Up-C IPO Tax Considerations

Transcription

1 Up-C IPO Tax Considerations Tuesday, October 20, 2015, 12:00PM 1:00PM EDT Presenters: Thomas A. Humphreys, Partner, Morrison & Foerster LLP Remmelt A. Reigersman, Partner, Morrison & Foerster LLP 1. Presentation 2. MoFo Tax Talk: Volume 8, Issue 1 3. MoFo Tax Talk: Volume 7, Issue 4 Morrison & Foerster LLP

2 UP-C IPO Tax Considerations Thomas A. Humphreys Remmelt A. Reigersman October 20, 2015 NY Morrison & Foerster LLP All Rights Reserved mofo.com

3 Agenda Origin of the Structure What is an Up-C? Structure Tax Receivable Agreements Benefits This is MoFo. 2

4 Origin of the Structure Pre- 86 Real Estate Tax Shelters Tax Reform Act of 1986: Passive Activity Loss Rules General Decline/Flattening of U.S. Real Estate Market 3

5 UPREIT to the Rescue Shareholders Public REIT A B Operating Partnership OP Units Tax Shelter Real Estate Partnership Real Estate 4

6 UPREIT Features OP Units convertible 1:1 for REIT stock or cash OP has the option whether to distribute stock or cash OP Units pay same per unit distribution as one share of REIT common stock 5

7 What is an Up-C? Historic Partners Public Investors The Up-C structure has become increasingly common for IPOs of companies that have historically operated as partnerships 100% Class B Shares (majority voting power) (0% economics) 100% Class A Shares (minority voting power) (100% economics) The Up-C structure derives its name from the UPREIT structure. Essentially, a newly formed corporation ( PubCo ) will be the entity that undertakes the IPO. PubCo will sit above an existing limited liability company (the LLC ) Partnership Interests PubCo Partnership or LLC Partnership Interest and Managing Member Operating Subsidiaries Up-C Structure Final State This is MoFo. 6

8 What is an Up-C? (cont.) Historic Partners Public Investors PubCo will be a holding company and will have as its subsidiary the LLC. The principal assets/operating business will continue to be at (or below) the LLC level PubCo will receive the IPO proceeds and downstream the proceeds to the LLC Partnership Interests 100% Class B Shares (majority voting power) (0% economics) PubCo Partnership Interest and Managing Member 100% Class A Shares (minority voting power) (100% economics) Partnership or LLC Operating Subsidiaries Up-C Structure Final State This is MoFo. 7

9 Recently Completed Up-C Deals Evolent Health, Inc. Shake Shack Inc. The Habit Restaurants, Inc. Fifth Street Asset Management Neff Corporation Medley Management, Inc. This is MoFo. 8

10 Typical Pre-IPO Structure - Corporation Historic Shareholders C Corporation Disadvantages Income from operating subsidiaries subject to entity-level tax when earned by the corporation Historic partners (and other shareholders) subject to tax when they receive dividends This is MoFo. 9

11 Typical Pre-IPO Structure - Partnership Historic Partners Advantage Partnership not subject to tax; income earned by operating subsidiaries taxable directly to partners LLC Disadvantage Listing partnership when going public may result in the partnership being taxed as a corporation This is MoFo. 10

12 Up-C Structure: Immediately After Formation of C-Corp Historic Partners Company incorporated in Delaware with two classes of common stock, Class A and Class B. Class A is offered in the IPO and Class B is held by the Historic Partners and provides no economic rights, only voting rights Controlling voting interest 100% economic interest PubCo (Delaware C-Corp) LLC This is MoFo. 11

13 Up-C Structure: Immediately following IPO Public Shareholders* (Class A Holders) Historic Partners 100% economic interest Minority voting interest Cash Voting interest 100% economic interest PubCo (Delaware C-Corp) LLC * Public shareholders purchase their shares for cash in the IPO This is MoFo. 12

14 Up-C Structure: Final Structure Class A Holders Historic Partners 100% economic interest 40% voting interest PubCo (Delaware C-Corp) 60% voting interest 60% economic $ interest $ 40% economic interest Sole managing member LLC LLC interests convertible into shares of Class A common stock PubCo uses the proceeds received in the IPO to purchase LLC interests LLC redeems partnership interests from the Historic Partners (treated for tax purposes as a disguised sale or direct purchase of partnership interests by PubCo from the Historic Partners) (percentages are included only for illustrative purposes) This is MoFo. 13

15 Why an Up-C structure? Prior to the IPO, the business was conducted through an LLC, which is a pass-through structure and does not pay entity-level taxes Through the Up-C structure, the pass-through structure remains in place and PubCo pays the pre-ipo equity holders (LLC members) for the value of PubCo s tax attributes as those tax attributes are used after the IPO. This creates a market dynamic that permits value to be extracted from PubCo after the IPO, without decreasing the value of PubCo in the offering This is MoFo. 14

16 Why an Up-C structure (cont.)? To effectuate the Up-C structure, PubCo will enter into various arrangements with the LLC and its members. These include an LLC operating agreement and Tax Receivable Agreement ( TRA ). Generally, TRAs do not appear to impact the valuation of a corporation in its IPO This is MoFo. 15

17 Why an Up-C structure (cont.)? Public stockholders often do not assign full value to the tax attributes of a corporation. Similarly, public stockholders apparently do not discount the value of a corporation to account fully for future payments to be made under a TRA. Through the TRA, the IPO corporation pays for a valuable tax attribute (for example, a basis step-up) This is MoFo. 16

18 Tax Receivable Agreements PubCo (Delaware C-Corp) Tax Receivable Agreement Historic Partners 40% economic interest Sole managing member 60% economic interest LLC interests convertible into shares of Class A common stock LLC (percentages are included only for illustrative purposes) This is MoFo. 17

19 Benefits of the Tax Receivable Agreement Because the historic partners sell partnership interests to PubCo (rather than stock, as in a traditional IPO structure), PubCo receives a step-up in the tax basis of its assets This tax basis step-up is allocated to PubCo s share of the historic partnership s assets, and in many cases the step-up is primarily allocable to intangible assets that are amortizable on a straight-line basis over 15 years (so-called Section 197 intangibles) Through a TRA the historic partners effectively capture the majority of the value associated with the PubCo s tax basis step-up This is MoFo. 18

20 Benefits of the Tax Receivable Agreement (cont.) Under the terms of the TRA, PubCo is obligated to pay the historic partners in cash an amount equal to PubCo s tax savings generated by the tax basis step-up (typically 85% of such savings) Payments under the TRA are effectively treated as additional purchase price paid by PubCo for its interest in the historic partnership This is MoFo. 19

21 Benefits of the Tax Receivable Agreement (cont.) Illustration of Potential TRA Economics Amount of PubCo Tax Basis Step-Up* $300 million Amortization Period 15 years Annual Amortization $20 million PubCo Tax Rate (Federal & State) 40% PubCo Annual Savings $8 million TRA Payout Ratio 85% Annual Payment to Historic Partners** $6.8 million Total Payments to Historic Partners $102 million *Any future exchanges of partnership units for Class A shares of PubCo also may give rise to additional tax basis step-up for PubCo (thereby increasing the amounts payable under the TRA over time) **Payments under the TRA also give rise to additional tax basis step-up for PubCo (thereby increasing the amounts payable under the TRA over time) This is MoFo. 20

22 Additional Considerations Related to Up-C Structure The Up-C structure maintains continuing pass-through treatment (single level taxation) for the historic partners with respect to their proportionate share of net income realized by the partnership The historic partners obtain liquidity through the right to exchange partnership units for Class A shares of PubCo The Up-C structure provides a range of options for making strategic acquisitions and compensating employees (e.g., PubCo stock, PubCo options, and partnership units) This is MoFo. 21

23 Additional Considerations Related to Up-C Structure (cont.) PubCo becomes the managing member of the historic partnership and the historic partners retain voting control through Class B PubCo shares PubCo consolidates the historic partnership for financial statement purposes This is MoFo. 22

24 Miscellaneous Issues Related to Up-C Structure Anti-churning rules under Section 197 of the Internal Revenue Code Tax distributions to PubCo and historic partners Continuing administration of TRA and determination of annual payments to be made by PubCo to historic partners (reviewed and approved by PubCo audit committee in conjunction with outside advisors) Investment Company Act ( 40 Act ) status of PubCo This is MoFo. 23

25 Contact Information Federal Tax Thomas A. Humphreys (212) Remmelt A. Reigersman (212) This is MoFo. 24

26 MORRISON & FOERSTER QUARTERLY NEWS TAXTALK IN THIS ISSUE IRS Rules Debentures Are Part of Straddle; Interest Non-Deductible Page 2 Volume 8, No. 1 May 2015 Authored and Edited By Thomas A. Humphreys Anna T. Pinedo Stephen L. Feldman Remmelt A. Reigersman Shiukay Hung David J. Goett Alexander I. Birkenfeld Stock Abandonment Produces Ordinary Loss Page 2 Tax Consequences of Negative Interest Rates Page 3 Renewed Discussion of a Federal Consumption Tax Page 4 IRS Resumes PTP Rulings Page 4 House and Senate Bills Would Increase Then Decrease Estimated Tax Payments Page 4 MoFo in the News; Awards Page 5 EDITOR S NOTE Has anyone noticed how we re in a seemingly endless discussion about tax reform? Ever since Representative Dave Camp (R. Mich.) issued his own tax reform discussion papers two years ago, U.S. tax reform has been an on and off hot tax topic. Currently, Sen. Orrin Hatch (R. Utah), chairman of the Senate Finance Committee, has convened five tax reform working groups; initial comments were due, appropriately enough, on April 15 th (no extensions permitted). Of course, Tax Talk doesn t have to be a Washington insider to observe that the chief beneficiaries of all this tax reform talk are D.C. lobbyists, not without reason. As they say in Washington, if you re not at the table, you re on the menu. Anyway, hope springs eternal, even with a gridlocked Congress. This edition of Tax Talk doesn t bother with the nuts and bolts of income tax reform; instead, we focus on renewed interest in a U.S. value-added tax ( VAT ), at least among Washingtonian think tanks. The idea is that a VAT coupled with the existing income tax could permit significant tax reductions at the lower end of the tax tables (the folks that would be hurt by a regressive VAT) plus corporate tax reform. Of course, in the United States, every time a VAT is mentioned, so too is the name of former Ways & Means Committee Chairman Al Ullman (D. Ore.), who championed a VAT only to lose his House seat in the next election. Juxtaposed against large-scale tax reform, Congress has returned to old budget tricks to pay for some obscure programs. Tax Talk reports on Senate Finance and House Ways & Means committee action approving bills paid for continued on page 2

