Tax Extenders 2015 SUMMARY. December 21, 2015

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1 New Legislation Extends Expiring Tax Provisions, Delays Taxes Imposed Under the Patient Protection and Affordable Care Act, and Enacts Revenue Raisers SUMMARY On December 18, 2015, President Obama signed into law the Protecting Americans From Tax Hikes Act Of 2015 (the Tax Act ) and the Consolidated Appropriations Act, 2016 (the Appropriations Act, together with the Tax Act, the Acts ). The Tax Act, which makes significant changes to the U.S. federal taxation of real estate, 1 extends or makes permanent certain provisions of the Internal Revenue Code (the Code ) that had temporarily expired or were set to expire at the end of the year and enacts revenue raisers. The Acts also delay certain taxes imposed under the Patient Protection and Affordable Care Act (the PPAC Act ), including the taxes on high-cost Cadillac health plans, health insurance providers and sales of medical devices. Taxes Delayed: Excise Tax on Cadillac Health Plans Annual Fee Tax for Health Insurance Providers Excise Tax on Sales of Medical Devices Permanent Extension: Exception Under Subpart F for Active Financing Income Interest-Related Dividends and Short-Term Capital Gain Dividends of Regulated Investment Companies Regulated Investment Companies as Qualified Investment Entities Under FIRPTA Rules 15-Year Straight-Line Cost Recovery for Qualified Leasehold Improvements, Qualified Restaurant Improvements, and Qualified Retail Improvements New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Tokyo Hong Kong Beijing Melbourne Sydney

2 Research Tax Credit State and Local Sales Tax Deduction Reduced 5-Year Holding Period During Which a Converted S Corporation, Real Estate Investment Trust or Regulated Investment Company Is Subject to Entity-Level Tax on Built-In Gain Property Tax Treatment of Certain Payments to Controlling Exempt Organizations Extension Through 2016: Production Tax Credit for Qualified Facilities Other Than Wind Facilities Extension Through 2019: Look-Through Treatment for Payments Between Related Controlled Foreign Corporations Production Tax Credit and Investment Tax Credit for Qualified Wind Facilities Accelerated Expensing of Certain Capital Expenditures New Markets Tax Credit Extension Through 2021: Investment Tax Credit for Solar Energy Property Residential Energy Efficiency Tax Credits for Solar Energy Property Revenue-Raising Provisions: Loss Disallowance for Transfers from Tax Indifferent Parties DISCUSSION This memorandum focuses primarily on those tax provisions of the Acts likely to affect business taxpayers. The Acts include other provisions relevant to individuals and specific situations which are not covered below. A. DELAY OF TAXES IMPOSED UNDER THE PATIENT PROTECTION AND AFFORDABLE CARE ACT 1. Excise Tax on Cadillac Health Plans The PPAC Act 2 imposes a 40% nondeductible tax, effective for taxable years beginning after December 31, 2017, on excess benefits arising under employer-sponsored group plans. 3 Excess benefits are defined generally as the amount by which the cost of coverage of all employer-provided health care coverage for an employee exceeds a specified threshold in any given month. 4 The Appropriations Act provides that the 40% excise tax will be deductible by taxpayers and delays implementation until taxable years beginning after December 31,

