Proposals Relating to International Taxation SUMMARY On February 2, 2015, the Obama Administration (the “Administration”) released the General Explanations of the Administration’s Fiscal Year 2016 Revenue Proposals (commonly known as the “Green Book”). Although the Green Book does not include proposed statutory language, the Green Book contains significant detail about the fiscal year 2016 revenue proposals. Many of these proposals were made previously by the Administration but were not enacted into law. This memorandum discusses key aspects of the Green Book relating to international taxation. We will be distributing a separate memorandum addressing Green Book proposals relating to domestic business taxation. We previously distributed separate memoranda addressing Green Book proposals relating to: (1) taxation of offshore profits of U.S. corporations (the “Offshore Profits Proposal Memorandum”), and (2) individual, estate and gift, and retirement plan taxation. All such memoranda may be obtained by following the instructions at the end of this memorandum.1 The Green Book international proposals would make significant changes to the existing international taxation regime, and includes the following specific proposals: taxing offshore profits of U.S. corporations: imposing a 19% minimum tax on U.S. corporations’ future foreign profits, with generally an 85% credit for associated foreign taxes paid (for details, see the Offshore Profits Proposal Memorandum); imposing a one-time, immediate 14% tax on U.S. corporations’ current accumulated overseas earnings, with generally a 40% credit for associated foreign taxes paid (for details, see the Offshore Profits Proposal Memorandum);-2- President Obama's Fiscal Year 2016 Revenue Proposals February 17, 2015 providing tax incentives for locating jobs and business activity in the United States and removing tax deductions for outsourcing jobs overseas; limiting the ability of domestic entities to expatriate; restricting the use of hybrid arrangements that create stateless income; closing so-called “loopholes” under Subpart F; restricting deductions for excessive interest of members of financial reporting groups; repealing the delay in the implementation of worldwide interest allocation; extending the exception under Subpart F for active financing income; extending the look-through treatment of payments between related controlled foreign corporations (“CFCs”); taxing gain from the sale of a partnership interest on a look-through basis; and expanding the IRS’ authority to reallocate income in the case of related-party intangible property transfers. ANALYSIS 1. Provide Tax Incentives for Locating Jobs and Business Activity in the United States and Removing Tax Deductions for Outsourcing Jobs Overseas The Green Book proposal would introduce a new business credit equal to 20% of the eligible expenses paid or incurred in connection with “insourcing” a U.S. trade or business. The Green Book defines “insourcing a U.S. trade or business” as reducing or eliminating a trade or business (or line of business) currently conducted outside the United States and starting up, expanding, or otherwise moving the same trade or business within the United States, to the extent that this action results in an increase in U.S. jobs. The Green Book further states that a U.S. parent company could claim the 20% tax credit even if the insourcing expenses are incurred by the U.S. parent’s foreign subsidiary. In addition, the Green Book proposal would disallow deductions for expenses paid or incurred in connection with outsourcing a U.S. trade or business, which the Green Book defines as reducing or eliminating a trade or business (or line of business) currently conducted in the United States and starting up, expanding, or otherwise moving the same trade or business outside the United States to the extent that this action results in a loss of U.S. jobs. In this respect, the Green Book also proposes that expenses associated with moving a U.S. trade or business outside the United States will be disallowed in determining the subpart F income of a CFC.2 According to the Green Book, expenses paid or incurred in connection with insourcing or outsourcing a U.S. trade or business are limited solely to expenses associated with the relocation of the trade or business and do not include capital expenditures or costs for severance pay and other assistance to displaced workers. -3- President Obama's Fiscal Year 2016 Revenue Proposals February 17, 2015 This proposal, if enacted into law, would be effective for expenses paid or incurred after the date of enactment. 