On July 13, 2017, the U.S. Tax Court, in Grecian Magnesite Mining, Industrial & Shipping Co., SA v. Commissioner,1 rejected the long-standing Internal Revenue Service (IRS) position that a non-U.S. person is taxed on the sale of an interest in an entity that is a “partnership” for U.S. federal income tax purposes (hereinafter, a partnership) that is engaged in business in the United States.
Under the Tax Court’s holding in Grecian, if a non-U.S. person sells an interest in a partnership or is completely redeemed from a partnership that is engaged in a “trade or business in the United States” the non-U.S. seller is, in general, not subject to U.S. federal income tax on the gain from the sale. (As noted below, one exception to this is that the non-U.S. seller is subject to U.S. federal income tax under the Foreign Investment in Real Property Tax Act of 1980, as amended (FIRPTA) to the extent that the gain is attributable to the non-U.S. seller’s share of United States real property interests (USRPIs) owned by the partnership.)