3 2. Annual Fee Tax for Health Insurance Providers Beginning in 2014, any entity (a Covered Entity ) in the business of providing health insurance for any United States health risk 5 is required to pay a share of an annual industry-wide fee. 6 The total fee started at $8 billion in 2014 and increases to $11.3 billion in 2015, $11.3 billion in 2016, $13.9 billion in 2017 and $14.3 billion in In subsequent years, the total fee is increased by the rate of premium growth for such year. The fee is not deductible for U.S. federal income tax purposes. The Appropriations Act provides for a one-year moratorium for the $13.9 billion industry-wide fee payable for the calendar year The Appropriations Act does not suspend the annual fee retroactively to 2014, 2015, or 2016, or prospectively to 2018 or years thereafter. 3. Excise Tax on Sales of Medical Devices The PPAC Act imposes a tax on the sale of any taxable medical device by the manufacturer, producer or importer equal to 2.3% of the sales price. A taxable medical device is defined as any device intended for humans, other than class I devices, 7 eyeglasses, contact lenses, hearing aids, and any other medical device determined by the IRS to be of a type generally purchased by the public at retail for individual use. The tax has been in effect since January The Tax Act provides for a moratorium on the collection of the excise tax on the sale of medical devices until December 31, B. EXTENSION OF TAX PROVISIONS AFFECTING CONTROLLED FOREIGN CORPORATIONS 1. Look-Through Treatment for Payments Between Related Controlled Foreign Corporations A 10% U.S. shareholder (taking into account a number of attribution and constructive ownership rules) of a controlled foreign corporation ( CFC ) generally is subject to current U.S. tax on its share of a CFC s subpart F income, which generally includes dividends, interest, royalties, rents, and other types of passive income earned by the CFC, regardless of whether the CFC distributes such income to the 10% U.S. shareholder. However, for taxable years of CFCs beginning before January 1, 2015, and taxable years of 10% U.S. shareholders in which or with which such taxable years of the CFC end, Section 954(c)(6) of the Code provided a look-through exception under which such passive income will generally not be subject to current taxation if the income was received by a CFC from a related CFC (provided such income was not subpart F income or income effectively connected with the conduct of a U.S. trade or business). The Tax Act extends the look-through exception for passive income between related CFCs to taxable years of CFCs beginning before January 1, 2020, with retroactive application for taxable years beginning after December 31, 2014 and before the date of enactment, and taxable years of 10% U.S. shareholders in which or with which such taxable years of the CFC end. -3-

4 2. Exception Under Subpart F for Active Financing Income Under temporary rules enacted in 1997 and 1999, there was an exception from subpart F income for income derived in the active conduct of banking, financing, or similar businesses, or in the conduct of an insurance business ( active financing exception ). 8 The active financing exception has been repeatedly extended and applied to taxable years of foreign corporations beginning before January 1, 2015, and taxable years of 10% U.S. shareholders with or within which such taxable years of the foreign corporations end. The Tax Act retroactively applies the active financing exception to the 2015 taxable year, and permanently extends the active financing exception to future taxable years. C. EXTENSION OF TAX PROVISIONS AFFECTING FOREIGN SHAREHOLDERS OF REGULATED INVESTMENT COMPANIES 1. Interest-Related Dividends and Short-Term Capital Gain Dividends of Regulated Investment Companies Under temporary rules enacted in 2004, certain interest-related 9 and short-term capital gains dividends 10 of regulated investment companies paid to shareholders who were nonresident aliens or foreign corporations were exempt from U.S. withholding tax. As a consequence, withholding was limited to dividends that were neither interest-related, short-term capital gains nor long-term capital gain dividends. This exemption from U.S. withholding tax applied to dividends with respect to taxable years of regulated investment companies beginning before January 1, The Tax Act provides for the permanent extension, and retroactive application to the 2015 taxable year, of the exemption from U.S. withholding tax for interest-related and short-term capital gains dividends of regulated investment companies. 2. Regulated Investment Companies as Qualified Investment Entities Under FIRPTA Rules Under the Foreign Investment in Real Property Tax Act (or FIRPTA ), gain realized by a foreign person from the sale of an interest in United States real property, including from the sale of shares of a United States real property holding corporation, 11 is generally subject to U.S. taxation. 12 Special rules apply to a qualified investment entity, defined generally as an entity that is either a real estate investment trust or a regulated investment company. First, a look-through rule applies to distributions made to any foreign shareholder by a qualified investment entity to the extent the distribution is paid out of gain derived by the entity from sales of interests in United States real property. 13 Under the look-through rule, these distributions are generally subject to the tax imposed by FIRPTA as though the gain had been derived directly by the shareholder, unless the shareholder did not in the one-year period prior to the distribution own more than 5% of the class of stock on which the distribution was made, and the distribution was made on a class of stock that is regularly traded on an established securities market in the United States. 14 Second, gain from the disposition of shares of a qualified investment company that is -4-