2. Limit the Ability of Domestic Entities to Expatriate Under current law, certain “inversion” transactions (whereby a domestic corporation is replaced by a foreign corporation as the parent company of a multinational affiliated group of companies) result in adverse tax consequences.3 These consequences depend on the level of shareholders’ ownership. If the ownership of shareholders of the domestic corporation in the new foreign parent corporation is 80% or more (by vote or value), the new foreign parent corporation is treated as a domestic corporation for all U.S. federal tax purposes (the “80% test”). If, however, the continuing shareholder ownership is less than 80% but at least 60%, the foreign status of the foreign parent is respected but certain other adverse tax consequences apply (the “60% test”). According to the Green Book, domestic companies have been engaging in inversion transactions that trigger the 60% test and still manage to reduce substantially the U.S. federal tax liability of the multinational group with only a minimal change in operations.4 The Green Book further mentions that statutory rules were enacted to require certain federal agencies not to contract with multinational groups that have inverted. However, according to the Green Book, such federal agencies do not have access to the identity of such groups, and the Internal Revenue Service (“IRS”) is restricted5 from sharing this information with such agencies.6 The Green Book proposal would broaden the definition of an inversion transaction by reducing the 80% test to a greater-than-50% test, and eliminating the 60% test. In other words, if the ownership of shareholders of the domestic corporation in the new foreign parent corporation is more than 50% (by vote or value), the foreign parent would be treated as a U.S. corporation. The proposal would also add a special rule whereby, regardless of the level of shareholder continuity, an inversion transaction would occur if: (i) immediately prior to the acquisition the fair market value of the stock of the domestic corporation is greater than the fair market value of the stock of the foreign acquiring corporation, (ii) the expanded affiliated group that includes the foreign corporation is primarily managed and controlled in the United States, and (iii) the expanded affiliated group does not conduct substantial business activities in the country in which the foreign corporation is created or organized.7 The proposal also provides that an inversion transaction can occur if there is a direct or indirect acquisition of substantially all the assets of a U.S. corporation or U.S. partnership (regardless of whether such assets constitute a trade or business), substantially all the trade or business assets of a U.S. corporation or U.S. partnership, or substantially all the U.S. trade or business assets of a foreign partnership. In addition, the Green Book proposal would provide the IRS with authority to share tax return information with federal agencies for the purpose of administering the agencies’ anti-inversion rules. The proposals that would limit the ability of domestic entities to expatriate, if enacted into law, would be effective for transactions that are completed after December 31, 2015. The proposal providing the IRS -4- President Obama's Fiscal Year 2016 Revenue Proposals February 17, 2015 with authority to share tax return information, if enacted into law, would be effective January 1, 2016 (without regard to when the inversion transaction occurred). 3. Restrict the Use of Hybrid Arrangements that Create Stateless Income Under current law, interest and royalty payments made or incurred in carrying on a trade or business are generally deductible without regard to the tax treatment of such payments in other jurisdictions (subject to certain exceptions and limitations). According to the Green Book, this has resulted in the development of tax avoidance techniques involving a variety of cross-border hybrid arrangements,8 such as hybrid entities, hybrid instruments, and hybrid transfers. The Green Book asserts that these arrangements enable taxpayers to claim deductions in the United States without a corresponding inclusion of income in the payee’s tax jurisdiction (i.e., the income is not subject to tax in any jurisdiction, and hence the name “stateless income”), or to claim multiple deductions for the same payment in several jurisdictions.9 The Green Book also asserts that taxpayers make use of “reverse hybrid entities” (i.e., an entity treated as a corporation for U.S. federal tax purposes and as transparent in the jurisdiction in which the entity is organized) to take advantage of exceptions to the Subpart F rules in order to create “stateless income” which is not subject to tax in any jurisdiction. Specifically, the Green Book asserts that such reverse hybrid entities would generally not be subject to U.S. federal income tax on a current basis unless the Subpart F rules apply and would generally not be subject to tax in the foreign jurisdiction because the foreign jurisdiction takes the view that the entity is transparent and the income earned by the entity is thereby derived by its U.S. owners. Even if a reverse hybrid entity is treated as a CFC, interest and royalty income earned from certain related persons (which would otherwise qualify as Subpart F income) may not be subject to current U.S. tax due to certain exceptions available under current law (e.g., exceptions that exempt payments between related parties from Subpart F treatment). The Green Book proposes to deny deductions for interest and royalty payments made to related parties under certain circumstances involving hybrid arrangements, including if either: (i) there is no corresponding inclusion of income to the recipient, or (ii) if the arrangement would permit the taxpayer to claim an additional deduction for the same payment in another jurisdiction.10 In addition, the Green Book proposal would grant the Treasury authority to issue any regulations necessary to carry out the purposes of this proposal, including regulations that would: (i) deny interest or royalty deductions arising from certain hybrid