Tax

Draft legislation released on June 10, 2024, which concerns the implementation of Canada’s 2024 federal budget, does not extend capital gains tax relief to corporations, and it subjects private and public stock options to a higher tax rate.

Read about proposed Treasury regulations that provide guidance on the application of the stock buyback excise tax to redemptions and M&A transactions.

The highly anticipated guidance for the second round of allocations (Round Two) under the US Treasury’s §48C Qualifying Advanced Energy Project Tax Credit program was released this week pursuant to IRS Notice 2024-36, with concept papers due potentially in the next 45 days.[1] That doesn’t provide applicants much time, but those with eligible projects should strongly consider submitting a concept paper. Submission of a concept paper is required to submit a full application, and receiving a letter of discouragement from the Department of Energy (DOE) on a concept paper does not preclude an applicant from submitting a full application. Moreover, an applicant that applied for but failed to receive an allocation in the first round is not precluded from applying for an allocation in Round Two.

Canada’s 2024 federal budget, which takes effect on June 25, includes a capital gains inclusion rate increase that will also significantly affect the taxation of stock options. Option holders will get a 50% deduction for the first $250,000 in stock option employment gains and then 33 1/3% after — instead of a 50% deduction across the board.

Canada’s 2024 federal budget, which was released on April 16, includes a capital gains inclusion rate increase, changes to the lifetime capital gains exemption, and the Canadian Entrepreneurs’ Initiative proposal, which recommends a tax carve-out on some capital gains when founders of certain types of businesses sell shares of their company.

The Canadian Government released its Fall Economic Statement (“FES 2023”) on November 21, 2023 outlining the government’s fiscal update. FES 2023 focuses on housing, affordability, and fighting climate change. However, buried in the middle of the 131-page document is a paragraph highlighting a proposed tax change regarding the recent tax rules implementing Employee Ownership Trusts (“EOTs”).

This past summer, the Treasury and Internal Revenue Service (IRS) published proposed Treasury Regulations (88 FR 40528 and 88 FR 40496) under two key provisions of the Inflation Reduction Act of 2022 (IRA) designed to enable taxpayers and tax-exempt entities to monetize certain energy-related federal tax credits. Section 6417  allows certain tax-exempt and governmental entities that historically could not benefit from such tax credits to receive direct payments from the government in lieu of such tax credits. Section 6418 permits taxpayers to transfer all or a portion of certain energy-related tax credits to unrelated parties for cash. By broadening the universe of organizations that are able to make use of energy-related tax credits through the direct pay provisions and creating a more direct pathway for taxpayers interested in financing energy projects to share credits through transferability, these provisions stand to significantly expand the market for investment in energy projects.

Read about the benefits and risks of deferring the conversion of an LLC into a corporation in order to benefit from the qualified small business stock (QSBS) rules of the US tax code.

Read about pending cases docketed in the US Tax Court that are considering the application of the limited partner exclusion from self-employment tax when the limited partners in a state law limited partnership actively participate in the partnership’s business.

Read about a recent US Tax Court decision confirming that taxpayers can benefit from the “profits interest” safe harbor, set forth in Revenue Procedures 93-27 and 2001-43, which holds that the issuance of such an interest in exchange for services that benefit a lower-tier entity that is or would become a partnership is not a taxable event. 

Read about an IRS private letter ruling, which held that success-based fees in an M&A transaction were incurred by a private equity sponsor rather than by the target. The decision denied the target’s late request for a Safe Harbor Election, which permits a tax deduction of 70% of the success-based fees.

Read about IRS Notice 2023-44, which clarifies the 48C program application process and timeline following amendments to the program under the Inflation Reduction Act and an earlier notice providing application guidelines.

Read about Department of Treasury and IRS guidance regarding qualification for the 10% domestic content tax credit available to certain renewable energy projects under the Inflation Reduction Act of 2022 (IRA).

IRA Update Section 45X & Section 48C

Read about guidance released by the IRS on the Low-Income Community Adder and the newly established allocation program to make the adder available.

Read about a new IRS reference standard for energy efficient commercial building property for purposes of the deduction under Section 179D of the Internal Revenue Code, which takes effect on January 1.

Read about new IRS reporting requirements, issued in Revenue Procedure 2022-42, for manufacturers and sellers of new or previously owned clean vehicles or qualified new commercial clean vehicles eligible for tax credits under Internal Revenue Code Sections 30D, 25E, or 45W, respectively.

On November 3, 2022, the U.S. Department of the Treasury (Treasury) and Internal Revenue Service (IRS) released three Notices requesting public comments by December 3, 2022, on certain additional aspects of the clean energy tax incentives included in the Inflation Reduction Act of 2022 (IRA). Treasury and the IRS previously released six Notices, on October 5, 2022, requesting public comments by November 4 on certain other aspects of the energy tax incentives, which are described in our alert. The Treasury and the IRS will consider written comments submitted after December 3 if such consideration will not delay the issuance of guidance.