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NRAI Compliance Updates - October,
2005
Greetings,
Legislation featured in this month's newsletter includes a bill passed in California
making it easier to merge without going through the tax clearance procedure that has been, in the past, a time consuming task. Michigan has three companion bills pending authorizing electronic filing of documents for LLC’s, not-for-profit corporations and partnerships.
Also, a bill has been introduced at the federal level in an effort to prevent businesses from moving operations offshore to avoid income taxes.
Robert K. Rowell
General Counsel
New, Pending and Passed Legislation
Federal Legislation
HB 3959
To amend the Internal Revenue Code of 1986 to prevent corporate expatriation to avoid United States income taxes.
Current Bill Status: September 29, 2005 referred to the House Committee on Ways and Means.
Full Text:
A BILL
To amend the Internal Revenue Code of 1986 to prevent corporate expatriation to avoid United States income taxes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the Corporate Patriot Enforcement Act of 2005'.
SEC. 2. PREVENTION OF CORPORATE EXPATRIATION TO AVOID UNITED STATES INCOME TAX.
(a) In General- Paragraph (4) of section 7701(a) of the Internal Revenue Code of 1986 (defining domestic) is amended to read as follows:
(4) DOMESTIC-
(A) IN GENERAL- Except as provided in subparagraph (B), the term domestic' when applied to a corporation or partnership means created or organized in the United States or under the law of the United States or of any State unless, in the case of a partnership, the Secretary provides otherwise by regulations.
(B) CERTAIN CORPORATIONS TREATED AS DOMESTIC-
(i) IN GENERAL- The acquiring corporation in a corporate expatriation transaction shall be treated as a domestic corporation.
(ii) CORPORATE EXPATRIATION TRANSACTION- For purposes of this subparagraph, the term corporate expatriation transaction' means any transaction if--
(I) a nominally foreign corporation (referred to in this subparagraph as the acquiring corporation') acquires, as a result of such transaction, directly or indirectly substantially all of the properties held directly or indirectly by a domestic corporation, and
(II) immediately after the transaction, more than 80 percent of the stock (by vote or value) of the acquiring corporation is held by former shareholders of the domestic corporation by reason of holding stock in the domestic corporation.
(iii) LOWER STOCK OWNERSHIP REQUIREMENT IN CERTAIN CASES- Subclause (II) of clause (ii) shall be applied by substituting 50 percent' for 80 percent' with respect to any nominally foreign corporation if--
(I) such corporation does not have substantial business activities (when compared to the total business activities of the expanded affiliated group) in the foreign country in which or under the law of which the corporation is created or organized, and
(II) the stock of the corporation is publicly traded and the principal market for the public trading of such stock is in the United States.
(iv) PARTNERSHIP TRANSACTIONS- The term corporate expatriation transaction' includes any transaction if--
(I) a nominally foreign corporation (referred to in this subparagraph as the acquiring corporation') acquires, as a result of such transaction, directly or indirectly properties constituting a trade or business of a domestic partnership,
(II) immediately after the transaction, more than 80 percent of the stock (by vote or value) of the acquiring corporation is held by former partners of the domestic partnership or related foreign partnerships (determined without regard to stock of the acquiring corporation which is sold in a public offering related to the transaction), and
(III) the acquiring corporation meets the requirements of subclauses (I) and (II) of clause (iii).
(v) SPECIAL RULES- For purposes of this subparagraph--
(I) a series of related transactions shall be treated as 1 transaction, and
(II) stock held by members of the expanded affiliated group which includes the acquiring corporation shall not be taken into account in determining ownership.
(vi) OTHER DEFINITIONS- For purposes of this subparagraph--
(I) NOMINALLY FOREIGN CORPORATION- The term nominally foreign corporation' means any corporation which would (but for this subparagraph) be treated as a foreign corporation.
(II) EXPANDED AFFILIATED GROUP- The term expanded affiliated group' means an affiliated group (as defined in section 1504(a) without regard to section 1504(b)).
(III) RELATED FOREIGN PARTNERSHIP- A foreign partnership is related to a domestic partnership if they are under common control (within the meaning of section 482), or they shared the same trademark or tradename.'.
(b) Effective Dates-
(1) IN GENERAL- The amendment made by this section shall apply to corporate expatriation transactions completed after September 11, 2001.
(2) SPECIAL RULE- The amendment made by this section shall also apply to corporate expatriation transactions completed on or before September 11, 2001, but only with respect to taxable years of the acquiring corporation beginning after December 31, 2005.
California
AB 241
Mergers: certificate of satisfaction.
Existing law requires that the surviving corporation of a corporate merger assume the liability of the domestic disappearing corporation for specified tax obligations and allows the Secretary of State to file the merger without a certificate of satisfaction from the Franchise Tax Board, if the surviving corporation is a domestic corporation or a foreign corporation qualified to do business in this state.
This bill would specify that upon a merger, the surviving domestic or foreign corporation or other business entity would be deemed to
have assumed the tax liability, as specified, of the disappearing domestic or foreign entity. The bill would extend the Secretary of
State's authority to file the merger without a certificate of satisfaction from the Franchise Tax Board if the surviving entity is a domestic limited liability company or registered limited liability partnership or a foreign limited liability company or foreign limited liability partnership that is registered or qualified to do business in this state.
Full Text available at: http://www.leginfo.ca.gov/pub/bill/asm/ab_0201-0250/ab_241_bill_20050922_chaptered.pdf
Current Bill Status: September 22, 2005 – Signed by Governor and Chaptered by Secretary of State as Chapter 286, Statutes of 2005.
Delaware
Current Issue of the Delaware Register of Regulations: http://www.legis.state.de.us/LIS/Register.NSF/vwRegisters/94/$file/October2005.pdf?openelement
Michigan
SB 665
Businesses; limited liability companies; electronic filing of documents required under Michigan limited liability company act; authorize
Full Text available at: http://www.legislature.mi.gov/documents/2005-2006/billintroduced/senate/pdf/2005-SIB-0665.pdf
Current Bill Status: October 12, 2005 placed on order of third reading with substitute S-4
SB 666
Businesses; nonprofit corporations; electronic filing of documents required under nonprofit corporation act; authorize.
Full Text available at: http://www.legislature.mi.gov/documents/2005-2006/billintroduced/senate/pdf/2005-SIB-0666.pdf
Current Bill Status: October 12, 2005 placed on order of third reading with substitute S-4
SB 667
Businesses; partnerships; electronic filing of documents required under Michigan revised uniform limited partnership act; authorize.
Full Text available at: http://www.legislature.mi.gov/documents/2005-2006/billintroduced/senate/pdf/2005-SIB-0667.pdf
Current Bill Status: October 12, 2005 placed on order of third reading with substitute S-4
Previous issues of the NRAI Newsletter may be found
at: http://secure.nrai.com/dynamic_frame.asp?page=research
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