K1 from Brookfield Partners triggers 926 filing requirement?

Technical topics regarding tax preparation.
#1
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A statement in the K1 mentioned form 926 and I'm wondering if the client has a filing requirement. Common sense says, no, it's a publicly traded company, but I'm not sure.

I'm reading the instructions, but now I'm regretting skipping so many classes to go to Pink Floyd Concerts, as I am having trouble understanding them:

926 instructions say:

Exceptions to Filing

For exchanges described in section 354 or 356, a U.S. person does not have to file Form 926 if:

The U.S. person exchanges stock of a foreign corporation in a recapitalization described in section 368(a)(1)(E), or

The U.S. person exchanges stock of a domestic or foreign corporation for stock of a foreign corporation under an asset reorganization described in section 368(a)(1) that is not treated as an indirect stock transfer under Regulations section 1.367(a)-3(d).

Generally, a domestic corporation that distributes stock or securities of a domestic corporation under section 355 is not required to file Form 926. However, this exception does not apply if the distribution is of stock or securities of a foreign controlled corporation to a distributee shareholder who is not a U.S. citizen or resident or a domestic corporation. See specific instructions for Part IV, line 21, later, for more information.

A U.S. person that transfers stock or securities under section 367(a) does not have to file Form 926 if either a or b below applies.

The U.S. transferor owned less than 5% of both the total voting power and the total value of the transferee foreign corporation immediately after the transfer and:

The U.S. transferor qualified for nonrecognition treatment with respect to the transfer, or

The U.S. transferor is a tax-exempt entity and the income was not unrelated business income, or

The transfer was taxable to the U.S. transferor under Regulations section 1.367(a)-3(c) and such person properly reported the income from the transfer on its timely filed return (including extensions) for the tax year that includes the date of transfer, or

The transfer is considered to be to a foreign corporation solely by reason of Regulations section 1.83-6(d)(1) and the fair market value of the property transferred did not exceed $100,000.The U.S. transferor owned 5% or more of the total voting power or the total value of the transferee foreign corporation immediately after the transfer and:

The U.S. transferor is a tax-exempt entity and the income was not unrelated business income, or

The transfer was taxable to the U.S. transferor and such person properly reported the income from the transfer on its timely filed return, or

The transfer is considered to be to a foreign corporation solely by reason of Regulations section 1.83-6(d)(1) and the fair market value of the property transferred did not exceed $100,000.
 

#2
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Transfers of property by a partnership to a foreign corp are deemed to be made proportionally by the partnership's owners for 926 purposes.

What was transferred to the foreign corp? Cash? Other property? The footnote should have more info.
 

#3
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Yes, there was $130 transferred in cash.

Is he required to file form 926 as a result? I would be certain that he is less than a 5% owner - it's a publicly traded partnership - though I'm not sure if that is relevant.

Wouldn't the partnership itself have the filing requirement? Seems silly that he would have to.
 

#4
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ItDepends wrote:Is he required to file form 926 as a result?


Most likely not. Treas. Reg. Sec 1.6038B-1(b)(3):

Special rule for transfers of cash. A U.S. person that transfers cash to a foreign corporation in a transfer described in section 6038B(a)(1)(A) must report the transfer if -

(i) Immediately after the transfer such person holds directly, indirectly, or by attribution (determined under the rules of section 318(a), as modified by section 6038(e)(2)) at least 10 percent of the total voting power or the total value of the foreign corporation; or

(ii) The amount of cash transferred by such person or any related person (determined under section 267(b)(1) through (3) and (10) through (12)) to such foreign corporation during the 12-month period ending on the date of the transfer exceeds $100,000.
 

#5
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There it is - thanks MvT, I really appreciate that.

Put it on my bill.
 

#6
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So I'm worrying about this. My client owns .000012% of Brookfield Infrastructure Partners LP. The K-1 has the Form 926 info in the back. The amount of cash transferred to the foreign corporation is $1 to 4 difference foreign corporations. So we're talking about $4 total! The statement on the K-1 looks like a mock Form 926 telling what you'd need to fill out if you need to prepare the Form. Part IV, Line 16a and Line 16b, "Enter the transferor's interest in the transferee foreign corporation before and after the transfer" says a little over 70% for each corporation.

So here is my confusion:

1. My client owns well under 10% of the partnership (again .000012%).
2. The amount of cash transferred to the foreign corporation reported on this statement attached to the K-1 would appear to be my client's proportional share of the cash transferred. Why would the partnership transfer only $1 in total?
3. If #2 above is correct and my client's share of the transfer is only $1, why would that Line 16 show a transferor's interest after the transfer of 70%? There's no way my client owns 70% of the foreign corps.

So it seems like apples and oranges here. Am I supposed to multiply my client's .000012% by the 70% to see what his individual interest is in the foreign corp. to determine if he is required to file Form 926? Why would they put $1 in the cash transferred section, if that's my client's share but not put his individual interest also on Line 16? Perhaps I'm wrong and the $1 reporesents the entire transferred amount for everyone and the information on this statement is for the whole Transferor information (the Transferor being Brookfield Infrastructure Partners LP)

Bottom line, do we have to file Form 926 or just stop worrying about this? The instructions are not helpful.
 

#7
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@JoJoCPA - I wouldn't be surprised if the preparer goofed on the percentage reporting or if you are supposed to take a percentage of it. The rule is either a transfer of cash over 100K or a transfer of cash resulting in owning more than 10% of the foreign corp's stock. There is also a special rule concerning non-cash transfers in which, my position, is that there is no threshold.

It's not your client's ownership in Brookfield Infrastructure that matters, it's their ownership in the underlying foreign corp, but it would be an absolute stretch to think that they have a special investment in just the foreign corp that others in Brookfield don't.

Three options; don't file, clarify with the fund, or report the 926 as a precautionary measure. It's not a difficult form, and no penalty for filing if it is not ultimately required.
 

#8
JAD  
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The preparer of Brookfield has to present the information for all of the partners, so a partner with a very small interest would get the same information as a partner for whom the information is relevant. The individual partner, not the partnership, makes the determination of whether the form is required. The preparer of Brookfield doesn't want to create liability for himself by omitting information that he is required to provide to the partner. The penalties for not filing are ridiculous.

Also, if your individual had deemed contributions to the foreign corporation from another entity, you would combine the information to determine if your individual has a filing requirement.

Also again....this determination is made on a 12 month period, not a calendar year. The question is did total contributions to the foreign entity in any 12 month period ending in 2022 trigger a filing requirement.

I used to have lots of these, and I would track the contributions to the foreign corporations over 2 years, so let's say 2021 and 2022. If the total was over $100,000, I would make disclosure because it was easier than trying to track down the exact dates of the contributions to show that the form was not required.
 

#9
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@JAD - but based on what I've said above and no other deemed contributions from another entity, it doesn't sound like my client needs to file the Form 926. Would you agree?

any idea if the $1 represents my client's share of the cash transferred but yet the percentage shown as 70% represents the partnership's ownership interest in the foreign corp.? Seems like a strange way to present the information.
 


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