27 with artificial increases in the corporate estimated tax requirements right at the end of the budget horizon. These are offset by reductions beyond the budget horizon. We last reported on this in March and had hoped the practice had died. Apparently not. Closer to home (i.e., technical tax stuff), Tax Talk 8.1 reports on a new phenomenon: negative interest. In Europe, some borrowers are being paid interest because their adjustable rate loan indices have dropped below zero. This is obviously the twilight zone of financial instruments tax, but we try to guide you through the tax results when an issuer issues a negative interest bond. Tax Talk also discusses an IRS ruling that exchangeable debentures constituted a straddle transaction, a Fifth Circuit decision on the tax consequences of abandoning stock held as a capital asset, and the resumption of publicly traded partnership private letter rulings. Enjoy! IRS RULES DEBENTURES ARE PART OF STRADDLE; INTEREST NON-DEDUCTIBLE In a recent field attorney advice, the IRS held that a taxpayer s issuance of debentures that were exchangeable for a basket of reference shares owned by the taxpayer and traded on an SEC-regulated exchange created a straddle within the meaning of Section 1092(c)(1). As a result, according to the IRS the taxpayer could not deduct interest payments attributable to the debentures because the interest payments are allocable to personal property which is part of a straddle within the meaning of Section 263(g)(1). According to the facts of FAA F, the taxpayer issued exchangeable debentures with quarterly coupon payments at a fixed annual rate. At maturity, subject to the holder s exchange right, the holder would receive a cash payment equal to the adjusted principal amount of the debenture plus accrued and unpaid interest and other distributions. The holder could exchange the debenture at any time for either a fixed amount of reference shares or their cash equivalent amount. The taxpayer, in turn, could determine whether the holder would receive reference shares or their cash equivalent amount. The taxpayer could redeem the debenture for either an amount of cash equal to the adjusted principal amount of the debenture or the value of the reference shares. The IRS held that the taxpayer created a straddle by issuing the debentures and holding the reference shares. Section 1092(c)(1) provides that a straddle means offsetting positions with respect to personal property. Section 1092(c)(3) provides that two or more positions are presumed to be offsetting if the positions are in the same personal property. Section 1092(d)(3)(A)(i) provides that the term personal property includes stock that is actively traded and at least 1 of the positions offsetting such stock is a position with respect to such stock. The IRS held that due to the exchange feature, as the value of the reference shares increases, the debentures increase in value to the holders, and conversely become more costly to the taxpayer. Therefore, the reference shares and the debentures are presumed to be offsetting. In addition, the IRS held that the taxpayer could not deduct interest payments attributable to the debentures because such interest payments are allocable to personal property which is part of a straddle within the meaning of Section 263(g)(1). Under Section 263(g)(1), interest and carrying charges properly allocable to personal property which is part of a straddle may not be deducted and must instead be capitalized. Section 263(g)(2) defines interest and carry charges to include interest on indebtedness incurred or continued to purchase or carry the personal property. The IRS held that because the economics of the debentures reveal close relationships between the debentures and the corresponding reference shares, the interest payments attributable to such debenture qualified as interest on indebtedness incurred to continue to purchase or carry the personal property. STOCK ABANDONMENT PRODUCES ORDINARY LOSS A recent tax case out of the Fifth Circuit upheld a taxpayer s strategy to make the best of a bad investment. According to the facts of Pilgrim s Pride v. Commissioner, the taxpayer purchased preferred stock from two corporations (the Issuers ) for a total of $98.6 million in By 2004, the stock had declined significantly in value and the Issuers offered to buy back the stock for $20 million. The taxpayer determined that the best course of action was to abandon the stock for no consideration because a $98.6 million ordinary abandonment loss would generate tax savings more valuable than the $20 million offered by the Issuers. Accordingly, the taxpayer surrendered the stock to the Issuers, terminating its ownership rights with respect to the Issuers. The taxpayer then claimed an ordinary loss of $98.6 million. The IRS disagreed with the character of the loss, arguing that the abandonment should be treated as a sale or exchange, resulting in a capital loss (subject to limitation), rather than an ordinary loss. 2 Morrison & Foerster Tax Talk, May 2015 continued on page 3

28 The U.S. Treasury regulations generally allow a deduction for losses sustained in the taxable year, including losses from the abandonment of property. However, an abandonment loss is not allowed with respect to losses sustained upon the sale or exchange of property. The Internal Revenue Code includes a provision that deems certain transactions to be sales or exchanges for tax purposes. At issue in Pilgrim s Pride was whether this provision applied to the abandonment of stock that is held as a capital asset. In 2013, the U.S. Tax Court agreed with the IRS, rejecting the taxpayer s argument that this provision only applied to derivative or contractual rights and did not apply to property rights inherent in ownership. 2 However, the Fifth Circuit reversed the Tax Court s ruling, finding that this provision applies to the termination of rights or obligations with respect to capital assets (e.g. derivative or contractual rights to buy or sell capital assets) [but] does not apply to the termination of ownership of the capital asset itself. The IRS attempted to argue that when a capital asset is abandoned, this provision applied because the inherent rights with respect to the abandoned asset were also being abandoned. The court disagreed, noting that Congress does not legislate in logic puzzles. The Fifth Circuit s decision may cause taxpayers to consider whether abandoning an asset and reaping a tax benefit is more beneficial than recouping a partial recovery and whether there are limits on such a strategy. TAX CONSEQUENCES OF NEGATIVE INTEREST RATES Over the last few months, the financial press has been filled with reports of negative interest rates. For example, on December 18, the Swiss National Bank announced that it would move from a zero-percent interest rate to a charge of 0.25% on deposits from commercial banks. This creates a negative interest rate on Swiss National Bank deposits. On January 15, rates fell further into negative territory as the Swiss National Bank lowered rates to negative 0.75%. In early April, Switzerland sold a ten-year government bond at a negative interest rate of 0.055%. In late March, GDF Suez sold a two-year zero yield bond. The Wall Street Journal recently reported that some lucky Europeans were actually benefitting from negative interest rates on consumer loans. 3 Why negative interest exists is beyond scope, as we say at Tax Talk. (Something about deflation producing a positive return even taking into account the negative interest.) In Europe, one reads it exists because the European Central Bank is flooding Europe with liquidity under its equivalent of quantitative easing. In the case of Switzerland, the move was aimed at weakening the Swiss franc, which ended its currency peg to the Euro in January. Moving beyond the why, negative interest isn t hard to define: at issuance it occurs when a lender lends money to a borrower and the borrower agrees to repay less than the amount loaned. Some view this as a premium for a loan or as a charge against the lender for holding its money. For an outstanding loan, negative interest can occur when a floating rate declines below zero. For example, if a mortgage loan in Spain was originally issued at a rate equal to one-month Euribor, that rate as of mid-april is below zero. Whether the lender must pay the borrower in this case depends on the underlying contract. Finally, a bond originally issued with a positive yield can trade at a negative yield. For example, right now in Europe a significant amount of sovereign debt trades at a negative yield. As one might imagine, there is little authority on negative interest for federal income tax purposes. However, in a little-noticed change to the regulations under section 171 proposed in 2013 and finalized a year ago, the IRS seems for once to be ahead of the curve. Apparently what has been happening is that the U.S. Treasury has been issuing short-term debt at near-zero rates. We re told that the Treasury, however, does not have the systems ability to actually charge a negative interest rate. Instead, the obligations are sold to brokers with a small yield who then sell the obligations to their customers at a negative yield. 4 Anyway, section 171 treats the excess of a debt instrument s issue price over its stated redemption price at maturity as bond premium. A holder can elect to amortize this bond premium under section 171. The amortized premium offsets interest income on the bond. If there is unamortized bond premium at maturity (e.g., if there is no interest on the bond against which to offset the premium), the holder would otherwise have a capital loss. The change in the regulations permitted holders to claim an ordinary loss for the unamortized premium. Another alternative would be to treat negative interest as a fee. Thus, the negative interest rate would be viewed as akin to a fee paid for use of a safety deposit box. The fee paid by the depositor might be a trade or business expense (in the case of a corporation), which would be deductible under Section 162. In fact, JP Morgan recently announced that they would charge their largest customers a fee for holding large cash balances with the bank. 5 3 Morrison & Foerster Tax Talk, May 2015 continued on page 4

