Rules regarding gain or loss on liquidation are a major reason for formation as an LLC rather than as a corporation.
LLCs and LLPs
Practitioners should be familiar with the cancellation-of-debt rules to ensure that modifications of an LLC's debts are not significant enough to cause the members to recognize income.
This item explores some common issues encountered by foreign taxpayers adopting transparent U.S. LLCs to invest or operate in the United States.
Determining whether each individual member of an LLC materially participates requires assumptions that can pose problems.
An LLC's required year can change for several reasons. A change in the LLC's required year is treated as automatically approved by the IRS.
The IRS Office of Chief Counsel determined that actively working members of an investment management company formed as a limited liability company were not limited partners within the meaning of Sec. 1402(a)(13), and, thus, their net distributive shares of management fee income were subject to self-employment tax.
Under Sec. 704(d), a member's allocable share of loss from a limited liability company (LLC) taxed as a partnership is deductible only to the extent of the member's outside basis in his or her LLC interest at the end of the LLC year. In determining a member's outside basis at year end, adjustments for increases and decreases are made in a specific order according to Regs. Sec. 1.704-1(d)(2).
Many LLCs that are not connected to California other than via investment interests in LLCs that are conducting business in California are unknowingly not complying with California's filing requirements, especially if the California apportioned net income is small or a loss.
Recent IRS guidance clarifies the treatment of both guarantor and the nonguarantor LLC members.
While there usually is little difficulty in determining whether a contribution to a limited liability company consists of property, questions can arise when a contribution could be characterized as property created by a person’s services or services that create property for the LLC’s benefit.
In some situations, business owners have state-law reasons for wanting their business to be formed as a limited liability company, but for tax purposes they would prefer S corporation (rather than partnership) tax treatment.
As a separate taxable entity, an LLC has the ability to make certain tax elections like any other taxpayer.
Any trade or business activity of an LLC in which a member materially participates is not considered a passive activity. Material participation is a year-by-year determination.
Despite the widespread use of single-member LLCs, some confusion still exists regarding the tax treatment of the initial expenditures to form and operate this type of entity.
The IRS explained that contributions to disregarded SMLLCs wholly owned and controlled by a U.S. charity will be treated as if made directly to the U.S. charity.
An LLC member who makes a contribution to the LLC of property with an FMV different from its basis may be required to recognize gain or loss upon a subsequent distribution of the contributed property to another member.
What are the global tax implications for LLC members who are not U.S. residents?
The IRS explained that contributions to disregarded SMLLCs wholly owned and controlled by a U.S. charity will be treated as if made directly to the U.S charity.
Several steps can be taken before a LLC member’s death to reduce estate and income taxes and to plan for an orderly succession.
The IRS issued proposed regulations that seek to redefine the term “limited partner” for purposes of the passive activity rules of Sec. 469.