Program Schedule

• Friday, November 3, 2023
  • Registration and Continental Breakfast
    • 8:00am
    • Room 100 Foyer
  • Welcome & Introductory Remarks
    • 8:30am
  • Session 1: Partnership Allocations: Past Issues, Present Practices, and Suggested Updates
    • 8:45am - 10:15am
    • Session 1 paper
      Session 1 slides

      Moderator: David Schnabel, Davis Polk

      Lead Presenter: Matthew Donnelly, Gibson Dunn

      Panelists:

      • Rafael Kariyev, Debevoise & Plimpton
      • Jennifer Ray, Deloitte

      Partnerships have always afforded partners broad freedom to allocate partnership items of income, gain, loss, deduction, and credit among themselves. Notwithstanding this broad freedom, regulations have been in place since 1956 to curtail that leeway where the allocations were primarily motivated by tax. Like the development of most tax rules, the statute and regulations have changed in response to perceived abuses.

      Prior to statutory changes in 1976, the government had very limited ability to challenge the allocation of bottom-line income or loss. The regulations during this period provided rules that limited the flexibility to allocate a partner's distributive share of a “particular item.” Although these rules only applied to allocations of particular items, the concept of an allocation having substantial economic effect was developed in these early regulations and courts gave great deference to the allocations that had (and very little deference to allocations that didn’t have) substantial economic effect. As a result of these cases, the statute was amended in 1976 to codify the concept of substantial economic effect to all partnership allocations (not just particular items) and, in 1985, the current regulations were promulgated.

      The current regulations provide two main frameworks for analyzing partnership allocations. Allocations provided for in the partnership agreement will generally be respected provided those allocations have “substantial economic effect” (“SEE”). Allocations that fail to have substantial economic effect (or no agreement as to allocations), however, must be allocated in accordance with the “partner’s interest in the partnership” (“PIP”). The SEE test attempts to provide an administrable approach to test allocations that permit flexibility while ensuring taxpayers are not entering into allocation schemes that are not insubstantial relative to the resulting tax savings, but the resulting scheme has proven too commercially impractical for strict use by practitioners. Meanwhile the regulations define PIP ambiguously.

      Today’s regulations governing partnership allocations have existed primarily in their current form since 1985. Although some things have stayed the same, much has changed since their promulgation. The use, and types of uses, of partnerships has grown significantly. Tax planning via partnership allocations between unrelated and between related persons has changed. Preferred distributions and targeted allocations have largely become the norm. Agreements wholly compliant with the SEE standard have become rare, generally confined to specific industries, and yet the SEE rules themselves remain an essential touchstone and part of the partnership lexicon. Where partnership tax practitioners had previously loathed wading into the uncertain territory of the PIP standard for partnership allocations, many partnership tax practitioners now make determinations of the validity of an allocation under PIP daily. Given this evolution in the activity of taxpayers, the rules that govern the way partnerships are actually performing their allocations seems ripe for re-articulation.

      This paper will explore the history and development of the rules and regulations governing partnership allocations, analyze the role and effectiveness of the current regulations, and suggest improvements to the current framework.

  • Break
    • 10:15am - 10:45am
    • Room 100 Foyer
  • Session 2: Setting Aside International Nexus: Have Taxing Jurisdictions Been Preoccupied with Whether or Not They Could, Without Stopping to Think if They Should?
    • 10:45am - 12:15pm
    • Session 2 paper
      Session 2 slides

      Moderator: Josh Odintz, Holland & Knight

      Lead Presenter: Sam Pollack, Baker and McKenzie

      Panelists:

      • Paul Oosterhuis, Skadden
      • Bob Stack, Deloitte

      Since the compromise at the League of Nations in 1928, the international income tax concept of nexus, under which a jurisdiction may claim the right to tax income, has enjoyed a long period of consensus and stability. This idea of international nexus includes a jurisdiction’s right to tax: (i) income on the basis of residence or source (as limited by the jurisdiction’s income tax treaties) and (ii) the business profits of a nonresident when (and only when) the nonresident maintains a physical presence within the jurisdiction that rises to the level of a permanent establishment. These concepts underlie all international income tax treaties and, until recently, have been regarded as fundamental guiding principles of international tax policy and law. This panel will examine whether changes in international sentiment and circumstance, and their reflection in recent exterritorial tax regimes, require a radical readjustment to the concept of international nexus.

