Monte Jackel Quoted in Tax Notes Today, Authors MNE Tax Article on Tax Court’s Grecian Magnesite Mining Ruling
Tax Notes Today has quoted Monte Jackel, senior counsel in the tax practice at Akin Gump, in the article “Foreign Partner’s Redemption Gain is Capital Gain, Not ECI, Tax Court Says,” regarding a decision by the U.S. Tax Court in Grecian Magnesite Mining, Industrial & Shipping Co. SA v. Commissioner that the gain on the redemption of a U.S. partnership interest is capital gain on an indivisible asset and is not effectively connected to a U.S. trade or business.
Jackel predicted the government will likely appeal the ruling, but it will need to establish a statutory basis for its aggregate approach. “All the regulations (and a number of outstanding revenue rulings) rely on the general aggregate principle to arrive at [their] conclusion[s], along with a general statement that unless aggregate principles applied, the purpose of the provision at issue would not be satisfied,” he said. The government would need to show some statutory entitlement to achieve the aggregate result at issue no matter what code section or regulation it is, unless one reads the opinion as limited to sales or exchanges of partnership interests, he added.
Jackel said it was also noteworthy that the government failed to raise the antiabuse rule of the regulation that allows the IRS to apply an aggregate approach to partnerships where the IRS determines it is appropriate to do so unless the taxpayer can establish that entity treatment is provided by the statute or regulation at issue and the tax results of entity treatment were clearly contemplated.
Separately, Jackel wrote an article on the case for MNE Tax, “US Tax Court decision has big implications for non-US partners in US partnerships,” in which he said the court’s reasoning “potentially calls into question the legitimacy of several other IRS international tax rulings and regulations involving partnerships.” He added that the ruling also “appears likely to invite an IRS or Congressional response, and could cause some private equity and hedge funds to rethink their structures.”
Jackel followed that up with a second article, “US Tax Court decision in Grecian Magnesite could upend international tax regime for partnerships,” noting that the decision “could have collateral effects on the international tax rules for partnerships that go way beyond the specific issue before the Tax Court in the case. He proceeded to outline the regulations that could be affected “depending on whether the broad or the narrow view of the case is adopted.”