Tax Extenders Act Of 2009

December 9, 2009: Today, the House of Representatives passed the "Tax Extenders Act of 2009" ("TEA"). If passed by the Senate, the bill would extend a number of tax relief provisions through 2010 (including the research and development tax credit, the new markets tax credit, the active financing exception from subpart F income for controlled foreign corporations, and the exemption from U.S. withholding tax for foreigners that invest in certain fixed-income mutual funds).

The bill also reintroduces the Foreign Account Tax Compliance Act of 2009 ("FATCA"; H.R. 3933 and S. 1934) (briefly described here.

Finally, the bill would tax income and gain from carried interests in certain partnerships as ordinary income. The carried interest proposal is identical to the proposal that was introduced in prior bills (H.R. 3996 and H.R. 6275); it is limited to carried interests in certain investment fund managers and is not as broad as the Obama Administration's proposal (which would apply to carried interests in any partnership) (briefly described here.

The balance of this e-mail summarizes the differences between FATCA and the corresponding provisions of TEA.

Foreign Account Reporting

In General. Both FATCA and TEA generally require "foreign financial institutions" (which is defined broadly to include most foreign hedge funds, private equity funds, and securitization vehicles) to determine which of its equity and debt holders (and certain other of its counterparties and other "account holders") are United States persons and to report this information to the IRS or otherwise be subject to a 30% withholding tax on its U.S.-source income and the proceeds of certain sales and other dispositions. Certain foreign non-financial institutions are subject to similar requirements, but only with respect to 10% U.S. equity holders. Effective Date. FATCA was proposed to be effective for payments made after December 31, 2010 and provided a grandfather provision for obligations outstanding on the date of the first committee action that were either in bearer form or obligated their issuer to provide a gross-up by reason of the proposed withholding requirements. TEA would be effective for payments made after December 31, 2012. Moreover, TEA does not apply to any payment made under any "obligation" that is outstanding two years after the date of enactment. It is unclear whether the term "obligation" is limited to debt obligations or applies to a broader class of financial...