Steven D. Bortnick, a partner in the Tax Practice Group of Pepper Hamilton, was quoted in the July 20, 2017 Law360 article, "IRS Loss Over Foreign Profit Is Boon for U.S. Middle Market."
The Tax Court’s decision could also attract more foreign investors into the middle-market economy where partnerships, venture capital funds and private equity funds abound, according to Steven Bortnick, a partner and tax attorney at Pepper Hamilton LLP.
“It’s a significant aspect of middle-market investment,” Bortnick said. “Big companies tend to be formed as corporations, but in the middle-market ... they tend to be formed as partnerships.”
Bortnick said that even though many practitioners disagreed with the IRS’ 1991 revenue ruling, it hasn’t arisen as a public dispute previously, either because it may have been difficult for the agency to enforce its position if it wasn’t able to track down the foreign investors, or general partners were already withholding tax and leaving it up to the investors to apply for tax refunds. Some foreign investors’ returns have been impacted by this withholding tax, Bortnick said, and they may have chosen not to litigate if they were unsuccessful in getting their refunds back.
However, there have been some legislative proposals over the years to close the gap that the IRS tried to fill, and this may still be a possibility in the future if the IRS’ position is too weak to withstand scrutiny upon a potential appeal, he said.
“I have to [say] the IRS really lost,” Bortnick said. “This was a substantial blow. The court was quite critical of the IRS’ decision, and part of me thinks that what the IRS should be focusing on is a legislative change … I don’t see them winning on appeal either.”