arrangements involving unrelated parties in appropriate circumstances, such as structured transactions; (ii) deny deductions from certain conduit arrangements that involve a hybrid arrangement between at least two of the parties to the arrangement; and (iii) deny a deduction claimed with respect to an interest or royalty payment that, as a result of the hybrid arrangement, is subject to a reduced tax rate (which is at least 25% lower than the statutory rate) in the recipient’s jurisdiction. The Green Book also proposes that the related party exceptions will not apply to payments made to a foreign reverse hybrid owned directly by one or more U.S. persons when such amounts are treated as -5- President Obama's Fiscal Year 2016 Revenue Proposals February 17, 2015 received from foreign related persons that claim a deduction for foreign tax purposes with respect to the payment.11 These proposals, if enacted into law, would be effective for taxable years beginning after December 31, 2015. 4. Restrict Exceptions to Current Taxation Under Subpart F Under current law, if a corporation is a CFC for an uninterrupted period of 30 days or more during a taxable year (the “30-day Rule”), a 10% U.S. shareholder of the CFC who owns stock of the CFC on the last day in such CFC’s taxable year, must include in its gross income its pro rata share of the Subpart F income earned by the CFC that year, regardless of whether the CFC distributes such income to the U.S. shareholder. In addition, a 10% U.S. shareholder of the CFC is required to include in its gross income such shareholder’s pro rata share of the CFC’s earnings and profits invested in U.S. property. A corporation is a CFC if more than 50% of the total combined voting power or value of the corporation’s stock is owned by 10% U.S. shareholders on any day during the taxable year of the corporation. The constructive ownership rules under Section 318 of the Code apply, with certain modifications, in determining the 10% and 50% ownership requirements. One such modification turns off downward attribution of stock from a foreign person to a U.S. person. Consequently, if a foreign person owns stock of a foreign corporation and such foreign person is also a partner in a U.S. partnership, a shareholder in a U.S. corporation or a beneficiary in a U.S. trust, the foreign person’s ownership of the foreign corporation will not be attributed to such U.S. entities for purpose of determining whether any such entity is a 10% U.S. shareholder of the foreign corporation and, therefore, whether such corporation is a CFC. Subpart F income includes, among other things, foreign personal holding company income,12 foreign base company sales income,13 and foreign base company services income,14 all of which are intended to ensure that tax is not deferred on income that is not generated by an active trade or business of the CFC. The Green Book asserts that due to the technical nature of the Subpart F income categories and threshold requirements, taxpayers are able to avoid the Subpart F rules.15 The Green Book explains that such avoidance of Subpart F could be achieved, for example, by choosing different forms for substantially similar transactions. In addition, according to the Green Book, taxpayers exploit the 30-day Rule by intentionally generating significant Subpart F income during short taxable years of less than 30 days (for example, through a Section 338(g) election in which the transaction is structured to take place within fewer than 30 days of the start of the CFC’s taxable year).16 The Green Book also explains that the Subpart F rules could be avoided when a U.S.-parented group is acquired by a foreign corporation, and the new foreign parent (or a non-CFC foreign affiliate of the foreign parent) acquires sufficient amount of stock of one or more CFCs of the former U.S.-parented group, causing such subsidiaries to cease to be CFCs. As a result, Subpart F rules would not apply to the U.S. shareholders’ continued ownership in the former CFC.17-6- President Obama's Fiscal Year 2016 Revenue Proposals February 17, 2015 With respect to these Subpart F rules, the Green Book proposes the following: a. Expanding Subpart F Income Categories i. Create a New Category of Subpart F Income for Transactions Involving Digital Goods or Services According to the Green Book, digital transactions involving copyrighted articles can take the form of leases, sales or services (such as “cloud” computing). 18 The Green Book asserts that taxpayers are able to avoid the Subpart F rules by choosing different forms for substantially similar transactions. The Green Book proposal would create a new category of Subpart F income, foreign base company digital income, which generally would include income of a CFC from the lease or sale of a digital copyrighted article or from the provision of a digital service, in cases where the CFC uses intangible property developed by a related party (including property developed pursuant to a cost-sharing arrangement) to produce the income and the CFC does not, through its own employees, make a substantial contribution to the development of the property or services that give rise to the income. Income earned by a CFC directly from customers located in the CFC’s country of incorporation that use or consume the digital copyrighted article or digital service in such country will be excluded from this rule.19 