The ongoing controversy over whether a taxpayer’s overstatement of basis triggers a six-year statute of limitation period continues as the Fourth Circuit and Fifth Circuit both held within days of each other that the extended period does not apply. These decisions are at odds with a Seventh Circuit opinion issued in January and with regulations finalized in December.
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TOPICS / PASSTHROUGHS
Contributions, Distributions & Basis
Overstatement of Basis Is Not Omission from Gross Income, Appeals Court Rules
A federal appeals court has handed the IRS another defeat on the issue of whether an overstatement of basis amounts to an omission from gross income for purposes of invoking the longer, six-year limitation period for assessing tax under Sec. 6501(e).
Another Circuit Says Overstatement of Basis Is Not an Omission from Gross Income
The ongoing controversy over whether a taxpayer’s overstatement of basis triggers a six-year statute of limitation period continues as the Fourth Circuit has held that the extended period does not apply.
Current Developments in Partners and Partnerships
This article reviews and analyzes recent rulings and decisions involving partnerships. The discussion covers developments in partnership formation, debt and income allocations, distributions, passive activity losses, and basis adjustments during the period November 1, 2009–October 31, 2010.
IRS Maintains Stance on Omissions from Gross Income and Overstatement of Basis
The IRS released final regulations defining an omission from gross income for purposes of the six-year minimum period for assessment of tax attributable to partnership items and the six-year period for assessing tax. The regulations are designed to resolve whether an overstatement of basis in a sold asset results in an omission from gross income.
Appeals Court Overturns Taxpayer Win in Tax Shelter Case
The Tenth Circuit held that a taxpayer’s investment in a “son of boss” tax shelter lacked economic substance and therefore did not generate deductible losses, reversing a taxpayer win on the issue in which a district court had allowed the taxpayer to deduct losses from the investment.
Potential Implication of Recent Sec. 469 Court Decisions for Self-Employment Tax Rules
For purposes of self-employment taxes, many members of LLCs have treated themselves as limited partners and have therefore reported that their distributive share of income was not subject to self-employment tax under Sec. 1402(a)(13). If recent Sec. 469 court cases were to be applied beyond Sec. 469, this self-employment tax position might be more difficult to sustain.
Tax Court Holds Invalid Temporary Regulations on Overstatement of Partnership Basis
The Tax Court held that temporary regulations issued by the IRS last year that defined an overstatement of partnership basis as an omission from gross income are invalid.
Current Developments in Partners and Partnerships
This article reviews and analyzes recent rulings and decisions involving partnerships. The discussion covers developments in partnership formation, debt and income allocations, distributions, passive activity losses, and basis adjustments.
Definition of Omission from Gross Income for Partnership Items and the Six-Year Period for Assessing Tax
The IRS has issued temporary and proposed regulations defining an omission from gross income for purposes of the six-year minimum period for assessment of tax attributable to partnership items and the six-year period for assessing tax.
Recapture of Sec. 179 Expense Deduction for Passthrough Entities
How to report the recapture of Sec. 179 expense for passthrough entities at both the entity and owner levels.
LLC Interests as Limited Partnership Interests: Sec. 469 Revisited
The focus of recent cases has been on application of the “limited partner” rule of Sec. 469(h)(2) and, based on the specific language contained in Temp. Regs. Sec. 1.469-5T, whether an interest in an LLC should be treated as an “interest in a limited partnership as a limited partner.”
LLCs, LLPs, and the Passive Loss Rules
Sec. 469(h)(2) treats a limited partner’s losses from an interest in a limited partnership as presumptively passive. The IRS has taken the position that a taxpayer who is a member of an LLC or LLP that is taxed as a partnership should be treated as a limited partner and therefore any losses passed through to the member are passive activity losses.
Passive Activity Rules Not Presumed to Apply to LLCs and LLPs
In the Garnett case, the Tax Court set precedent for the reporting of losses from LLPs and LLCs by limited liability partners who materially participate in the operations of the businesses in which they are investors.
Partnership Structural Changes: Deductibility of Expenses
This item examines several partnership restructuring transactions and discusses the circumstances in which a restructuring expense can be deducted and amortized under Sec. 709 or must be capitalized under Regs. Sec. 1.263(a)-5(a).
Interests in LLCs and LLPs Not Presumed to Be Passive Activities
The Tax Court held that the taxpayers’ interests in their LLPs and LLCs were not presumptively passive because they did not hold their interests in the entities as limited partners in a limited partnership.
Temp. Regs. Allow Deemed Election to Expense Startup, Organizational Costs
Effective July 8, 2008, the IRS issued new temporary regulations to amend the rules under Secs. 195, 248, and 709 regarding elections to deduct startup expenditures and organizational expenditures of corporations and partnerships (T.D. 9411).
Tax Treatment of Government Grants to Partnerships Becomes Less Clear
Federal, state, and local governments have been providing tax incentives to businesses for many years. Along with the long history of government incentives to taxpayers, there is a long history of controversy over the tax treatment of these incentives.
Interest Deduction on Debt-Financed Distributions
Editor: Kevin F. Reilly, J.D., CPA Although the real estate market has cooled off in many areas, the value of commercial properties seems to have been less affected than that of residential properties. In fact, many commercial properties continue to be worth substantially more than their historic cost. Most commercial
Rulings Relax Related-Party Exchange Rules
Editor: Annette B. Smith, CPA Recently released IRS Letter Rulings 200709036 and 200706001 suggest a liberal trend regarding related-party exchanges under Sec. 1031(f). The rulings may indicate a more favorable Service attitude toward exchanges in which the related parties have not cashed out of their original investments through “abusive” basis-shifting.
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.