29 Another issue is whether a U.S. investor that buys a negative interest bond from a foreign issuer must withhold on the interest under section The Securities Industry and Financial Markets Association recently wrote a letter to the Treasury raising this question. It seems farfetched because the source of the borrower s income logically seems to be foreign; however, given the numbers, U.S. investors are hoping for some clarification. We would advise our readers, however, not to hold their breath waiting for further U.S. government guidance on negative interest. Of course, it is possible that the IRS will resolve some of these issues quickly. But given how long any guidance takes these days, it is also possible negative interest will disappear before the IRS has a chance to act. RENEWED DISCUSSION OF A FEDERAL CONSUMPTION TAX Recent calls for tax reform have renewed discussion regarding a federal consumption tax. 6 Senate Finance Committee Member Ben Cardin (D. Md.) introduced a bill at the close of 2014 that would supplement the current income tax regime with a consumption tax. Sen. Cardin continues to discuss his proposal, which contains a 10% tax on goods and services at each stage of production and distribution. In conjunction with the consumption tax, the proposal modifies the income tax by setting the corporate income tax rate at 17% and the individual income tax rate at 15%-28% (with an exemption for individuals earning below a specific threshold). Finally, the proposal limits the total revenue collected by the consumption tax to 10% of gross domestic product. Whether a consumption tax is part of tax reform efforts of the Senate Finance Committee at large remains to be seen. In January, Senate Finance Committee Chairman Orrin Hatch (R. Utah) and Ranking Member Ron Wyden (D. Ore.) launched five bipartisan working groups to examine current federal tax law and available reform options. Each working group is responsible for one of the following areas: 1) individual income tax; 2) business income tax, 3) savings and investment; 4) international tax; and 5) community development and infrastructure. The goal for these working groups is to submit targeted policy proposals to the Senate Finance Committee by May. IRS RESUMES PTP RULINGS On March 6, 2015, an IRS official announced that the IRS will continue its private letter ruling process on whether a publicly traded partnership satisfies the qualifying income requirements of Section The IRS temporarily stopped granting such private letter rulings beginning in March of During the past year, the IRS spent significant time studying the Section 7704 issues and have worked extensively with engineers in LB&I to develop workable standards to guide its ruling practices. According to the IRS, such standards will be incorporated into proposed regulations. 7 HOUSE AND SENATE BILLS WOULD INCREASE THEN DECREASE ESTIMATED TAX PAYMENTS On April 22, 2015, the Senate Finance Committee voted to approve a bill that would require large corporations to increase their estimated quarterly federal income tax in the third quarter of 2020, followed by an offsetting reduction of estimated tax in the fourth quarter of Generally, corporations are required to make estimated tax payments every quarter equal to 25% of their tax liability for the taxable year (or, in some cases, the preceding taxable year). The Senate proposal would require corporations with assets of more than $1 billion to increase their quarterly estimated federal income tax payments by 2.75% in July, August, or September of 2020, followed by a 2.75% decrease for the following estimated tax payment. A similar bill passed by the House Ways and Means Committee would require a 5.25% increase in estimated tax payments for the third quarter of 2020 (again accompanied by a corresponding decrease in the following estimated tax payment). In the case of the House bill, the provision pays for an extension to the African Growth and Opportunity Act, the Generalized System of Preferences, the preferential duty treatment program for Haiti, and for other purposes. In the Senate bill, the provision helps to pay for an extension to the Trade Adjustment Assistance Program and the health coverage tax credit. This type of provision is a legislative device used to increase income within one time period (for example, the five-year budget horizon) while hiding the offsetting costs outside the relevant time period. The net effect is that large corporations are required to make a shortterm interest-free loan to the government. These types of provisions are not uncommon. In 2017, large corporations will be required to increase their third quarter estimated tax payment by 0.25% and decrease the following estimated tax payment by 0.25%. In fact, the 2010 Hiring Incentives to Restore Employment Act and Health Care and Education Reconciliation 4 Morrison & Foerster Tax Talk, May 2015 continued on page 5

30 Act increased the September 2014 estimated payment for large corporations by over 170% (followed by, you guessed it, an offsetting decrease for the next estimated tax payment). 8 However, the increased estimated tax payment for 2014 never actually came to pass. Section 7001 of the Middle Class Tax Relief and Job Creation Act of 2012 repealed estimated tax payment increases from prior legislation. Who knows whether this latest round of budgetary smoke and mirrors will eventually take effect. In the end, it s enough to make one wonder whether Congress ought to be subject to an economic substance doctrine. MOFO IN THE NEWS; AWARDS Please note that materials from any of the sessions listed are available on our website, or upon request by ing [email protected]. IFLR Americas Awards 2015 Team of the Year Structured Finance & Securitization Global Capital U.S. Derivatives Awards 2015 Shortlisted for Derivatives Law Firm of the Year GARP Webinar: Derivatives Regulatory Update: Have Regulators Reduced Risk to the U.S. Financial System? March 31, 2015 Webinar Julian Hammar and James Schwartz Of Counsels Julian Hammar and James Schwartz were joined by Michael Piracci of Barclays and Jason Silverstein of CME Group, to discuss the risks posed by derivatives, both cleared and uncleared, in the context of the current, still-evolving regulatory landscape. Specific to cleared swaps, the panelists covered the mechanisms by which clearinghouses mitigate risks, and helped clarify the debate over potential additional risk-mitigating measures. Also discussed was the possible expansion of the mandatory clearing regime to cover certain foreign exchange transactions (NDFs) in both the U.S. and the EU. With regard to uncleared swaps, the panel reviewed the recently released margin proposals of the CFTC and the federal banking agencies, as well as the ways these rules, if implemented, could arguably increase systemic risks rather than decreasing them. A Conflicts-Based Approach to SEC and FINRA Priorities March 31, 2015 Seminar Daniel Nathan Partner Daniel Nathan, joined by Julie K. Glynn of J.P. Morgan Chase, looked at FINRA s focus on its examinations and investigations through the lens of broker-dealers efforts to address the conflicts inherent in their business. This session also provided suggestions about how firms can identify and address these conflicts in a way that will make regulators comfortable and lower the anxiety level around FINRA examinations. Structured Investments Spring Conference 2015 March 31, 2015 Sponsorship Remmelt Reigersman and Peter Green Structured Products Association s 11 th annual spring conference on structured investments featured as the industry s benchmark event. Partners Remmelt Reigersman and Peter Green spoke on a panel entitled Legal-Regulatory-Compliance-Tax: Evolving Issues for the Structured Investments Industry in IFLR Webinar: Liability Management March 23, 2015 Webinar Anna Pinedo, David Lynn and Remmelt Reigersman Partners Anna Pinedo, David Lynn and Remmelt Reigersman discussed how an issued no-action letter may provide issuers and their advisers with greater flexibility for tender offers for non-convertible debt securities, including non-investment grade debt securities. The group also reviewed recent court decisions involving the application of the Trust Indenture Act in the context of liability management transactions. Structured Thoughts Master Class: Proprietary or Research-Based Indices March 19, 2015 Seminar Anna Pinedo Partner Anna Pinedo led a master class on proprietary or research-based indices. During this seminar, Ms. Pinedo discussed regulatory developments involving indices, such as the ESMA- EBA, IOSCO and proposed European regulation of benchmark indices. She also discussed compliance, Investment Company Act and Investment Advisers Act issues related to indices. Morrison & Foerster 5th Annual Financial Services and Regulatory Conference March 18, 2015 Seminar James Tanenbaum, Oliver Ireland, Remmelt Reigersman, Donald Lampe, Anna Pinedo, James Schwartz, Daniel Nathan, Julian Hammar and Thomas Humphreys 5 Morrison & Foerster Tax Talk, May 2015 continued on page 6

31 Several Morrison & Foerster attorneys convened in Charlotte, North Carolina to offer their perspectives on navigating the roads and reading the road signs of the Financial Services and Regulatory landscape. Sessions included Dodd-Frank and Basel Implementation Overview; Liquidity Measures, Regulatory Capital Developments and Impact on Lending and Financing Approaches; Tax Developments and Emerging Issues; Enforcement and Compliance Priorities and Developments; Retail and Consumer Banking: Mortgages and More; Grappling with the Volcker Rule; and Derivatives Regulatory Update. The 8 th Annual IMN Global Covered Bonds Conference March 5-6, 2015 Sponsorship Jeremy Jennings-Mares and Peter Green This program sought to assist in the rejuvenation of the covered bonds market in an effort to generate creative new solutions for the current financial challenges facing those in the Eurozone. Partner Jeremy Jennings-Mares spoke on a panel titled Outlook for the ABS/RMBS Market and Impact on Covered Bonds Issuance Appetite, and Partner Peter Green participated on a panel titled Important Regulatory Developments: LCR Update. PLI Webinar: Derivatives Regulatory Update March 4, 2015 Webinar Julian Hammar and James Schwartz Of Counsels Julian Hammar and James Schwartz updated the current state of play regarding the implementation of U.S. regulations under Title VII of Dodd-Frank. The speakers discussed the released proposals of the CFTC and the federal banking agencies that would require margin for uncleared swaps, efforts to harmonize the U.S. regulations with those of other jurisdictions, the legislation affecting the swaps push-out requirement, the ISDA 2014 Resolution Stay Protocol, the status of the SEC s rules for security-based swaps, and the possibility of the expansion of the mandatory clearing regime to cover certain foreign exchange transactions. PLI Webinar: Credit Risk Retention: Dodd-Frank Final Rule February 26, 2015 Webinar Kenneth Kohler and Jerry Marlatt Senior Of Counsels Kenneth Kohler and Jerry Marlatt addressed the key provisions of the Final Rule adopted by the Joint Regulators, including standard risk retention methods; transaction-specific risk retention options; types of securitizations exempt from the Final Rule; exemptions from risk retention for securitizers of residential mortgages; and transfer and hedging restrictions on securitizers. IFLR Bank Capital Seminar 2015 February 26, 2015 Sponsorship Anna Pinedo and Jeremy Jennings-Mares Partners Anna Pinedo and Jeremy Jennings- Mares spoke on topics related to advice on meeting the requirements of the first Liquidity Coverage Ratio; the best practices for issuers and investors to navigate tax in regulatory capital markets; and discovering where banks are finding innovative features in Tier 1 and CoCos. MoFo Classics Series: FINRA Research Rules February 24, 2015 Teleconference Anna Pinedo and Nilene Evans Partner Anna Pinedo and Of Counsel Nilene Evans reviewed the SEC s research rules, including Regulation AC, as well as FINRA s existing equity research rules, proposed amendments to the equity research rules, and proposed new debt research rules. The presentation also discussed changes arising as a result of the JOBS Act, recent enforcement matters, and other developments. PLI Webinar: Moving Away from the C-corporation: Understanding REITs, MLPs, and PTPs February 17, 2015 Webinar Remmelt Reigersman and Thomas Humphreys Partners Remmelt Reigersman and Thomas Humphreys explained the structures, restrictions and pitfalls in the evolving hybrid world of C-corporations mixed with tax pass-throughs. Topics included master limited partnerships; REITS and alternative assets; and Up-C structures. PLI Webinar: Green Bonds and Social Impact Investing February 12, 2015 Webinar Anna Pinedo Partner Anna Pinedo was joined by Lindsay Beck of NPX, to speak on the development of the market for green bonds, which has grown as issuers of debt securities reach a broader investor audience that seeks to promote sustainability and related initiatives. 6 Morrison & Foerster Tax Talk, May th Annual SPA and MoFo Structured Products Legal, Regulatory & Compliance Update 2015 February 9, 2015 Seminar Anna Pinedo and Remmelt Reigersman Partners Anna Pinedo and Remmelt Reigersman gave a timely and important presentation on significant new developments in the legal-regulatorycontinued on page 7

