IMpact: Investment Management News

Welcome to IMpact: Investment Management News. In this regular bulletin, DLA Piper lawyers share their insights on key developments that are impacting the investment management industry. Due to the quickly evolving tax landscape, this quarter features a special edition focusing on key updates within the tax industry.

Due to the quickly evolving tax landscape, this quarter features a special edition focusing on key updates within the tax industry.

1. The One Big Beautiful Bill Act makes key changes to US federal income tax laws

On July 4, 2025, President Donald Trump signed into law H.R. 1 – Public Law No: 119-21, commonly known as the “One Big Beautiful Bill” Act (OBBBA), which made significant changes to US federal income tax laws. Notably, the OBBBA permanently extended certain provisions that had been enacted in the Tax Cuts and Jobs Act of 2017, most of which were set to expire after December 31, 2025. The OBBBA also expanded the qualified small business stock (QSBS) rules that exempt certain taxpayers from capital gains upon a disposition of stock in qualified C corporations, including by 1) increasing the size of corporations eligible to issue QSBS (from $50 million of gross asset value to $75 million of gross asset value), 2) increasing the cap on the maximum amount of excludable capital gain from a single QSBS issuer (from $10 million to $15 million), and 3) introducing inflation adjustments. Read our client alert for a summary of the OBBBA.

2. Application of treaties to reverse hybrid entity structures

In a recent Internal Revenue Service (IRS) internal memorandum (AM-2025-002), the IRS concluded that a “reverse hybrid entity” (i.e., an entity that is fiscally transparent under non-US tax laws but treated as a corporation for US federal income tax purposes) with income that is “effectively connected” with the conduct of a trade or business in the US (i.e., effectively connected income, or ECI) may claim a reduced US branch profits tax rate based on the treaty-qualified status of the reverse hybrid’s direct or indirect owners. The IRS memorandum addresses a scenario involving the application of the branch profits tax and the interpretation of a bilateral income tax treaty that is worded consistently with the 2016 US model income tax convention. Reverse hybrid entities are frequently used as “blocker” corporations in investment fund structures and the conclusions reached by the IRS memorandum present potential opportunities for either reducing (or eliminating) the branch profits tax imposed on reverse hybrid entities that earn ECI or to claim a refund of branch profits tax paid by reverse hybrid entities on ECI in prior years.

3. IRS private letter ruling: US lending trade or business

In a recent private letter ruling (PLR 202536015), the IRS ruled that a lender’s affiliated securitization vehicle would not recognize income or gain treated as effectively connected with a US trade or business (i.e., ECI). As the lender is a not-for-profit international organization established to encourage economic development, the ruling may not be directly analogous to a for-profit private lender. However, the analysis provides insight into how the IRS determines whether a taxpayer has engaged in a US lending trade or business.