      First, the panel will explore the origins of international nexus and its expression in U.S. Federal income tax law and international income tax treaties. The panel will also explore whether and to what extent Constitutional concepts of nexus bind Congress’s power to tax. The panel will examine distinctions between Federal and State nexus requirements and ways those features are relevant in considering potential changes to international nexus.

      Second, the panel will explore the most extreme deviations from international nexus principles: the UK’s DPT, Europe’s DSTs, and Pillar Two’s UTPR. Unlike historic efforts to curb perceived abuse and uphold the integrity of international tax laws and principles, these regimes seek to break with international nexus principles that rely on residence, source, or physical presence to establish taxing jurisdiction. The panel will evaluate arguments that these extraterritorial regimes violate international tax treaties and fail to align with even the more basic concepts of Federal nexus. The panel will also consider whether, regardless, these regimes demand a reexamination of the continued viability of international nexus concepts, even if they would technically comply with treaties and Federal nexus.

      Third, the panel will consider: (i) whether a fundamental readjustment to the concept of international nexus is warranted, (ii) if it is, whether a new consensus is within reach, and (iii) whether such consensus should completely reimagine international nexus or instead implement changes in limited circumstances—for example, with respect to large multinational business enterprises and/or with respect to services income.

  • Lunch: Join fellow conference attendees for an informal buffet lunch.
    • 12:15pm - 1:15pm
    • 621 Executive Dining Room
  • Session 3: Conform or Counter: U.S. Policy Choices in Response to Countries’ Pillar 2 Measures
    • 1:15pm - 2:45pm
    • Session 3 Paper

      Moderator: David Noren, McDermott Will & Emery LLP

      Lead Presenter: Chip Harter, PWC (retired)

      Panelists:

      • Julie Roin, University of Chicago
      • Chad Withers, Caterpillar

      Starting in 2024, countries around the world are poised to begin implementing domestic legislation that would impose “Top-Up Tax” on low-taxed income arising outside their own jurisdiction (and even outside of any direct ownership relationship), giving effect to an agreement reached under Pillar 2 of ongoing BEPS work carried out through the OECD’s Inclusive Framework (IF). The intention of the IF agreement regarding Pillar 2 is that income arising in any jurisdiction would be subject to a 15% effective tax rate, measured based on an adjusted measure of financial accounting income (or “GloBE income”) arising in that jurisdiction.

      The suite of legislative tools through which this Top-Up Tax would be extracted consists of (i) an IIR, which operates similarly to a CFC regime and subjects GloBE income of direct and indirect subsidiaries to current tax; (ii) a UTPR, which also operates like a CFC regime but can tax one group member on GloBE income earned by another group member in a different ownership chain; and (iii) a QDMTT, which a country applies to GloBE income arising in its own jurisdiction, so as to prevent other countries from applying an IIR or UTPR to such income. In general, in prioritizing taxing rights under these mechanisms and existing regimes, the GloBE rules give the QDMTT (and thus the source country) the first bite at the apple, followed by a parent entity jurisdiction imposing a traditional CFC regime, followed by a parent country jurisdiction imposing an IIR, with the UTPR levying Top-Up Tax on any remaining low-taxed income.

      Notwithstanding the key role played by the U.S. Treasury in negotiating the Pillar 2 agreement, there is no near-term prospect of Congress adopting rules to give effect to such agreement. In particular, with respect to CFCs of U.S. MNEs, there is no immediate prospect of Congress either replacing GILTI with a Pillar 2 IIR or modifying GILTI sufficiently (such as by imposing it on a country-by-country basis at 15%). Nor, with respect to U.S. companies’ domestic income, is there any sign Congress will implement a QDMTT.

      Although the United States may sit out Pillar 2 implementation for at least the next few years, inaction does not mean a pass for U.S. companies or the U.S. fisc. With respect to their foreign income, U.S. companies face the prospect of double taxation—or at least greater taxation—through the potentially overlapping application of GILTI and other countries’ Pillar 2 regimes. By the same token, formerly expected U.S. tax revenues with respect to GILTI could vanish to the extent U.S. taxpayers may claim foreign tax credits for QDMTTs levied by low-tax jurisdictions that would rather tax domestic income themselves than let another country apply an IIR or UTPR to that income. With respect to U.S. companies’ domestic income, other countries may seek to impose Top-Up Tax to the extent that incentives built into U.S. tax law—including FDII, R&D credits, and some other general business credits—as well as other book-tax differences drive those companies GloBE ETR on U.S. income below 15%.