32 compliance landscape. This presentation covered a wide range of topics related to structured products, including 871(m) tax issues; TLAC; covered funds; Morgan Stanley 2.0; and what to expect in th Annual European Structured Products & Derivatives Conference 2015 February 5-6, 2015 Sponsorship Peter Green and Jeremy Jennings-Mares This program catered to both buy side (retail & private banking) and sell side, with various highlevel panel industry discussions and a focus on educational interactive workshops: distribution, regulation, law and technology with the purpose of networking and engaging all delegates into active debate. Partner Jeremy Jennings-Mares gave the welcome address at the beginning of the second day, and Partner Peter Green participated in the Law Firm Roundtable. PLI Webinar: Private Placement Related Developments February 4, 2015 Webinar Anna Pinedo Partner Anna Pinedo and Tymour Okasha of Bank of America Merrill Lynch provided a brief update of how the world of private offerings has changed following the JOBS Act, including complying with the bad actor rule; documentation changes to engagement letters to address Rule 506 and Rule 144A changes; the CFTC s limited relief for funds that seek to use general solicitation and general advertising; investor verification; the SEC s proposed Exchange Act Section 12(g) threshold rules; and Accredited crowdfunding. MoFo Classics: All Things Canadian February 3, 2015 Teleconference Nilene Evans Of Counsel Nilene Evans and Tim McCormick of Stikeman Elliott discussed the rules of the road for securities offerings by non-canadian issuers selling into Canada. Presenters also discussed the prospectus regime applicable to Canadian issuers, with a focus on the shelf registration process and on dual-listed issuers. The Knowledge Group Webinar: Margin Rules for Uncleared Swaps: What You Need to Know in 2015 January 29, 2015 Sponsorship Julian Hammar Of Counsel Julian Hammar offered participants an overview of the latest trends and best practices with respect to the Prudential Regulator s Proposed Margin Rules for Uncleared Swaps as well as comparisons to rules proposed by the CFTC regarding margin for uncleared swaps that will apply to entities not otherwise subject to the Prudential Regulator s rules. The 28th Annual Private Placements Industry Forum January 27-29, 2015 Sponsorship Brian Bates Partner Brian Bates spoke on a panel entitled Cross- Border Forms/Documentation: Forming or Final? on day 3 of the annual forum, which provided indepth coverage of over 10 different deal sectors, as well as firsthand case studies relating to private placements, and discussion on regulatory challenges and market conditions. NYC BAR Webinar: A How to Guide to Basic Derivatives, Swaps Clearing & Structured Products January 23, 2015 Webinar James Schwartz Of Counsel James Schwartz covered how the International Swaps Dealer Agreements ( ISDA ) and Credit Support Agreements work; how to avoid common, costly mistakes and unintended consequences when negotiating ISDA contracts; and understanding the differences among the three contract types. PLI Webinar: Shadow Banking Reform January 22, 2015 Webinar Peter Green and Jeremy Jennings-Mares Partners Jeremy Jennings-Mares and Peter Green focused their discussion on the development of the international reform of the shadow banking sector mandated by the G20 and spearheaded by the FSB. Areas of particular focus included the interaction of the regular banking system with shadow banking, securitisation activity, repos and stock lending and money market funds. Regulatory & Legal Challenges and Opportunities for the Recovery of the Securitisation and Structured Credit Markets January 14, 2015 Webinar Peter Green, Jeremy Jennings-Mares, Jerry Marlatt and Kenneth Kohler Senior Of Counsels Jerry Marlatt and Ken Kohler, and Partners Jeremy Jennings-Mares and Peter Green, discussed some of the particular legal and regulatory challenges facing the recovery of the markets and opportunities for further growth, with a particular focus on the U.S. and European markets. 7 Morrison & Foerster Tax Talk, May 2015 continued on page 8

33 Private Company M&A Brokers Relief from SEC Registration January 13, 2015 Teleconference Hillel Cohn Senior Of Counsel Hillel Cohn examined legislative proposals; the January 31, 2014 No-Action letter; qualifications for relief; and covered conduct and limitations of relief. West LegalEdcenter Webinar: U.S. Regulators Finalize Credit Risk Retention Rules January 8, 2015 Webinar Melissa Beck, Kenneth Kohler and Jerry Marlatt Senior Of Counsels Jerry Marlatt and Ken Kohler, and Of Counsel Melissa Beck, focused on the key provisions of the Final Rule adopted by the FDIC, FHFA, and OCC, including how the Final Rule generally permits risk retention to be accomplished through one or a combination of methods; transaction-specific risk retention options; types of securitizations exempt from the Final Rule; exemptions from risk retention for securitizers of RMBS; and the restrictions on securitizers. IFLR Webinar: Dodd Frank: Recap and What s Next? January 6, 2015 Webinar Oliver Ireland, James Schwartz and Kenneth Kohler Partner Oliver Ireland, Senior Of Counsel Ken Kohler and Of Counsel James Schwartz were joined by Gary Kalbaugh of ING Financial Holdings Corp., and focused on the thorniest implementation questions and highlighted the regulations that must still be finalized. The speakers addressed the Volcker Rule and related implementation questions; treatment of covered funds under the Volcker Rule; the final capital rules for U.S. banks and the intermediate holding company framework for foreign banks; the cross-border derivatives rules; the regulation of mortgage loan origination and securitization For a discussion of the Tax Court s 2013 ruling in Pilgrim s Pride, see Tax Talk Vol. 6, No. 4, available at 3 In Odd European Twist, Banks Owe Borrowers, Wall St. J., April 14, 2015 (p. A1). 4 According to the regulation s preamble: Prior to the issuance of the temporary regulations, the IRS and Treasury Department had received questions about an electing holder s treatment of a taxable zero coupon debt instrument, including a Treasury bill, acquired at a premium and with a negative yield. T.D Glazer, Emily. J.P. Morgan to Start Charging Big Clients Fees on Some Deposits. Wall St. J., Feb. 24, See McKinnon, John D. Tax Proposals Would Move U.S. Close to Global Norm. Wall St. J., Mar. 29, The proposed regulations were released May 5, 2015 (and will be covered in the next Tax Talk). 8 See Tax Talk 3.1, available at CAPITAL MARKETS AND SECURITIES FREQUENTLY ASKED QUESTIONS Announcing the 10th Anniversary Edition of the Capital Markets and Securities Frequently Asked Questions, Volumes 1 and 2. To obtain hard copies of both updated editions, please send an to [email protected]. Morrison & Foerster LLP Capital Markets 10TH ANNIVERSARY EDITION FAQS FREQUENTLY ASKED QUESTIONS 8 Morrison & Foerster Tax Talk, May 2015

34 ABOUT MORRISON & FOERSTER We are Morrison & Foerster a global firm of exceptional credentials. Our clients include some of the largest financial institutions, investment banks, and Fortune 100, technology, and life sciences companies. We ve been included on The American Lawyer s A-List for 11 straight years, and the Financial Times named the firm number six on its 2013 list of the 40 most innovative firms in the United States. Chambers USA honored the firm as its sole 2014 Corporate/M&A Client Service Award winner, and recognized us as both the 2013 Intellectual Property and Bankruptcy Firm of the Year. Our lawyers are committed to achieving innovative and business-minded results for our clients, while preserving the differences that make us stronger. CONTACTS United States Federal Income Tax Law Corporate + Securities Law Thomas A. Humphreys (212) [email protected] David J. Goett (212) [email protected] Shiukay Hung (212) [email protected] Anna T. Pinedo (212) [email protected] Stephen L. Feldman (212) [email protected] Remmelt A. Reigersman (212) [email protected] Alexander I. Birkenfeld (212) [email protected] Lloyd S. Harmetz (212) [email protected] Because of the generality of this newsletter, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. 9 Morrison & Foerster Tax Talk, May Morrison & Foerster LLP