ii. Expand Foreign Base Company Sales Income to Include Manufacturing Services Arrangements In response to a past-stated concern that taxpayers have taken the position that foreign base company sales income does not include the provision of manufacturing services to the CFC by a related party (as opposed to the purchase of property by the CFC from a related party), the Green Book proposal would expand the category of foreign base company sales income to include income of a CFC from the sale of property manufactured on behalf of the CFC by a related person. It is not clear how this proposal would interact with the current exception from foreign base company sales income for property manufactured or produced by a contract manufacturer but where the CFC substantially contributes to the manufacturing.20 b. Modifying the Thresholds for Applying Subpart F i. Amending CFC Attribution Rules The Green Book proposal would amend the ownership attribution rules so that certain stock of a foreign corporation owned by a foreign person will be attributed to a related U.S. person for the purpose of determining whether such U.S. person is a 10% U.S. shareholder and, therefore, whether the foreign corporation is a CFC. However, the proposed change to the ownership attribution rules will not affect the calculation of the pro rata share of the CFC’s Subpart F income that a 10% U.S. shareholder is required to include in gross income. That amount would continue to be determined under the existing rules.21-7- President Obama's Fiscal Year 2016 Revenue Proposals February 17, 2015 ii. Eliminating the 30-day Grace Period Before Subpart F Inclusions The Green Book proposal would eliminate the requirement for a foreign corporation to be a CFC for an uninterrupted period of at least 30 days in order for a 10% U.S. shareholder to be required to include in its gross income Subpart F income earned by the CFC. The proposals relating to Subpart F rules, if enacted into law, would be effective for taxable years beginning after December 31, 2015. 5. Restrict Deductions for “Excessive” Interest of Members of Financial Reporting Groups Under current law, a U.S. corporation generally may deduct interest payments, including payments to a related party. An exception to this rule is Section 163(j), which disallows deductions for certain excess interest paid by a corporation to a related party. Under Section 163(j), if the taxpayer’s debt-to-equity ratio exceeds 1.5-to-1, a deduction for interest payments to certain related parties that are not subject to U.S. tax (e.g., foreign corporations) is disallowed to the extent the taxpayer has “excess interest expense”. Excess interest expense is the amount by which the taxpayer’s “net interest expense” (i.e., interest expense less interest income) exceeds 50% of the taxpayer’s “adjusted taxable income” (generally taxable income computed without regard to deductions for net interest expense, net operating losses, certain cost recovery, and domestic production activities). Any disallowed interest deductions may be carried forward indefinitely, while any “excess limitation” (the excess of 50% of the corporation’s adjusted taxable income over the corporation’s net interest expense) may be carried forward three years. The Green Book states that although Section 163(j) places a cap on the amount of deductible interest based on the corporation’s U.S. earnings, it does not consider the leverage of a multinational group’s U.S. operations relative to the leverage of the group’s foreign operations.22 The Green Book proposal regarding the imposition of the 19% minimum tax on foreign income (discussed in the Offshore Profits Proposal Memorandum) addresses this concern for U.S.-parented groups. However, according to the Green Book, foreign parented multinational groups may still be able to disproportionately leverage their U.S. operations.23 The Green Book proposal would apply to an entity that is a member of a group that prepares consolidated financial statements (“financial reporting group”) in accordance with U.S. GAAP, IFRS or other authorized accounting method. The proposal would limit a member’s deduction for interest expense if (i) the member has net interest expense for tax purposes, and (ii) the member’s net interest expense for financial reporting purposes exceeds the member’s proportionate share of the net interest expense reported on the financial reporting group’s consolidated financial statements (“excess financial statement net interest expense”).24 A deduction for the member’s net interest expense would be disallowed either (i) in the same proportion that the member’s net interest expense for financial reporting purposes is excess financial statement net -8- President Obama's Fiscal Year 2016 Revenue Proposals February 17, 2015 interest expense, or (ii) if the member fails to substantiate its proportionate share of the group’s net interest expense, or if the member so elects, to the extent the member’s interest expense exceeds the sum of (x) the member’s interest income, plus (y) 10% of the member’s adjusted taxable income. Disallowed interest would be carried forward indefinitely, and any excess limitation for a tax year would be carried forward to the three subsequent years. A member of a financial reporting group subject to the proposal would be exempt from the application of section 163(j). A “U.S. subgroup” would be treated