      In light of this impending clash between Pillar 2 and the U.S. tax system, the question turns to what policy options Congress should consider to mitigate the impact on U.S.-based companies, U.S. tax revenues, and the balance of incentives built into U.S. tax law. In a spirit of acquiescence, Congress might consider design options including full adoption of Pillar 2 measures, less dramatic measures to bring GILTI into conformity with a qualifying IIR, a QDMTT to protect the U.S. tax base, and changes to FDII and U.S. credits to retain incentives vis a vis countries that will be relying more heavily on patent boxes, refundable credits, and above the line incentives to attract capital. A more adversarially inclined Congress, on the other hand, might consider ways to use the Pillar 2 model of extraterritorial taxation to discourage the adoption (or retention) of UTPRs, the main motivator for adoption of QDMTTs by low-tax jurisdictions, or use Subpart F and the foreign tax credit system as part of a carrot and stick approach to maintaining incentives for U.S. R&D and investment in the face of a changing foreign incentive environment.

      This panel will broadly explore the cooperative and competitive design options that Congress might consider in the face of countries’ adoption of Pillar 2 measures; consider what criteria (including complexity, revenue, financial cost to US companies, and investment location) should be relevant in evaluating these options; and make recommendations for consideration by a future Congress.

  • Break
    • 2:45pm - 3:15pm
    • Room 100 Foyer
  • Session 4: Bending time’s arrow—how tax timing fictions and recasts in everyday subchapter C transactions defy time’s orderly progress, and what to do about it
    • 3:15pm - 4:45pm
    • Session 4 paper
      Session 4 slides

      Moderator: Gordon Warnke, KPMG

      Lead Presenter: Martin Huck, E&Y

      With Panelists:

      • Julie Divola, Pillsbury
      • Rob Liquerman, Office of the Chief Counsel, Internal Revenue Service

      In numerous subchapter C transactions, the tax law plays fast and loose with time. In some situations, the tax law creates an order for tax purposes that conflicts with reality—for example in a retroactive check-the-box election. Even where the order of steps is clearly defined under the law, questions remain: for example, does a retroactive election transport an intent-based requirement such as “plan of reorganization” into the past? In other situations, the tax law appears to contemplate multiple events occurring in the same instant, but to determine the tax consequences the multiple events must be analyzed as occurring in a particular order within the instant. For example, in a taxable liquidation of a CFC, the tax consequences depend in part on whether the Code Sec. 336 gain and Code Sec. 961(a) adjustment are treated as occurring before the Code Sec. 331 gain. In still other situations, the actual form of a transaction is recast into a precise set of alternate steps, but in describing the timing of the alternate steps, the law is at best a palimpsest. A prominent example of this is a stock acquisition followed by a liquidation that is recast as an asset reorganization. In such a case, for what purposes, if any, is the acquiror treated as owning the target as a subsidiary in the interim period before the liquidation? And when is the Code Sec. 381 event: the close of the date of the stock acquisition or of the liquidation?

      The panel will consider the above examples and other situations where time’s role in analyzing the transaction is uncertain under current law, and where the consequences may vary significantly depending on how time is taken into account.nbsp; The panel will seek to develop principles and make recommendations for guidance that could resolve at least some of the uncertainty in this area.

  • Reception and Dinner
    • 6:30pm
    • RPM on the Water, 317 N. Clark Street

    • Dinner Speaker: Eric Solomon, Ivins Phillips Barker

• Saturday, November 4, 2023
  • Continental Breakfast
    • 8:00am - 8:30am
    • Room 100 Foyer
  • Session 5: M&A and Partnerships
    • 8:30am - 10:00am
    • Session 5 paper
      Session 5 slides

      Moderator: Tim Devetski, Ernst & Young LLP

      Lead Presenter: Tijana Dvornic, Wachtell, Lipton, Rosen & Katz

      Panelists:

      • Phillip Gall, E&Y
      • Sara B. Zablotney, Kirkland

      Transactions in common practice result in the formation, combination, or elimination of partnerships, as well as the movement of assets into or out of a partnership, “by operation of law” and without providing a form that is recognized for federal income tax purposes. Corporate laws permit parties to adopt “formless” transactions, such as entity mergers and conversions, which simply result in a change in status of the parties or their ownership of assets. Federal income tax law does not generally provide rules for taxing such formless transactions – and instead generally provides rules applicable to asset or ownership transfers, which may apply differently depending upon the parties to the transfer and, in transactions involving more than one transfer, the order in which the transfers occurred.