35 MORRISON & FOERSTER QUARTERLY NEWS TAXTALK IN THIS ISSUE Congress Passes Year-End Tax Extenders Bill Page 2 Volume 7, No. 4 January 2015 Authored and Edited By Thomas A. Humphreys Anna T. Pinedo Stephen L. Feldman Remmelt A. Reigersman Shiukay Hung David J. Goett David N. de Ruig Alexander I. Birkenfeld House Adopts New Dynamic Scoring Rule Page 2 Foreign Fund Engaged in Lending and Stock Distribution Not Protected by Trading in Stock or Securities Safe Harbor Page 2 IRS Addresses Distribution by Corporation Electing to be Treated as REIT Page 4 REIT Preferential Dividend Page 4 Reporting Requirement for Payments to LLCs Page 5 IRS Recharacterizes Offsetting Contracts Page 5 IRS Applies Section 956 Anti-Abuse Rule (Again) to Recharacterize Backto-Back Loans Page 6 IRS Revisits Prior Letter Rulings; Disapproves of Costless Collar Transaction Page 6 PLI Webinar: Moving Away From The C-Corporation: Understanding REITs, MLPs, and PTPs Page 7 MoFo in the News; Awards Page 7 EDITOR S NOTE Although 2015 is already under way, we can t quite ring in the new year without sharing some of the more noteworthy tax items of Q (and, admittedly, a few from this year as well) in this issue of Tax Talk. Predictably, as 2014 drew to a close, Congress was busy trying to squeeze in a few last-minute tax bills. With just days left in the year, the 113th Congress passed legislation to extend a number of important tax breaks that were slated to expire at the end of And, as the New Year dawned and the 114th Congress gathered in Washington, D.C., House Republicans muscled through new rule changes designed to impact the way legislation would be evaluated so-called dynamic scoring. Indeed, with a GOP-majority in the House and Senate, it remains to be seen whether Republicans will be able to galvanize and begin the process of passing comprehensive tax reform. We bring you the salient details below. Turning from the political to the substantive, this issue of Tax Talk also highlights IRS private guidance that addresses REITs, which continued to be hot in On the international tax front, we also summarize IRS private guidance that holds that a foreign fund engaged in lending and stock distribution could not take advantage of the trading in stock or securities safe harbor, as well as guidance that recharacterizes certain loans among related companies for purposes of the Section 956 income inclusion rules. Finally, we conclude Tax Talk with a few developments that impact the taxation of financial instruments and our usual column, MoFo in the News. continued on page 2

36 CONGRESS PASSES YEAR- END TAX EXTENDERS BILL On December 19, just days before the end of 2014, President Obama signed into law the Tax Increase Prevention Act of 2014 (TIPA). TIPA retroactively extended a number of tax breaks for 2014 that had expired at the end of While we won t bore our readers by reciting chapter and verse, there are a few key provisions of the tax extender s bill worth mentioning. Specifically, taxpayers will still enjoy the benefit of the following tax breaks for 2014: bonus depreciation; certain interest-related and short-term capital gain dividends from a RIC; RIC-qualified investment entity treatment under FIRPTA; subpart F exception for active financing income; look-thru treatment of payments between related controlled foreign corporations under foreign personal holding company rules; and temporary exclusion of 100% of gain on certain small business stock. HOUSE ADOPTS NEW DYNAMIC SCORING RULE On January 6, 2015, House Republicans pushed through a new rule that would require more macroeconomic projections be included by the Congressional Budget Office and Joint Committee on Taxation when providing cost estimates for major legislation. This new methodology, referred to as dynamic scoring, essentially requires budget estimates to also take into account how the proposed legislation could impact the economy at large. While the rule only affects House bills, it has drawn wide-spread criticism from Democrats and the White House. These critics claim that the new rule will make it easier to pass legislation that could increase the deficit, while simultaneously making it more difficult to determine the legislation s cost. In other words, Democrats cry that dynamic scoring will only make it easier for Republicans to pass tax cuts, without disclosing the true financial impact of the cuts in a fair and accurate manner. While the immediate impact of the new rule remains to be seen, with Republicans in control of Congress, one can only speculate whether it will be the platform from which the GOP will attempt to launch a series of bills designed to overhaul the tax code. FOREIGN FUND ENGAGED IN LENDING AND STOCK DISTRIBUTION NOT PROTECTED BY TRADING IN STOCK OR SECURITIES SAFE HARBOR For decades, U.S. taxpayers (or non-taxpayers) have been bedeviled by the distinction between trading in stocks and securities and lending. Today, many foreign corporations purchase bank loans in the secondary market. Over time, however, the distinction between secondary market purchase and loan origination has been tested as the foreign corporation steps closer and closer to the loan s origination. Much has been written about this; during the Financial Crisis, industry groups attempted to get the Treasury to loosen the rules but to no avail. In CCA , the Office of the IRS Chief Counsel concluded that Fund, a foreign partnership, and Foreign Feeder, a foreign corporation and partner of (Fund), engaged in lending and stock distribution activities that qualified as a trade or business within the U.S., and that did not constitute trading in stock or securities under the Trading Safe Harbors (defined below). Fund entered into a management agreement with Fund Manager under which Fund Manager acted as Fund s agent and maintained full power to buy, sell, and deal in securities and related contracts for Fund s accounts. Through an office in the U.S., Fund Manager conducted extensive lending and stock distribution/underwriting activities on behalf of Fund. Lending activities included conducting due diligence, negotiating with borrowers, and lending money in return for convertible debt instruments and promissory notes. Stock distribution/ underwriting activities included negotiating with issuers, purchasing stock at a discount from the issuers, and selling the stock to both U.S. and foreign investors. Fund argued that the activities constituted investment activity and, thus, did not constitute a trade or business within the U.S. Fund also argued in the alternative that the activities fell within the Trading Safe Harbors. First, the IRS concluded that Fund engaged in a trade or business within the U.S. Pursuant to Section 882, a foreign corporation that engages in a trade or business within the U.S. is taxable on its income that is effectively connected with such trade or business within the U.S. Activities performed by an agent on behalf of a foreign 2 Morrison & Foerster Tax Talk, January 2015 continued on page 3

37 person are considered to be performed by the foreign person. 1 To determine whether activities constitute a U.S. trade or business, courts and the IRS have applied a facts and circumstances test the profit-oriented activities must be considerable, continuous, and regular. For instance, activities must go beyond passive management of investments. 2 The IRS concluded that Fund s activities were considerable, continuous, and regular because Fund dedicated significant time, energy, and resources to making numerous loans to borrowers and entering into dozens of stock distribution agreements with issuers. Second, the IRS concluded that Fund s activities did not constitute trading in stocks or securities and, thus, did not fall within the Trading Safe Harbors. Pursuant to Section 864(b), a trade or business within the U.S. does not include, inter alia, trading in stock or securities. Section 864(b)(2)(A) include two safe harbors (the Trading Safe Harbors ) for which certain trading activities performed by or on behalf of a foreign person that would otherwise constitute a trade or business within the U.S. are considered not to be a trade or business within the U.S. The first Trading Safe Harbor (the First Safe Harbor ) provides that a trade or business within the U.S. does not include trading stocks or securities through a resident broker, commission agent, custodian, or other independent agent. 3 The First Safe Harbor does not apply if the foreign person has an office or fixed place of business in the U.S. The second Trading Safe Harbor (the Second Safe Harbor ) provides that a trade or business within the U.S. does not include [t]rading in stocks or securities for a taxpayer s own account, whether by the taxpayer or his employees or through a resident broker, commission agent, custodian, or other agent, and whether or not any such employee or agent has discretionary authority to make decisions in effecting the transactions. 4 Unlike the First Safe Harbor, the Second Safe Harbor cannot be used by foreign dealers, but can be used by other foreign persons who have offices or fixed places of business in the U.S. Pursuant to the Treasury Regulations for the Trading Safe Harbors, trading in stock or securities means the effecting of transaction in stock or securities including buying, selling or trading in stocks, securities, or contracts or options to buy stocks or securities. 5 The IRS concluded that neither Fund s lending nor underwriting activities constitute trading in stock or securities. The IRS referred to Treas. Reg (c)(5) to conclude that lending is not trading in stock or securities because a foreign person who makes a loan in the U.S. engages in the active conduct of banking or financing within the U.S. A narrow exception, which allows a foreign underwriter to qualify for the Trading Safe Harbors if it sells only to foreign buyers, 6 does not apply to Fund, which sold shares to both U.S. and foreign buyers. Furthermore, courts have defined trading as profiting from fluctuations in the price of assets, as opposed to profiting from services provided. 7 The IRS determined Fund s activities were not trading because Fund profited not from a change in value of securities but from earning fees, a spread, and interest on its lending and underwriting activities. Alternatively, the IRS concluded that, even if Fund s lending and stock distribution activities were trading in stock and securities, Fund could not have used the Trading Safe Harbors. The First Safe Harbor did not apply because Fund s management agreement provided discretionary authority to Fund Manager. The IRS concluded that the language of Section 864(b), its legislative history, and its regulations disallow protection under the First Safe Harbor if the taxpayer gives discretionary authority to a U.S. resident agent. Specifically, in the Foreign Investor s Tax Act of 1966 (P.L ) (FITA), Congress made two amendments to the safe harbor in the Internal Revenue Code of 1939 (the 1939 Safe Harbor ). The 1939 Safe Harbor permitted trading in the U.S. through a resident broker, commission agent or custodian. FITA added or other independent agent to the 1939 Safe Harbor (now, the First Safe Harbor), and added the Second Safe Harbor, which expressly permits foreign non-dealers to trade through resident agents who have discretionary authority. Thus, the IRS concluded that by including discretionary authority in the Second Safe Harbor, the First Safe Harbor implicitly excludes discretionary authority from the meaning of independent agent. 8 What s more, the Treasury Regulations provide an exception under the Second Safe Harbor where a foreign bank authorizes discretionary authority for a U.S. broker trading on behalf of the foreign bank s customers. If a foreign dealer could grant discretionary authority under the First Safe Harbor, then this narrow exception under the Second Safe Harbor would not be necessary. Thus, because Fund s management agreement provides for discretionary authority, the First Safe Harbor is not available to Fund. Finally, the Second Safe Harbor did not apply to Fund because its underwriting activities fit within the definition of a dealer in stock or securities. Pursuant to Treas. Reg (c)(2)(iv)(a), a dealer has an established place of business and regularly engage[s] as a merchant in purchasing stocks or securities and sell[s] them to customers with a view of the gains and profits that may be derived therefrom. The IRS concluded that Fund had an established place of business and, through its underwriting activities, regularly engaged in purchasing stocks and selling them to customers with the intent of earning gains and profits. 3 Morrison & Foerster Tax Talk, January 2015 continued on page 4