5 domestically controlled is not subject to the FIRPTA tax The rule that included a regulated investment company in the definition of a qualified investment entity expired on December 31, The Tax Act provides for the permanent extension of the rule including a regulated investment company in the definition of qualified investment entity, and also provides that such rule will apply retroactively for distributions made after December 31, 2014 and prior to enactment. As discussed in our separate S&C Publication discussing the real estate provisions of the Tax Act, 16 current law provides that FIRPTA does not apply to publicly traded stock except in the case of a shareholder who holds, or has held in the five-year period ending on the disposition date, at least 5% (actually or constructively) of the class of stock, 17 and that look-through treatment for capital gains dividends applies subject to a similar portfolio investor exception. 18 The Tax Act provides, in the case of real estate investment trusts, that the ownership limitation for the portfolio investor exception is increased from 5% to 10%. Notably, the Tax Act does not make similar changes for the purposes of regulated investment companies. D. EXTENSION OF TAX PROVISIONS RELATING TO DEPRECIATION AND COST RECOVERY Year Straight-Line Cost Recovery for Qualified Leasehold Improvements, Qualified Restaurant Improvements, and Qualified Retail Improvements Generally, taxpayers have to capitalize the cost of tangible property used in a trade or business and then recover the cost under the so-called modified accelerated cost recovery system ( MACRS ), using the applicable depreciation method, 19 the applicable recovery period 20 and the applicable convention. 21 In general, for nonresidential real property, the applicable depreciation method is a straight-line method, 22 to be depreciated over 39 years. 23 However, for certain qualified improvements made on leased property (so-called qualified leasehold improvement property, 24 qualified restaurant property 25 and qualified retail improvement property 26 ), a temporary rule first enacted in 2004 and subsequently extended to property placed in service before January 1, 2015 provides for a straight-line 15-year recovery period using a half-year convention. 27 The Tax Act provides for the permanent extension, retroactive to property placed in service after December 31, 2014, of the special rule allowing certain qualified improvements to be capitalized over a straight-line 15-year recovery period using a half-year convention. 2. Accelerated Expensing of Certain Capital Expenditures A temporary rule first enacted in 2002 and subsequently extended allows 50% first-year bonus depreciation for qualifying property acquired after December 31, 2007 and placed in service before January 1, The term qualifying property includes (i) property to which the MACRS applies with an applicable recovery period of 20 years or less, (ii) certain water utility property, 29 (iii) certain computer software 30 (generally off-the-shelf software with a three-year depreciation period), or (iv) certain qualified leasehold improvement property. 31

