In Fisher, the IRS has again won on the issue of whether taxpayers’ transfers of partnership interests were transfers of present interests in property. The court held the transfers did not qualify for the gift tax annual exclusion.
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TOPICS / PASSTHROUGHS
Partnership and LLC Taxation
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.
Classification of Business Entities That Are Not Corporations
An organization with two or more owners that is an entity separate from the owners and that is not a corporation is an eligible entity that can be classified as a corporation or a partnership. The regulations provide a set of default rules that establish the classification of an eligible entity if no classification election is made.
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.
Termination of an LLC
This column reviews the determination of when an event triggers the termination of an LLC classified as a partnership
The Tax Cost of Hot Assets upon the Disposition of a Partnership Interest
A disposition of a partner’s interest in an entity that holds hot assets may convert long-term capital gain to ordinary income or in certain cases may force the partner to recognize ordinary income offset by a nonutilizable capital loss upon the disposition.
IRS Issues Partnership Anti-Abuse Rule Regs.
The IRS and Treasury issued final regulations on June 8 to provide that the Sec. 704(c) anti-abuse rule takes into account the tax liabilities of both partners and certain owners of partners (T.D. 9485). The regulations also provide that partnerships cannot use an allocation method to achieve tax results that are inconsistent with the intent of the partnership rules in the Internal Revenue Code.
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.
Temporary Regs. Held Invalid
The Tax Court held that temporary regulations the IRS issued after an earlier adverse decision did not apply to that case and that the temporary regulations were invalid because they were contrary to the Supreme Court’s opinion in Colony, Inc., 357 U.S. 28 (1958).
IRS Issues Partnership Anti-Abuse Rule Regulations
The IRS and Treasury issued final regulations to provide that the Sec. 704(c) anti-abuse rule takes into account the tax liabilities of both partners and certain owners of partners (T.D. 9485).
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.
IRS Continues Focus on Disallowing Annual Exclusions for Gifts of Partnership Interests
The Tax Court held, in Price, T.C. Memo. 2010-2, that taxpayers were not entitled to annual gift tax exclusions under Sec. 2503(b) for the outright gifts of partnership interests.
Assessment Period Remains Open in Partnership Case
In Blak Investments, the Tax Court applied Sec. 6501(c)(10) to extend the assessment statute of limitation for a taxpayer with an undisclosed listed transaction on a return due prior to October 22, 2004.
Choice of Entity: Benefits of a Partnership
In the choice-of-entity decision, there are many considerations that should play a role. The S corporation form may lead to decreased compliance costs in the short run, but the flexibility provided by the partnership rules may lead to increased value for the business and easier operations in the future.
Careful Analysis Required for Potential Regs. Sec. 1.752-7 Liabilities
Regs. Sec. 1.752-7 defines what constitutes a 1.752-7 liability, how these liabilities are treated when assumed by the partnership or another partner, and the impact of a later sale (or redemption) of a partnership interest by the partner that contributed the debt to the partnership.
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.
Trusts Owning Partnership Interests and the Revised UPIA
A special problem faces trustees whose principal or sole asset is a partnership that does not distribute all its taxable income. The problem arises because partnership distributions not in liquidation are “trust income” payable to the income beneficiary. Yet if the trustee pays the income beneficiary the full amount of the partnership distribution, the trust may not have sufficient cash to pay the trust’s own tax liability.
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