38 In sum, the IRS determined that Fund and Foreign Feeder, as a partner of Fund, were engaged in a trade or business within the U.S. Fund s lending and stock distribution activities were considerable, continuous, and regular, and did not constitute trading in stock and securities under the Trading Safe Harbors. IRS ADDRESSES DISTRIBUTION BY CORPORATION ELECTING TO BE TREATED AS REIT Investment bankers have been scouring the country for U.S. corporations that are interested in a tax-free spinoff of their real estate, using a real estate investment trust (REIT). For example, Pinnacle Entertainment, a gaming company, recently announced that it was exploring a REIT. One aspect of these REIT spin-offs is that, post-spin-off, the REIT must distribute any accumulated profits earned as a C corporation. In some cases, this would require substantial cash to be distributed to shareholders by the new company. This is where the IRS has been helpful in permitting cash plus stock distributions. This practice began during the Financial Crisis when REITs were running out of cash. Unfortunately, the IRS has not issued a revenue procedure; accordingly, tax payers are required to obtain private letter rulings. The most recent example is Private Letter Ruling In that ruling, the taxpayer was a corporation incorporated in a state of the United States. The taxpayer intended to elect under Section 856 of the Code to be treated as a REIT. In connection with the REIT election, the taxpayer proposed to make distributions to its shareholders of its earnings and profits that were accumulated by the taxpayer for all taxable years that ended prior to the end of the REIT s first taxable year ( First REIT Taxable Year ). Pursuant to Section 857(a)(2)(B), an entity is eligible to make a REIT election only if it has no earnings and profits from any year in which it was not taxed as a REIT. The taxpayer intended to provide its shareholders with an election to receive the proposed distributions in the form of cash, stock, or a combination of both cash and stock. Without giving a reasoned opinion, the IRS held that all the cash and stock to be distributed in the proposed distributions by taxpayer to its stockholders will be treated as distributions under Sections 301 and 305(b), provided that (a) the taxpayer elects to be taxed as, and qualifies as, a REIT as of the First REIT Taxable Year and (b) the proposed distributions occur prior to the end of the First REIT Taxable Year and the amount of the distribution paid in stock is the fair market value of such stock on the date of distribution. REIT PREFERENTIAL DIVIDEND In Private Letter Ruling , the taxpayer was a limited liability company organized under a state of the United States and had, since its first taxable year, elected to be treated as a corporation and a REIT for U.S. federal income tax purposes. The taxpayer s investments and operations were managed externally by an outside advisor for a quarterly management fee based on a percentage of the taxpayer s net asset value as of the beginning of the relevant quarter. The taxpayer wanted a bigger portion of the cost of such management fees to be borne by smaller shareholders, as opposed to larger shareholders. Therefore, the taxpayer proposed to split its common shares into two classes of common shares: Class A and Class B. Only Class A shareholders of a certain threshold percentage would be eligible to subscribe to Class B shares. Class B shareholders, by contrast, would be entitled to receive an additional special dividend. The special dividend would, in effect, reduce the portion of the management fee borne by these larger investors. The taxpayer asked the IRS to rule as to whether such an arrangement would be treated as preferential dividends within the meaning of Section 562 of the Code. Under Section 857(a)(1) of the Code, a REIT s deduction of dividends paid for a tax year must equal or exceed 90% of its REIT-taxable income for the tax year. Section 562 provides that a distribution with a preference for one class of stock as compared with another class, except to the extent that the former is entitled to such preference, is not eligible for the dividends paid deduction. Examining the Class A and Class B shares, the IRS concluded that the Class A and Class B shares are not appropriately recognized as separate classes for purposes of Section 562, notwithstanding that the taxpayer s governing documents recognize the two as separate classes of stock. The Class A and Class B shares have identical voting, dividend, redemption, and liquidation rights, except that Class B shareholders are entitled to receive an additional special dividend, as described above. The IRS examined the legislative history behind Section 562 and noted that, in the regulated investment company context, the conference report explains that a preference is allowed under Section 562 where the differences reflect savings in administrative costs (but no 4 Morrison & Foerster Tax Talk, January 2015 continued on page 5

39 differences in management fees). Since the preference in the taxpayer s case is for management fees rather than for administrative costs, the IRS held that such an arrangement would be treated as preferential dividends within the meaning of Section 562. The ruling is reminiscent of a ruling in the early 1980s where a regulated investment company tried to charge management fees at the shareholder level in order to charge different management fee amounts. The IRS ruled that this sliding scale fee structure resulted in a preferential dividend under Section 562(c). 9 REPORTING REQUIREMENT FOR PAYMENTS TO LLCS In CCA , the Office of the IRS Chief Counsel concluded that payments to Limited Liability Companies (LLCs) are exempt from Section 6041 reporting requirements only if the LLC has elected to be treated as a corporation for U.S. federal income tax purposes. Pursuant to Section 6041, a person engaged in a trade or business must report of $600 or more made in the course of such trade or business to the IRS payments. However, the Treasury Regulations exempt certain payments, including payments to corporations. 10 Pursuant to Section 7701(a)(3), a corporation includes associations, joint-stock companies, and insurance companies. The taxpayer argued that payments to LLCs are not reportable transactions under Section 6041 because LLCs are exempt payees. Thus, the taxpayer claimed that no backup withholding was required on such payments. Generally, the default federal income tax classification for an LLC is either a partnership (for a multi-member LLC) or a disregarded entity (for a single-member LLC). 11 However, LLCs can elect to be classified as associations, and, thus, corporations, by filing Form Here, there were no records that any of the LLC payees filed Form Therefore, the Office of the IRS Chief Counsel concluded that, by default, the LLCs were either partnerships or disregarded entities, and payments to such entities are not excluded from Section 6041 reporting requirements. IRS RECHARACTERIZES OFFSETTING CONTRACTS In CCA , the IRS used the substance over form doctrine to recharacterize a combined position in a loan (the Loan) and prepaid derivative contracts (the Contracts). According to the CCA, the Taxpayers (a married couple filing jointly) were investors that purchased an interest in the transaction, marketed as a leveraged forward contract, from a promoter. The particulars of the transaction are complicated (in the words of the CCA, needlessly complex ) but described briefly the Taxpayers were obligors on the Loan but were entitled to receive payments on the Contracts from a broker counterparty ( Broker ). The payments on the Loan and the Contracts were designed to create offsetting rights and obligations, except that, if interest rates increased above a particular threshold, the Broker would be obligated to make additional payments. In order to offset this risk, the Broker entered into a swaption contract (an option to purchase a fixed-to-floating rate swap). The amount paid for the Contracts exceeded the amount of the Loan by exactly the cost of the swaption. For tax purposes, however, the Taxpayers took the position that the Loan generated ordinary interest deductions, while the Contracts generated capital gain income. According to the CCA, the Taxpayers relied on an unsigned draft opinion by a law firm and a signed opinion by a solo practitioner. The opinions (neither one of which was specifically addressed to the Taxpayers) conclude, at a more likely than not level, that (1) the Loan will be treated as indebtedness for federal income tax purposes; (2) the Contracts will not generate taxable income until the forward sales are executed and any gain or loss recognized on the Contracts will be capital gain or loss; and (3) the interest deductions will be respected and the separate treatment of the Loan and the Contracts will not be disallowed under the economic substance doctrine. In the CCA, the IRS attacked the transaction and collapsed the Loan with the portions of the Contracts that offset the Loan payments. The IRS did not accept the Taxpayers argument that they had purchased an interest in the transaction in order to obtain a potential benefit if interest rates exceed the Contract threshold: Taxpayers made a relatively small out-ofpocket payment for an arguably profitable element of the Transaction, and then claimed interest deductions on the Loan that far exceeded Taxpayer s out-of-pocket payment. The IRS concluded that the practical effect of this transaction is no different than if Taxpayer had simply purchased the swaption directly from [the swaption counterparty], except that Taxpayer paid substantial fees to Promoter to access interest deductions that would be otherwise unavailable. Accordingly, the IRS recharacterized the transaction as in substance the purchase of a swaption contract and disregarded the Loan and the offsetting portions of the Contracts. 5 Morrison & Foerster Tax Talk, January 2015 continued on page 6

