ownership information reporting provisions of the Corporate Transparency Act (“CTA”).

The CTA, enacted as part of the Anti-Money Laundering Act of 2020, is intended to expand and modernize the U.S. government’s ability to collect beneficial ownership information (“BOI”) to deter money laundering, corruption, tax evasion and fraud, and other financial crime. The CTA requires FinCEN to, inter alia, (1) implement rules for the reporting of BOI of legal entities organized or registered to conduct business in the United States; (2) develop protocols for access to, and the sharing of, reported BOI; and (3) amend the current Customer Due Diligence (“CDD”) Rule applicable to financial institutions to account for the new requirements of the CTA. The Proposed Rule addresses only the reporting of BOI, with the remaining requirements to be addressed through future rulemaking.

The Proposed Rule would require “reporting companies” to file reports with FinCEN that (1) identify themselves; and (2) provide BOI of their “beneficial owners” and “company applicants,” each as discussed in greater detail below. FinCEN has solicited further public comment on the Proposed Rule until February 7, 2022, but there is currently no firm timeline for final implementation.

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On December 6, 2021, the White House issued the “United States Strategy on Countering Corruption” (the “Strategy Document”) and accompanying fact sheet. This release by the Biden Administration follows a months-long interagency review of existing U.S. government mechanisms for fighting corruption on both the domestic and global fronts. The five-point Strategy Document represents the U.S. Government’s first formal multi-departmental approach to combating corruption and acknowledges the ways transnational corrupt actors have exploited loopholes in United States financial reporting requirements to undermine anti-money laundering and counterterrorism efforts.

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