6 The Tax Act extends this provision again retroactively to qualifying property placed in service after December 31, 2014 and prospectively to qualifying property placed in service before January 1, 2019, subject to a phase-out that reduces the 50% bonus depreciation to 40% and then 30% for qualifying property placed in service in 2018 and 2019, respectively. The Tax Act also revises the definition of qualifying property to include qualified improvement property, which generally means any improvement to an interior portion of a building that is nonresidential real property and that is placed in service after the date such building was first placed in service. E. EXTENSION OF RENEWABLE ENERGY TAX CREDITS 1. Production Tax Credits The renewable electricity production credit is an inflation-adjusted per-kilowatt-hour (kwh) tax credit for electricity generated by a taxpayer and sold to an unrelated person during the taxable year. 32 electricity must be produced from qualified energy resources and at a qualified facility during the 10-year period beginning on the date the qualified facility was originally placed in service. A qualified facility includes, but is not limited to, certain facilities using wind, closed-loop biomass, open-loop biomass, geothermal energy, landfill gas, trash, hydropower, marine hydrokinetic renewable energy to produce electricity the construction of which began before January 1, For facilities using closed-loop biomass, open-loop biomass, geothermal energy, landfill gas, trash, hydropower, marine hydrokinetic renewable energy, the Tax Act extends the production tax credit to such facilities under construction before January 1, 2017, including such facilities the construction of which began after December 31, 2014 and before enactment of the Tax Act. For wind facilities, the Appropriations Act extends the production tax credit to wind facilities under construction before January 1, 2020, including facilities the construction of which began after December 31, 2014 and before enactment of the Appropriations Act, and provides for a phase-out that reduces the production tax credit that would otherwise be available by 20%, 40% and 60% for wind facilities the construction of which begins in calendar year 2017, 2018 and 2019, respectively. 2. Investment Tax Credits The energy investment tax credit is equal to the energy percentage times the basis of energy property placed in service during the taxable year. The energy percentage is 30% for qualified fuel cell property, certain solar energy property and qualified small wind energy property placed in service before January 1, 2017, and for qualified investment credit facilities that are defined as certain qualified facilities for which no credit has been allowed under Section 45. The energy percentage is 10% for all other energy property. For solar energy property used to generate electricity or provide heating or cooling, the Appropriations Act extends the investment tax credit to property under construction before January 1, 2022 and placed in service before January 1, 2024, and provides for a phase-out that reduces the energy percentage from -6- This

7 30% to 26% and 22% for property that begins construction in 2020 and 2021, respectively. For wind facilities that are qualified facilities for which no credit has been allowed under Section 45, the Appropriations Act provides for a phase-out that matches the phase-out for the production tax credit the investment tax credit will be reduced by 20%, 40% and 60% for wind facilities the construction of which begins in calendar year 2017, 2018 and 2019, respectively. After the relevant extension date, solar energy property and wind facilities will be eligible for the investment tax credit at the lower 10% energy percentage level. Notably, the Acts do not extend the investment tax credit for qualified fuel cell property, which is eligible for the investment tax credit only for periods before January 1, Residential Energy Efficiency Tax Credits for Solar Energy Property Individual taxpayers are allowed a residential energy efficient property credit for qualified energy efficiency property expenditures made during the tax year. 34 The credit does not apply with respect to property placed in service after December 31, For certain solar electric and water heating property, the Appropriations Act extends the residential energy efficient tax credit to property placed in service before January 1, 2022, subject to a phase-out that reduces the credit from 30% to 26% and 22% for property placed in service in 2020 and 2021, respectively. F. EXTENSION OF OTHER TAX PROVISIONS 1. Research Tax Credit A temporary tax credit for research activities, originally enacted in 1981 and subsequently extended, was limited to qualified research expenditures paid or accrued before January 1, The Tax Act provides for the permanent extension, retroactive to amounts paid after December 31, 2014, of the research tax credit. 2. State and Local Sales Tax Deduction A temporary rule, originally enacted in 2004 and subsequently extended to taxable years beginning before January 1, 2015, permits taxpayers to elect to claim an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes. 37 The Tax Act provides for the permanent extension, retroactive to taxable years beginning after December 31, 2014, of the right to make this election. -7-