40 IRS APPLIES SECTION 956 ANTI-ABUSE RULE (AGAIN) TO RECHARACTERIZE BACK-TO- BACK LOANS In recent private guidance, CCA , the IRS addressed whether loans made by several corporate subsidiaries to one of their parent s shareholders should be treated as if actually made by the parent corporations, where both the subsidiaries and their parents were controlled foreign corporations (CFCs). Applying the anti-abuse rule under the Section 956 regulations, the IRS concluded that, based on the facts and circumstances, the loans should be treated as if made by the parent CFCs.13 As a result, because the parent CFCs had substantial earnings and profits (E&P), whereas the subsidiary CFCs did not, the parent CFCs shareholder, the borrower, was required to include a greater amount of income under Section 956. By way of brief background, Section 956 generally requires a United States Shareholder to include an amount in income that is the lesser of (a) the excess of the shareholder s pro rata share of the average of the amounts of United States property held by the CFC as of the close of each quarter of the amount of any previously taxed income with respect to the shareholder, or (b) the shareholder s pro rata share of the CFC s applicable earnings. For these purposes, United States property includes an obligation of a United States person that is, the loan held by the subsidiary CFCs. While these definitions are complex, the principle behind them is not. In short, Section 956 provides that a United States shareholder must include in income any E&P of the CFC that are loaned to the shareholder, provided that the E&P have not been previously taxed. In turn, the Section 956 anti-abuse rules target investments in United States property by CFCs designed to avoid the income inclusion provided by Section 956. For example, the Treasury regulation at issue in the private guidance provides that investments in United States property by another foreign corporation that is controlled by a CFC may be recharacterized if one of the principal purposes for funding the foreign corporation is to avoid the purpose of Section 956. Here, the subsidiary CFCs were controlled by the parent CFCs, and the loans from the subsidiary CFCs to the shareholder of the parent CFCs, a United States shareholder as defined in Section 951(b), qualified as United States property for purposes of Section 956. As a result, the loans could be recharacterized as having been issued by the parent CFCs if one of the principal purposes in funding the subsidiary CFCs (through the loans) was to avoid the application of Section 956. The IRS found several facts supporting its conclusion that one of the principal purposes of the loans was to avoid the application of Section 956. First, the subsidiary CFCs E&P were insignificant, whereas the parent CFC s were not. Thus, had the loans been made by the parent CFCs, the Section 956 inclusion by the shareholder would have been much larger. Second, the shareholder was able to claim a larger foreign tax credit by using the subsidiary CFCs as subsidiaries. Third, the amount of the funds transferred by the parent CFCs to the subsidiary CFCs to fund the loans was virtually identical. In other words, almost the entire amount of the funds transferred by the parent CFCs to the subsidiary CFCs was loaned to the parent CFC s shareholder. Finally, the funds provided by the parent CFCs to the subsidiary CFCs were loaned to the shareholder on the same day, indicating that there was no valid business reason for the subsidiary CFCs to loan the money, other than to diminish the impact of Section 956. IRS REVISITS PRIOR LETTER RULINGS; DISAPPROVES OF COSTLESS COLLAR TRANSACTION Letter Ruling LAFA F (12/19/2014) shows a conflicted IRS attempting to limit the historical doctrine that a short sale against the box does not result in a taxable event. In the ruling, in the early 2000s the taxpayer entered into two variable forward contracts over publicly traded technology company common stock. The variable forward contracts provided for delivery of a variable number of shares at settlement in exchange for a cash payment at settlement. At maturity, to settle the contracts, the taxpayer borrowed shares pursuant to a securities loan and delivered the borrowed shares receiving the cash payment. It treated the settlement under the forward contract as a sale of the borrowed shares and, accordingly, did not recognize gain on the forward contract under short sale tax principles. The taxpayer did, however, recognize gain on its long stock position under section 1259 when it borrowed the shares. Of course, by the time the forwards were settled, one can surmise the technology company stock had substantially depreciated from its value when the forward contract was originally entered into. The Internal Revenue Service originally agreed with the taxpayer s approach in PLR However, in PLR , the IRS withdrew the 2004 ruling without retroactive effect. In other words, the IRS grandfathered the taxpayer. In the most recent advice, 6 Morrison & Foerster Tax Talk, January 2015 continued on page 7

41 the Internal Revenue Service argues that grandfathering was inappropriate and that the taxpayer recognized gain on the transaction. The most recent ruling makes two different arguments. First, when the taxpayer borrowed the shares and delivered them under the forward contracts, the ruling argues that gain was recognized under Code According to the IRS, the closing of the forward contracts converted them into cash and required gain recognition. The taxpayer argued that the law regarding a short sale of securities protected it from gain recognition. That law holds that, if a taxpayer is long-appreciated securities and then borrows and delivers stock in a sale, that sale is not a sale of the long position. 14 This is the classic short against the box transaction. The taxpayer cited Revenue Ruling for this proposition. However, the IRS concluded that Rev. Rul should be limited to standard short sale transactions and is not applicable to the closing of a contract, which terminates all rights and obligations of the parties with respect to that contract. Second, the ruling also argues the financial contracts were open transactions and that, even though borrowed shares were delivered under the contracts, the contracts were closed and a completed transaction occurred for federal income tax purposes, requiring the recognition of gain. The ruling, therefore, argues that the entire cash paid on the financial contracts should be recognized and included in the calculation of gain under Finally, as to the grandfathering point, the IRS argues that the 2004 private letter ruling failed to consider the economic substance of the transaction. The IRS asserted that once issued, a PLR may be revoked for a number of reasons, for example, due to a different or clearer perception of an issue and its ramifications or errors in law. It also appears that the year of closing the forward contracts had itself closed under the statute of limitations. To reach back, the ruling also holds that gain recognition when the forward was closed was a change in the method of accounting because it involved the time for inclusion of gain on the shares. Accordingly, the Commissioner applied 481 to spread the income over a four-year period. This effectively allowed it to reach back into years closed by the statute of limitations. We expect this PLR will attract some attention as time goes by. As a legal matter there is little difference between a market short sale and the taxpayer s transaction; it is likely commentators will view limiting Rev. Rul to classic short sales unsatisfying from a theoretical standpoint. PLI WEBINAR: MOVING AWAY FROM THE C-CORPORATION: UNDERSTANDING REITS, MLPS, AND PTPS Please join Morrison & Foerster LLP on February 17, 2015 for a one hour briefing hosted by Practising Law Institute, titled Moving Away From The C-Corporation: Understanding REITs, MLPs, and PTPs. Federal Tax Partners Thomas Humphreys and Remmelt Reigersman will explain the structures, restrictions, and pitfalls in this evolving hybrid world of C-corporations mixed with tax pass-throughs. Specifically, they will discuss: Master limited partnerships; REITs and alternative assets that may qualify as real estate ; Using REITs to unlock real estate currently held in corporate form; Consolidated groups of corporations and disregarded entities; and Up-C structures. For more information about this event, or to register, click here. MOFO IN THE NEWS; AWARDS Please note that materials from any of the sessions listed are available on our website, or upon request from Carlos Juarez or Harrison Lawrence. PLI Webinar: SEC Guidance Regarding Investment Advisors and Proxy Firms December 16, 2014 Webinar Marty Dunn, David Lynn, and Scott Lesmes Partners Marty Dunn, David Lynn, and Scott Lesmes took a close look at the joint guidelines and their related impact on compliance with fiduciary duty; voting every proxy not required; selecting a proxy advisory firm; ongoing oversight of proxy advisory firms; application of proxy rules to proxy advisory firms; Rule 14a-2(b)(1); and Rule 14a-2(b)(3). Understanding the Securities Laws Fall 2014 December 11, 2014 Speaking Engagement Anna Pinedo Partner Anna Pinedo led a presentation entitled Securities Act Exemptions/Private Placements. Topics of discussion included exempt securities versus exempt transactions; Regulation-D offerings and recent changes; the new crowdfunding exemption rules; intrastate offerings; the new Regulation 7 Morrison & Foerster Tax Talk, January 2015 continued on page 8

