A member that contributes Sec. 704(c) property (property with a basis different than fair market value (FMV) when contributed) to a limited liability company (LLC) classified as a partnership may be required to recognize gain or loss if that property is later distributed to another member. Under Sec. 704(c)(1)(B), a distribution of
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TOPICS / PASSTHROUGHS
Contributions, Distributions & Basis
Partnership reporting of contributions to foreign entities
Substantial penalties may be imposed if a taxpayer fails to report contributions to foreign entities.
Building not a certified historic structure
The Tax Court denied deduction of a qualified conservation contribution of a façade easement, noting the building lacked a required listing in the National Register of Historic Places.
New IRS form for partners receiving property distributions
Form 7217, Partner’s Report of Property Distributed by a Partnership, debuted for 2024, intended to apprise the IRS of factors in a partner’s basis computation.
Mandatory basis adjustments for certain LLC transfers
The partnership-level adjustment may be required for a substantial built-in loss, except for electing investment partnerships and securitization partnerships.
Surprisingly taxable partnership distributions
Because partnerships’ income is taxed to the separate partners as it is earned, eventual distributions generally are not taxable, but there are exceptions. This article discusses several of these exceptions in which distributions of money or property or a reduction in liabilities treated as a distribution may create taxable income for partners, sometimes in unanticipated ways.
Basis-shifting transactions involving partnerships and related parties
An IRS initiative targeting abusive basis-shifting transactions between partnerships and related parties featured new guidance in a revenue ruling, a notice, and proposed regulations.
Distributions to LLC members that contributed appreciated property
The Sec. 737 rules can cause a member to recognize precontribution gain on contributed property where the value of property later distributed to that member exceeds their basis in the LLC.
Partnership distributions: Rules and exceptions
Although the general rules for how partners are taxed on distributions are relatively straightforward, many subtleties and exceptions can lead to missteps.
Partners’ basis on the liquidation of an insolvent partnership
When an insolvent partnership liquidates, determining the partners’ tax bases in the property they receive may be difficult due to the operation of Sec. 752(c).
IRS moves to end ‘shell game’ of basis-shifting transactions
The Service said it will release new proposed regulations and a revenue ruling to challenge the use of basis-shifting transactions used by complex partnerships in moves that could add over $50 billion to government coffers over 10 years.
Limited partners and self-employment tax: A new test
The Tax Court recently held in Soroban Capital Partners that to determine whether a limited partner’s partnership distributive share is excluded from self-employment tax under Sec. 1402(a)(13), an analysis of the partner’s actual functions and roles is required. This article discusses what that analysis should entail and offers tax planning tips.
IRS scrutinizes use of the SECA limited partner exception
In a compliance campaign and litigation, the IRS challenges partners’ claims of the Sec. 11402(a)(13) exception from Self-Employed Contributions Act employment tax liability.
Missed Sec. 83(b) elections: Partnership and LLC special issues
This discussion focuses on grants of profits interests in a partnership or LLC and the relevance of Sec. 83(b) elections.
Prop. regs. issued on conservation easement deduction disallowance
The IRS on Friday issued proposed regulations providing guidance on the new rule that disallows charitable contribution deductions for certain conservation easement contributions by partnerships and other passthrough entities.
LLC distributions that liquidate a member’s interest
Factors potentially causing taxable gain (or loss) from a liquidating distribution include the member’s outside basis and the nature of any property the member contributed to the LLC.
Real property losses are capital, not ordinary
In Musselwhite, T.C. Memo. 2022-57, the Tax Court held that a taxpayer’s losses from the sale of four lots (real property) were ordinary in nature, as opposed to capital.
Self-employment tax and LLCs
An LLC member’s distributive share of LLC income and loss from a trade or business is generally subject to self-employment tax, raising several issues around guaranteed payments, retirement payments, rental income, and members who are employees of the LLC.
Guaranteed payments vs. distributive share of income
For certain partners, the presumed preference for receiving a distributive share of income (including a priority profit allocation) may need further evaluation to determine how it coordinates with various international tax provisions.
Nonliquidating distributions: Ways to determine basis
This item considers to what extent taxpayers may be able to apportion basis instead under Sec. 704(c) principles.
employee benefits & pensions
Profits interests: The most tax-efficient equity grant to employees
By granting them a profits interest, entities taxed as partnerships can reward employees with equity. Mistakes, however, could cause challenges from taxing authorities.
