IRS Chief Counsel Advises Field Operations on Loan Origination by Foreign Entities Through US Representatives

September 29, 2009
The IRS has released a recent internal memorandum that sets out its position on certain lending transactions undertaken by foreign corporations through U.S. representatives. The IRS concluded that the loan origination activities of an onshore representative are attributed to an offshore investor, thus subjecting the offshore investor to U.S. taxation on a net income basis. The IRS’s conclusion, however, carries fewer implications for purchases of loans by offshore funds that rely on an exception permitting offshore investors to trade in stocks and securities for their own account without being treated as engaged in a U.S. trade or business. This update examines the IRS’s latest inquiry into offshore lending transactions