42 A+ exemption rules; Rule 144A high-yield and other offerings; Regulation S offerings to non-u.s. persons ; and exempt offerings in the new era that allows general advertising. IFLR Webinar: Green Bonds and Social Impact Investing December 9, 2014 Webinar Anna Pinedo and Susan Mac Cormac Partners Anna Pinedo and Susan Mac Cormac discussed the green bond market; considerations in structuring and offering green bonds; disclosure and reporting requirements; green bond principles; and outlining an approach for designating, disclosing, managing, and reporting on the proceeds of a green bond. Raising Capital in 2015 December 8, 2014 Seminar James Tanenbaum and Anna Pinedo Partner James Tanenbaum discussed financing opportunities and choices for small cap companies in light of changing markets, and partner Anna Pinedo spoke about communications issues related to offerings and to life as a U.S. public company. Financing in Close Proximity to an Acquisition December 2, 2014 Teleconference James Tanenbaum and Anna Pinedo Partners James Tanenbaum and Anna Pinedo spoke on public companies that would like to raise capital in connection with a proposed acquisition. Depending upon the significance of the acquisition, its probability, and the timing of various announcements, the company and its advisers may face a number of challenges in devising a capital-raising plan. ABA Business Law Section November 21, 2014 Sponsorship Jay Baris and David Lynn Partners Jay Baris and David Lynn spoke on the popularity of social media among investors and the growth, issuers, broker-dealers, investment advisors, and investment funds that are developing social media strategies. With the SEC and FINRA weighing in too, this panel explored new challenges faced by the regulators and the regulated with respect to fastevolving world of social media. ALI-CLE Webinar: Banks Credit Risk Retention: New Rules from Multiple Agencies November 21, 2014 Webinar Kenneth Kohler and Jerry Marlatt Senior Of Counsels Kenneth Kohler and Jerry Marlatt provided succinct analysis of the final credit risk retention rule after regulators from the FDIC, OCC, Federal Reserve, SEC, HUD, and FHFA have finalized the rule to require banks issuing securitized loans to retain 5% of the credit risk with a variety of exceptions, including one for qualified residential mortgages. Master Class: ETNs November 20, 2014 Seminar Bradley Berman Of Counsel Bradley Berman examined some timely issues for structured products market participants. Topics of discussion included NYSE Arca listing requirements; regulatory issues; ETNs in the news; recent SEC and FINRA guidance on ETNs; and drafting issues. The Growth Capital Summit November 19, 2014 Sponsorship Anna Pinedo and David Lynn Partner Anna Pinedo spoke on a panel entitled Challenges for Public Emerging Growth Companies. Topics included Tick size pilot implementation; Primary shelf registration limit expansion; and DTC chill relief. Partner David Lynn participated on a panel entitled JOBS Act: Title II Implementation, which discussed proposed changes to accredited investor eligibility and definitions and expected impacts on Reg D offerings; Rule 506(c) offerings and the use of general solicitation in equity crowd finance; investor verification best practices for Title II funding platforms; open issues relating to the bad actor definition; and CFTC limited relief for general solicitation by certain investment funds. Structured Products Europe 2014 November 18, 2014 Sponsorship Peter Green and Jeremy Jennings- Mares Partners Peter Green and Jeremy Jennings-Mares spoke on Regulatory Developments in the EU and UK. Topics of discussion included MiFID II; finalisation of UCITS V and possible UCITS VI; the ongoing effect of amendments to the Prospectus Directive; regulators views generally on complex products; and an overview of regulatory approach in individual EU jurisdictions and a look at developments in the U.S. and Asia. PRIIPS and Regulation of Structured Products in the EU November 13, 2014 Webinar Peter Green and Jeremy Jennings-Mares Partners Peter Green and Jeremy Jennings-Mares spoke on the finalization of the PRIIPs regulation in early 2014, as well as the recently adopted MiFID II legislation, and the important changes that it introduces. They also discussed the debate within EU member states and other international regulators as to the best approach for regulation of complex 8 Morrison & Foerster Tax Talk, January 2015 continued on page 9

43 products, and the circumstances in which they should be sold to retail investors. PLI Webinar: Simplifying the World of Complex Financings November 11, 2014 Webinar Anna Pinedo Partner Anna Pinedo focused on equity-linked instruments that may be offered in securities financing and other strategic transactions, including warrants and convertible securities. Ms. Pinedo also discussed the principal negotiating issues in connection with such instruments and the associated accounting and financial reporting consequences. Structured Products Washington Conference November 12, 2014 Sponsorship Anna Pinedo, Bradley Berman and Lloyd Harmetz Of Counsel Bradley Berman and Partners Anna Pinedo and Lloyd Harmetz focused on developments in the legal, regulatory, and compliance landscape for structured products. This comprehensive event brings together the regulatory community with structuring, marketing, legal, and compliance personnel within the structured products and derivatives industry. IFLR Webinar: Moving away from the C-Corporation: Understanding REITs, MLPs, PTPs, and BDCs November 11, 2014 Webinar Remmelt Reigersman and Thomas Humphreys Tax Department Chair Thomas Humphreys and Partner Remmelt Reigersman explained the structures, restrictions, and pitfalls in this evolving hybrid world of C-corporations mixed with tax passthroughs. Arizona Bankers Association CEO and Directors College October 30, 2014 Speaking Engagement Anna Pinedo Partner Anna Pinedo focused on what has been accomplished and what is yet to come for the Dodd- Frank Act. This session provided an inside look as to what companies can expect to see from the SEC on transparency regulation for the derivatives and assetbacked securities markets, as well as rules for credit rating firms. The presentation also gave a synopsis of the work the SEC has done related to the hedge fund industry and protections for brokerage customers. SIFMA Complex Products Forum October 29, 2014 Sponsorship Anna Pinedo Partner Anna Pinedo discussed reasonable-basis suitability and innovative investment products; due diligence processes when onboarding new products; ongoing supervision and oversight best practices; and new product training and how it can create a culture of compliance. Communications Rules and Public Companies October 28, 2014 Seminar David Lynn and Marty Dunn Partners David Lynn and Marty Dunn focused on the existing communications safe harbors under the Securities Act available to private companies contemplating an IPO or other financing and those available to seasoned public companies. West LegalEdcenter Webinar: Understanding the Offering Process, Disclosure and Periodic Reporting Requirements for Asset-Backed Securities October 16, 2014 Webinar Jerry Marlatt and Kenneth Kohler Senior Of Counsels Jerry Marlatt and Kenneth Kohler examined some of the significant changes that were adopted by the Commission, including the speed bump provision; asset review for compliance; asset-level information for securitizations involving residential mortgage loans, commercial mortgage loans, auto loans and debt securities among other assets; a requirement to report periodically demands by the trustee to repurchase assets for breach of representations and warranties, and any such assets not repurchased; CEO certifications; and new forms for registration of asset-backed securities. EU Bail-In Power and Transaction Structuring October 16, 2014 Webinar Peter Green and Jeremy Jennings-Mares Partners Peter Green and Jeremy Jennings-Mares focused on the scope of the bail-in power and how it might be applied in practice, as well as discussing how this might affect the structuring of financial instruments issued by banks. IFLR Webinar: The Cross-Border Private Placement Market October 14, 2014 Webinar Scott Ashton and Brian Bates Of Counsel Scott Ashton and Partner Brain Bates discussed the global private placement market and recent trends; market participants; documentation requirements; traditional covenants and model forms; marketing process; ratings and the NAIC; and secondary transfers. Developments in Private Placements October 8, 2014 Seminar Anna Pinedo Partner Anna Pinedo, along with James Waldinger of Artivest, Tymour Okasha of Bank of America Merrill 9 Morrison & Foerster Tax Talk, January 2015 continued on page 10

44 Lynch, and Kiran Lingam of SeedInvest, discussed investor verification, including best practices. They also discussed how different participants are using accredited investor crowdfunding and matchmaking sites. The Morgan Stanley No-Action Letter at Age 18: Is it Time to Rethink? October 7, 2014 Seminar Bradley Berman and Lloyd Harmetz Partners Bradley Berman and Lloyd Harmetz joined the Structured Products Association for a roundtable to review market developments since the Morgan Stanley no-action letter was granted. This session elicited a lively dialogue regarding potential changes and industry action. The 3rd Annual Liquid Alternative Strategies- East Conference October 6, 2014 Sponsorship This event focused on the distribution and growth strategies for mature liquid alternative funds and pathways for creation and compliance for funds looking to launch. Shadow Banking Reform October 1, 2014 Webinar Peter Green and Jeremy Jennings-Mares Partners Peter Green and Jeremy Jennings-Mares took a look at recent regulatory developments in this area including legislative proposals in the EU and the U.S. and consider likely future action by regulators and legislators. 1. See Adda v. Commissioner, 10 T.C. 273, (1948). 2. Higgins v. Commissioner, 312 U.S. 212 (1941). 3. IRC Section 864(b)(2)(A)(i). 4. IRC Section 864(b)(2)(A)(ii). 5. See Treas. Reg (c)(2). 6. Treas. Reg (c)(2)(iv)(b). 7. See, e.g., Bielfeldt v. Commissioner, 231 F.3d 1035 (7th Cir. 2000). 8. As a policy matter, Congress sought to prevent foreign dealers from gaining a competitive advantage if the First Safe Harbor permitted discretionary authority, foreign dealers could directly compete with U.S. dealers while avoiding tax on their U.S. income. 9. PLR (Sept. 30, 1985). 10. Treas. Reg (4)(c)(1)(A). 11. Treas. Reg (b)(1). 12. Treas. Reg (c). 13. This is not the first instance in which the IRS has applied the anti-abuse rule under Section 956. For another application of the anti-abuse rule, see our article entitled IRS Applies Section 956 Anti-Abuse 14. Rule, at page 7, of Tax Talk, available at 4/07/140729TaxTalk.pdf (Volume 7, No. 2 July 2014). 15. See Rev. rul , C.B ABOUT MORRISON & FOERSTER We are Morrison & Foerster a global firm of exceptional credentials. Our clients include some of the largest financial institutions, investment banks, and Fortune 100, technology, and life sciences companies. We ve been included on The American Lawyer s A-List for 11 straight years, and the Financial Times named the firm number six on its 2013 list of the 40 most innovative firms in the United States. Chambers USA honored the firm as its sole 2014 Corporate/M&A Client Service Award winner, and recognized us as both the 2013 Intellectual Property and Bankruptcy Firm of the Year. Our lawyers are committed to achieving innovative and business-minded results for our clients, while preserving the differences that make us stronger. CONTACTS United States Federal Income Tax Law Corporate + Securities Law Thomas A. Humphreys (212) [email protected] Remmelt A. Reigersman (212) [email protected] Alexander I. Birkenfeld (212) [email protected] Anna T. Pinedo (212) [email protected] Stephen L. Feldman (212) [email protected] Shiukay Hung (212) [email protected] Lloyd S. Harmetz (212) [email protected] David J. Goett (212) [email protected] David N. de Ruig (212) [email protected] Because of the generality of this newsletter, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations Morrison & Foerster LLP