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Taxand USA explains why the tax court’s Grecian formula combs in colourable claims for refunds by foreign taxpayers.
Rejoice: investment into the US may have just gotten cheaper, and many inbound investors may be entitled to refunds. Only a few short days after the Treasury Department issued Notice 2017-38 (identifying overly burdensome or complex regulations potentially subject to repeal), the Tax Court offered its own rebuke of a controversial IRS position, Revenue Ruling 91-32. And with that decision, Rev. Rule 91-32 may have finally been laid to rest in a decision of relevance to nearly all inbound US partnership investments.
On 13 July, the US Tax Court issued its decision in Grecian Magnesite Mining, Industrial & Shipping Co. SA v. Commissioner, a decision that will likely change future tax implications and that may hold substantial refund claim possibilities for foreign persons (i.e., nonresident alien individuals and foreign corporations) who disposed of interests in partnerships that conduct(ed) business in the US.
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It is important to note that this case may open up the possibility of filing refund claims with any states to which the taxpayer paid taxes on the disposition of a partnership interest. Taxpayers should also understand that the filing of a refund claim may not, in and of itself, produce a refund. Unless the Service (or the state tax authority) decides to change its position, it may be necessary for taxpayers to go to court to challenge the denial of the refund claim by the IRS (or the state tax authority).