as a single member of a financial reporting group, where a “U.S. subgroup” would be (i) any U.S. entity that is not owned directly or indirectly by another U.S. entity, and (ii) all members (domestic or foreign) owned directly or indirectly by the U.S. entity. If a U.S. member of a U.S. subgroup owns stock of any foreign corporations, this proposal would apply before the proposed 19% minimum tax on foreign income (discussed in the Offshore Profits Proposal Memorandum). Entities that would be exempt from the proposal include: (i) financial services entities, and (ii) financial reporting groups that would otherwise report less than $5 million of net interest expense, in the aggregate, on a U.S. income tax return. Exempt entities would remain subject to Section 163(j). This proposal, if enacted into law, would be effective for taxable years beginning after December 31, 2015. 6. Repeal the Delay in the Implementation of Worldwide Interest Allocation Under current law, for purposes of computing the foreign tax credit limitation, U.S. members of an affiliated group are currently required to allocate their interest expense to their U.S. and foreign investments without taking into account any third-party interest expense incurred by foreign members of their worldwide group of companies. The American Jobs Creation Act of 2004 (“AJCA”) provided for a one-time worldwide interest allocation election (the “AJCA election”).25 Under the AJCA election, U.S. members of a worldwide affiliated group (“WAG”) would allocate and apportion their interest expense on a worldwide-group basis. Specifically, U.S. members of a WAG would determine their taxable income from sources outside the United States by allocating and apportioning such members’ third-party interest expenses to foreign-source gross income in an amount equal to the excess (if any) of (i) the WAG’s third-party interest expense multiplied by the percentage of the WAG’s foreign assets, over (ii) the third-party interest expense incurred by foreign members of the WAG (to the extent that such interest would be allocated to foreign sources if the worldwide allocation rules were applied separately to the foreign members of the WAG). For this purpose, the WAG includes (i) all U.S. corporations in an affiliated group, and (ii) certain controlled foreign corporations. Under current law, the AJCA election is available for taxable years beginning after December 31, 2020.-9- President Obama's Fiscal Year 2016 Revenue Proposals February 17, 2015 According to the Green Book, if the Administration’s proposal to impose a 19% minimum tax on foreign income (discussed in the Offshore Profits Proposal Memorandum) were enacted, certain taxpayers would be required, absent the AJCA election, to allocate a disproportionate amount of their interest expense to various categories of foreign-source gross income, as required by the 19% minimum tax regime.26 In order to allow a more accurate allocation and apportionment of interest expense, the Green Book proposes to accelerate the availability of the AJCA election.27 This proposal, if enacted into law, would make the AJCA election available for taxable years beginning after December 31, 2015. 7. Extend the Exception under Subpart F for Active Financing Income Under current law, there is an exception from Subpart F income for income derived in the active conduct of banking, financing, or similar businesses, or in the conduct of an insurance business (“active financing exception”).28 The active financing exception currently applies to (i) taxable years of foreign corporations beginning after December 31, 1998, and before January 1, 2015, and (ii) taxable years of U.S. shareholders with or within which such taxable years of the foreign corporations end. According to the Green Book, U.S.-based financial and insurance groups should be allowed to continue their active international operations without being subject to Subpart F. The Green Book explains that the Administrations’ proposal to impose a 19% minimum tax on foreign income (discussed in the Offshore Profits Proposal Memorandum) would prevent these U.S. financial groups from reducing their effective tax rates below 19%.29 This proposal, if enacted into law, would make the active financing exception permanent. 8. Extend the Look-Through Treatment of Payments Between Related CFCs Under current law, a 10% U.S. shareholder (taking into account a number of attribution and constructive ownership rules) of a CFC generally is subject to current U.S. tax on its dividends, interest, royalties, rents, and other types of passive income earned by the CFC, regardless of whether the CFC distributes such income to the U.S. shareholder. However, for tax years of CFCs beginning before January 1, 2015, and tax years of U.S. shareholders in which or with which such tax years of the CFC end, Section 954(c)(6) of the Code provided a “look-through” exception under which such passive income will generally not be subject to Subpart F rules if the income was received by a CFC from a related CFC (provided such income was not subject to current U.S. tax or effectively connected with a U.S. trade or business). The Green Book proposes to make the look-through rule permanent.30 The Green Book states that concerns regarding foreign-to-foreign payments would be more appropriately addressed by the Administration’s proposal to impose a 19% minimum tax on foreign income (discussed in the Offshore Profits Proposal Memorandum). According to the Green Book, the 19% minimum tax proposal would -10- President Obama's Fiscal Year 2016 Revenue Proposals February 17, 2015 ensure that foreign-to-foreign payments could not be used to shift income to entities that have an effective tax rate below the minimum tax rate of 19%.31 This proposal, if enacted into law, would make the look-through exception permanent. 