8 3. Reduced 5-Year Holding Period During Which a Converted S Corporation, Real Estate Investment Trust or Regulated Investment Company Is Subject to Entity-Level Tax on Built-In Gain Property Entity-level income tax is generally imposed upon gains recognized by an S corporation within a statutory period after conversion from a C corporation to the extent these gains were built-in gains at the time the S corporation election was made. 38 A similar rule applies to the conversion of a C corporation to a regulated investment company or a real estate investment trust. 39 The statutory period during which the entity-level tax on such built-in gains would apply was originally 10 years from conversion, but was then reduced to 7 years from conversion taxable years beginning in 2009 to 2011, and then to 5 years from conversion for taxable years beginning in 2012 to However, the statutory period reverted to 10 years for taxable periods beginning in 2015 and thereafter. The Tax Act retroactively reduces the statutory recognition period to 5 years for taxable years beginning in 2015 and permanently extends such reduction for later taxable years. 4. Tax Treatment of Certain Payments to Controlling Exempt Organizations In general, interest, annuities, royalties, or rent received (or accrued) of a tax-exempt organization from a controlled 41 subsidiary is treated as unrelated business taxable income, and therefore as taxable to that organization, to the extent it reduces the net unrelated income 42 of the subsidiary. A temporary rule first enacted in 2006 and subsequently extended provides that, in the case of payments under a binding written contract in effect on August 17, 2006 (or a renewal of such contract), only that portion of such payments which is not at arm s-length is included in unrelated business taxable income. A strict liability penalty equal to 20% of the portion of the payment that is not at arm s-length is added to the tax due. 43 The Tax Act provides for the permanent extension of the special rule excluding from unrelated business taxable income the arm s-length portion of payments to a controlling exempt organization under a grandfathered contract (or the renewal of such contract). 5. New Markets Tax Credits For calendar years 2001 to 2014, the new markets tax credit provided a 39% tax credit, spread over 7 years, to encourage private investment in businesses in low-income neighborhoods. The aggregate amount of new markets tax credits that may be allocated in a given calendar year may be carried over to future calendar years through the end of The Tax Act authorizes the allocation of $3.5 billion of new markets tax credits for each year from 2015 to 2019, and the carry-over period for using such credits is extended to any calendar year up to and including

9 G. LOSS DISALLOWANCE FOR TRANSFERS FROM TAX INDIFFERENT PARTIES Under current law, no deduction is allowed from the sale or exchange of property, directly or indirectly, between related persons. 44 In such a case, Section 267(d) provides that the transferee of such property is permitted to reduce any subsequent gain on a sale or disposition of such property to an unrelated party to the extent of the transferor s disallowed loss. The Tax Act provides a new exception to Section 267(d) that provides that the transferee will not recognize loss to the extent of gain if the original loss sustained by the transferor would not be subject to tax under the Code. H. AMENDMENTS TO NEW PARTNERSHIP AUDIT RULES The Bipartisan Budget Act of 2015 (the Budget Act ) replaced the current partnership audit procedures with a very different procedural regime that is generally effective for taxable years beginning on or after January 1, 2018, although partnerships may elect to apply the provisions sooner. 45 Under the new procedural regime, the IRS may determine any adjustment to items of income, gain, loss, deduction or credit for a particular year (the reviewed year ) at the partnership level and, if the adjustment results in an underpayment of tax, the tax is generally collected at the partnership level in the year that the partnership adjustment becomes final (the adjustment year ) 46 unless the partnership elects an alternative set of procedures that requires each partner of the partnership in the reviewed year to pay their portion of the tax. 47 The underpayment of tax is determined by netting all adjustments at the partnership level and multiplying the net amount by the highest rate of U.S. federal income tax applicable to individuals or corporations in effect for the reviewed year. 48 Modification procedures permit the underpayment to be recomputed (1) to take into account amounts paid with amended returns filed by reviewed year partners, (2) to disregard the portion allocable to a tax-exempt partner, and (3) to take into account a rate of tax lower than the highest tax rate for individuals or corporations for the reviewed year. The period of limitations for proposing any adjustment is the later of (i) three years from the date of the partnership return, the return s due date, or the date the partnership requests and adjustment, whichever is later, (ii) 270 days from the date on which the taxpayer was required to submit materials for any modification of an imputed underpayment, or (iii) 270 days from the date of the notice of proposed partnership adjustment. 49 The Tax Act provides for several technical amendments to the new partnership audit procedures put forth in the Budget Act. First, the Tax Act provides for a new modification procedure that permits a partner in a publicly traded partnership to use passive activity losses (i.e., losses from passive activities that exceed income from such passive activities) disallowed in prior taxable years to offset the income that is the subject of the underpayment. Second, the Tax Act clarifies that, in all cases, corporate partners may reduce the assumed tax rate from the 39.6% applicable for individuals to the 35% applicable for corporations. Third, extending the period of limitations for making adjustments such that an adjustment -9-

