The Venture Alley - A blog about business and legal issues important to entrepreneurs, startups, venture capitalists and angel investors.

CONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

Interesting tax update courtesy of Bruce Thompson, a Senior Policy Advisor with DLA Piper.  He continues to see momentum for comprehensive tax reform and wrote the following summary of what that might mean for fund managers and partnerships:

"The Chairmen of the Tax Committees in the House and Senate---Rep. Dave Camp and Sen. Max Baucus---are committed to moving a major tax reform bill, and the House leadership has reserved HR 1 for the tax reform bill.

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Article prepared by and republished courtesy of Alan Granwell and Witold Jurewicz of DLA Piper; originally published here http://www.dlapiper.com/the-final-fatca-regulation-highlights/.

The US Treasury Department has issued the final FATCA regulations.

Although simplified and clarified, the Regulations are lengthy (544 pages) and more than 150 pages longer than the Proposed Regulations.

In drafting the Regulations, the US Treasury Department adopted a targeted, risk-based approach to implement FATCA by balancing policy considerations and administrative burdens and more fully incorporating local AML/KYC documentation practices. The Regulations detail the operational aspects of implementing FATCA – to reduce administrative burdens and clarify the interaction of the unilateral regulatory regime with the bilateral intergovernmental (IGA) regime.

Of particular importance is that the Regulations fill in many of the gaps that foreign financial institutions (FFIs) had as to how to implement FATCA. Nevertheless, FFIs, particularly global financial institutions, will have continuing challenges implementing the rules under the Regulations and IGAs within the current timelines among geographies, lines of business, clients and products.

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CONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

The National Venture Capital Association (NVCA) had a good post about the implications of the new tax bill significant to the venture capital community.  Significantly, they note that this bill did not address any changes to the tax rate for "carried interest", but they do "fully expect" carried interest tax rate increases to remain a topic of discussion as part of the larger pending tax reform discussion, although they project that discussion to be delayed until the second half of 2013.

We've written a number of posts about the bill already, including this summary of the bill and a qualified business stock update.

Quoting from the NVCA Article:

For the venture industry itself, the bill is generally good news, albeit temporary in nature. As expected, the final legislation sent to the President returns the capital gains rate to 20% for individuals with income above $400,000 or families with income above $450,000. With the addition of the 3.8% capital gains tax mandated under the Affordable Care Act, the capital gains tax rate in 2013 will be 23.8% for most VCs. The Administration had pushed aggressively for a higher cap gains rate, but was unsuccessful in that effort. Also significantly, the measure does not include any change to the taxation of carried interest. As we move forward into overall tax reform, we would therefore not anticipate any further increase in the capital gains rate, but we fully expect to see carried interest as a part of the discussion.

Article prepared by and republished courtesy of Evan Migdail of DLA Piper; originally published here http://www.dlapiper.com/congress-pulls-back-from-the-fiscal-cliff/.

Following an unprecedented New Year's session, Congress has passed legislation, the Taxpayer Relief Act of 2012, negotiated with President Barack Obama to partially prevent the US economy from going over the fiscal cliff.  You may read the full text of the bill here.

At a cost of US$4 trillion over ten years, the main provisions are as follows:

• The 2001 individual tax rates are made permanent, except that the highest rate, 39.6 percent, starts at US$450,000 in taxable income for married filing jointly, US$400,000 for individuals.
• Tax rates of capital gains and dividends are set permanently at 15 percent, and 20 percent for those above the thresholds at which the individual 39.6 percent rates start.
• The estate tax rate goes up to 40 percent with a US$5 million exemption (US$10 million for married couples).
• The limitations on itemized deductions and personal exemptions phaseout for high earners are restored at US$250,000 for individuals and US $300,000 for married filing jointly.
• The alternative minimum tax "patch" to keep middle class taxpayers from paying the AMT is enacted permanently (previously the patch had to be renewed yearly).
• The Senate Finance Committee package extending most expired and expiring provisions through the end of 2013 is adopted as part of the bill.
• Bonus depreciation at 50 percent is extended at 50 percent.
• The payroll tax cut enacted in 2010 is allowed to expire, but long-term unemployment benefits are extended for a year.

The most important features of the compromise may relate to what is not in the bill, rather than what is enacted: i.e., business tax reform, entitlement reform and raising the debt ceiling. Many Republican members preferred to address all of the tax provisions (individual and corporate) together as part of comprehensive tax reform.

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CONTRIBUTED BY
Trent Dykes
trent.dykes@dlapiper.com

As the new year approaches, taxes will again be front and center in shaping strategy for both actions before year-end and 2013 financial planning.  This year is no exception, and in fact the prevalence of tax as a driver will be magnified given several major tax changes that are set to take place at year-end absent action by Congress.  Merrill Lynch did a nice job of concisely summarizing the major tax changes here (“Tax law changes call for careful planning in 2012”).  Also see our earlier post on this topic here.  At a high-level, these changes include: 

• A vast expansion in the reach of the Alternative Minimum Tax (AMT)
• Personal income tax rates to rise to a maximum federal rate of 39.6% (from a 35% top rate)
• Loss of Bush-era reduced tax rates on long-term capital gains (set to rise to 20% from 15% and to 10% from 0%) and qualified dividends (from 15% to the individual’s ordinary income tax rate – as high as 39.6%)
• Introduction of a 3.8% Medicare surtax on unearned income for high-income filers
• Section 179 deduction for business depreciation to be significantly reduced in 2013
• American Opportunity Tax Credit for certain college expenses expires at end of 2012
• 2% increase in FICA payroll taxes (current reduction to expire at end of 2012)
• Education IRA limit reduced to $500 in 2013 (from $2,000)
• Highest estate tax rate rises to 55% (from 35%); estate tax exemption drops to $1M (from $5M)

Read more here and here.