9. Tax Gain from the Sale of a Partnership Interest on a Look-Through Basis In general, capital gain of a nonresident alien individual or foreign corporation from the sale or exchange of property, including a partnership interest, is subject to U.S. federal income tax only if such gain is treated as income that is effectively connected with the conduct of a U.S. trade or business (“ECI”). In Revenue Ruling 91-32, the IRS held that a foreign partner’s gain or loss from the sale or exchange of a partnership interest should be treated as ECI to the extent of such foreign partner’s share of unrealized partnership gain or loss attributable to property used or held for use in the partnership’s U.S. trade or business. The holding in IRS Revenue Ruling 91-32 has not been codified. According to the Green Book, notwithstanding IRS Revenue Ruling 91-32, foreign taxpayers might take the position that gain from the sale of a partnership interest is not subject to U.S. federal income tax because there is no Code provision explicitly providing that gain from the sale or exchange of a partnership interest by a nonresident alien individual or foreign corporation is treated as ECI.32 If this position is taken and the partnership has in effect an election under Section 754 of the Code to adjust the basis of its assets upon the transfer of an interest in the partnership, then such gain may escape U.S. federal income tax altogether. The Green Book proposal would codify Revenue Ruling 91-32. The Secretary would be granted authority to specify the extent to which a distribution from a partnership is treated as a sale or exchange of an interest in the partnership and to coordinate the new provision with the nonrecognition provisions of the Code. Additionally, the proposal would require the transferee of a partnership interest to withhold 10% of the amount realized on a sale or exchange of the partnership interest unless the transferor certified that the transferor was not a nonresident alien individual or foreign corporation (if the transferor provided an IRS certificate establishing that its U.S. federal income tax liability with respect to the transfer was less than 10% of the amount realized, the transferee would withhold the lesser amount). The partnership would be liable for any underwithholding by the transferee with respect to the transfer and would be required to satisfy the withholding obligation by withholding on future distributions to the transferee partner. This proposal, if enacted into law, would be effective for sales or exchanges after December 31, 2015. 10. Expanding the IRS’ Authority to Reallocate Income in the Case of Related-Party Intangible Property Transfers Current law provides that if intangible property is transferred or licensed to a related person, the income recognized by the transferor must be “commensurate with the income” derived by the transferee from the -11- President Obama's Fiscal Year 2016 Revenue Proposals February 17, 2015 intangible;33 similarly, if intangible property is transferred by a U.S. person to a foreign corporation in a transaction that would otherwise be tax-free under Section 351 or 361 of the Code, the transfer is recharacterized as a sale of such property in exchange for a series of contingent payments commensurate with the income derived by the transferee from the intangible.34 In addition, Section 482 of the Code authorizes the IRS Commissioner to “distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among such organizations, trades, or businesses.” According to the Green Book, frequent controversies arise about the value of intangible property subject to the two “commensurate with income” rules. The Green Book states that the lack of clarity on this matter has led to “inappropriate avoidance of U.S. tax.”35 The Green Book proposal would provide that the definition of intangible property for purposes of Sections 367 and 482 of the Code also includes “workforce in place, goodwill, and going concern value, and any other item owned or controlled by a taxpayer that is not a tangible or financial asset and that has substantial value independent of the services of any individual.” Consequently, transfers of such items would be subject to the two “commensurate with income” rules referred to above. The proposal would also effectively reverse the result of the Veritas decision36 and provides that (i) when multiple intangibles are transferred, or where intangible property is transferred with other property or services, the IRS Commissioner may value such properties or services on an aggregate basis if that achieves a more reliable result, and (ii) the IRS may value intangible property “taking into consideration the prices or profits that the controlled taxpayer could have realized by choosing a realistic alternative to the controlled transaction undertaken.”37 The proposal would be effective for taxable years beginning after December 31, 2015.