10 may be made 330 days (as opposed to 270 days) from the date of the notice of proposed partnership adjustment. * * * Copyright Sullivan & Cromwell LLP

11 ENDNOTES The real estate provisions of the Tax Act, including provisions that impose significant limitations on so-called Opco/Propco structures, extend favorable treatment to certain foreign investment in real property, and modify rules applicable to real estate investment trusts, are described in the S&C Publication of December 17, 2015, titled Proposed Tax Extenders Legislation Would Limit Opco/Propco Spinoffs, Modify FIRPTA and Affect Treatment of REITs Proposed Legislation Would Limit Opco/Propco Spinoffs and Make Changes to Treatment of Some Foreign Investment in U.S. Real Estate and to Real Estate Investment Trusts. More information about the PPAC Act is available in the S&C Publication of March 26, 2010, titled Health Care Legislation: President Signs into Law the Patient Protection and Affordable Care Act Effecting Comprehensive Changes to the U.S. Health Care System. Section 4980I. Section 4980I(b). Defined as the health risk of any United States citizen, a resident of the United States (as defined in the Code) or any individual located in the United States. All entities treated as a single employer for purposes of Section 52(a) or (b) or Section 414(m) or (o) are treated as a single Covered Entity, and foreign corporations are expressly included. The tax does not apply to governmental entities or employers outside the health insurance industry that self-insure. Class I devices are those devices that the Food and Drug Administration has determined will be subject to the least stringent controls regarding manufacturing and other practices. Sections 953(e), 954(h), and 954(i). Section 871(k)(1). The exemption for interest-related dividends applies only to dividends paid out of qualified interest income, which means the interest received by the regulated investment company must be U.S. source interest, cannot be contingent interest (under the rules exempting such interest from the portfolio interest exception from interest withholding under Sections 871 and 881), and cannot have been received from a corporation or partnership in which the regulated investment company is a 10% or greater shareholder. Additionally, there is a shareholder-specific limitation: the exemption from withholding on the dividend does not apply if the dividend is attributable to interest received from that shareholder or a person in which that shareholder is a 10% or greater shareholder or partner. Section 871(k)(2). The exemption for short-term capital gains dividends does not apply if the shareholder is a nonresident alien individual present in the United States for 183 days or more during the taxable year and therefore subject to tax on his or her net U.S. source capital gains. As an exception, gain from the sale of shares of a class of stock that is regularly traded on an established securities market is not treated as an interest in United States real property if the shareholder did not hold more than 5% of the class in the 5-year period ending on the date of the sale. Section 897(a)(1). This tax is collected, in part or entirely, by a withholding tax imposed under Section Sections 897(c) and (h). Section 897(h)(1). A qualified investment company is domestically controlled if less than 50% in value of its stock was owned by foreign persons during the 5-year period ending on the date of the disposition or, if shorter, the period of its existence. Section 897(h)(4)(B). -11-