      A related subject involves the application of federal income tax rules to changes in ownership of equity interests in an entity that result in a change in the entity’s status for federal income tax purposes. The transaction occurring in form, e.g., involving a transfer of partnership equity to one remaining owner, may result in the partnership becoming disregarded as an entity, but the manner in which the assets of the partnership become the assets of the transferee (or, in the case of a partnership “continuation,” the manner in which assets not formerly owned become owned by the continuing partnership) cannot be explained based on the transactions that actually occurred. While the IRS has provided some limited guidance for determining the taxation of such transactions, it is not entirely consistent. Moreover, outside of this limited guidance, questions abound regarding whether taxpayers must simply assume the transfers occurred in a manner that results in the “worst” tax consequences for them or can instead define for themselves the deemed transfers to which the tax law is then applied.

      Additional examples of the necessary creation of “deemed” transfers may include transfers of property or partnership interests by a partner directly to an employee of a partnership in connection with services performed by the employee to the partnership, a transfer of property by a partner to a partnership, or from a partnership to a partner, for less than full and fair consideration, or certain actions with respect to debt obligations of the partnership.

      In these and other situations involving partnerships and/or partners, we know the status of the parties and the assets they own prior to the transaction, as well as their status and the assets they own after the transaction is completed. The tax law, however, must furnish the particular route that the asset or ownership transfers are deemed to take, and the tax consequences can differ greatly, depending on that route.

      The panel will, among other things, cover examples of these types of situations and explore whether there may be an overarching theory that can be applied to determine/generate the appropriate deemed transactions, or, absent an overarching theory, if there are appropriate guideposts that may be available in key situations.

  • Break
    • 10:00am - 10:15am
    • Room 100 Foyer
  • Session 6: You Know What They Say About Making Assumptions: The Inconsistent Tax Treatment of Liability Assumptions
    • 10:15am - 11:45am
    • Session 6 Paper
      Session 6 Slides

      Moderator: Anthony Sexton, Kirkland

      Lead Presenter: Brian Krause, Paul Weiss

      Panelists:

      • Sarah Brodie, Morgan Lewis
      • Charlotte Crane, Northwestern (retired)

      The tax consequences associated with the assumption of liabilities has been vexing for as long as the income tax has existed. There is a long list of technical issues. Most of those issues are well known (and well-written-about) at a theoretical level. But they are still routinely misunderstood or ignored at the practice level, with the result that people are often quite surprised at the highly unfavorable results that appear to flow from current law.

      A panel on this topic would focus on certain elements of liability assumption that are on the “bleeding edge,” such as they are--situations in which a seller may suffer inappropriate tax detriments from liability assumption, particularly where such tax detriments are not matched by a corresponding tax benefit to the buyer. The somewhat-recent Hoops case is the prototypical example, reaching a conclusion that is (x) patently bizarre from a policy perspective, so addressing the issues can result in a lively conversation; (y) not the position typically taken by practitioners, so addressing the issues in this regard can still be very educational for people; but (z) arguably in fact the “right” conclusion based on the text of the internal revenue code as it currently stands.

      Another common example of this phenomenon occurs in the context of Tufts gain, where a seller realizes income in an amount greater than the fair market value of the assets it is disposing of, leading to a very real Estate of Franklin question on the buyer side of the equation (not to mention the additional complexity—and arguably more favorable outcome—that applies to this situation where a partnership interest, rather than assets, are being sold).

      Numerous vexing questions exist in the context of transactions where it is unclear whether a full business line has been sold, particularly if the disposition of the trade or business involves the mere granting of licenses rather than the actual full disposition of IP rights. (Think of a situation where Seller has liabilities attributable to Business A-1, a patent that applies to Business A-1, A-2, and B, and Seller agrees to “dispose” of Business A-1, including its liabilities, by way of a non-exclusive license that permits both Buyer and Seller to compete in the general business line.)

      Contingent liabilities present another area of potential focus, where there is endless confusion and consternation about the proper treatment on both the buy- and sell-side, Section 338 regulations notwithstanding. The scope of what it means to assume a non-recourse liability under Section 357(d) provides further fodder for discussion.

      Though the topics to address here are generally topics that have been addressed in other papers, this paper could combine a focus on the law as it (arguably) stands with arguments regarding the way the law in this area should work under fundamental fair reflection of income principles.