12 ENDNOTES (CONTINUED) See S&C Publication of December 17, 2015, titled Proposed Tax Extenders Legislation Would Limit Opco/Propco Spinoffs, Modify FIRPTA and Affect Treatment of REITs Proposed Legislation Would Limit Opco/Propco Spinoffs and Make Changes to Treatment of Some Foreign Investment in U.S. Real Estate and to Real Estate Investment Trusts. Section 897(c)(3). Section 897(h)(1). Section 168(a)(1). Section 168(a)(2). Section 168(a)(3). Section 168(b)(3). Section 168(c). A qualified leasehold improvement property is, subject to certain requirements, any improvement to an interior portion of a building which is nonresidential real property. See Sections 168(e)(6) and 168(k)(3). A qualified restaurant property is generally any building placed in service between January 1, 2009 and January 1, 2010, or any improvement to a building if more than 50% of the building s square footage is devoted to preparation of, and seating for on-premises consumption of, prepared meals. Section 168(e)(7). A qualified retail improvement property is generally any improvement to an interior portion of a nonresidential building that is open to the general public and is used in the retail trade or business of selling tangible personal property to the general public made more than three years after such building was first placed in service. See Section 168(e)(8). Section 168(e)(3)(E). The term qualifying property includes (i) property to which the MACRS applies with an applicable recovery period of 20 years or less, (ii) water utility property (as defined in Section 168(e)(5)), (iii) computer software (as defined in Section 167(f)(1)) (generally off-the-shelf software with a three-year depreciation period), or (iv) qualified leasehold improvement property (as defined in Section 168(k)(3)). As defined in Section 168(e)(5). As defined in Section 167(f)(1). As defined in Section 168(k)(3). Section 45(a). Section 45(d). Section 25D. Section 25D(g). Section 41(h). Section 164. Section 1374(a). Treasury Regulations Section 1.337(d)-7. The real estate provisions of the Tax Act, including provisions relating to the conversion of a C corporation to a real estate investment trust, see S&C Publication of December 17, 2015, titled Proposed Tax Extenders Legislation Would Limit Opco/Propco Spinoffs, Modify FIRPTA and Affect Treatment of REITs Proposed Legislation -12-

13 ENDNOTES (CONTINUED) Would Limit Opco/Propco Spinoffs and Make Changes to Treatment of Some Foreign Investment in U.S. Real Estate and to Real Estate Investment Trusts. Section 1251 of the American Recovery and Reinvestment Tax Act of 2009; Section 2014 of the Small Business Jobs Act of 2010; Section 326 of the American Taxpayer Relief Act of 2012; Section 138 of the Tax Increase Prevention Act of Section 512(b)(13). Control for this purpose is defined as ownership of 50% or more. Net unrelated income is income that would be unrelated business taxable income to the subsidiary if it were a tax-exempt organization. Section 512(b)(13)(E). Section 267(a). S&C Publication of November 5, 2015, titled Partnership Tax Audits: New Audit Regime Allows IRS to Assess and Collect Tax at the Partnership Level. Section Section Section 6225(c). Section

14 ABOUT SULLIVAN & CROMWELL LLP Sullivan & Cromwell LLP is a global law firm that advises on major domestic and cross-border M&A, finance, corporate and real estate transactions, significant litigation and corporate investigations, and complex restructuring, regulatory, tax and estate planning matters. Founded in 1879, Sullivan & Cromwell LLP has more than 800 lawyers on four continents, with four offices in the United States, including its headquarters in New York, three offices in Europe, two in Australia and three in Asia. CONTACTING SULLIVAN & CROMWELL LLP This publication is provided by Sullivan & Cromwell LLP as a service to clients and colleagues. The information contained in this publication should not be construed as legal advice. Questions regarding the matters discussed in this publication may be directed to any of our lawyers listed below, or to any other Sullivan & Cromwell LLP lawyer with whom you have consulted in the past on similar matters. If you have not received this publication directly from us, you may obtain a copy of any past or future related publications from Stefanie S. Trilling ( ; trillings@sullcrom.com) in our New York office. CONTACTS New York Andrew S. Mason masona@sullcrom.com Ronald E. Creamer Jr creamerr@sullcrom.com Davis J. Wang wangd@sullcrom.com Isaac J. Wheeler wheeleri@sullcrom.com Theodore D. Holt holtt@sullcrom.com Washington, D.C. Donald L. Korb korbd@sullcrom.com SC1: