This article summarizes the tax consequences of entity changes involving the conversion to or from any entity treated as a partnership for federal income tax purposes (e.g., general partnerships, limited partnerships, LLCs with two or more members, and limited liability partnerships).
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TOPICS / PASSTHROUGHS
Partnership and LLC Taxation
Current Developments in Partners and Partnerships
During the period of this update (November 1, 2006–October 31, 2007), Treasury and the IRS worked to provide guidance for taxpayers on numerous changes that had been made to subchapter K over the past few years.
Special Issues Related to Distributions of Partnership Interests by Estates and Trusts
The complex rules governing the tax treatment of distributions from estates and trusts are further complicated when a partnership interest is distributed.
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
Sec. 1446 Withholding
Editor: Joel E. Ackerman, CPA, MST Foreign investment in the United States continues to rise. The investment vehicle of choice, especially in the case of real estate, is generally a tax-transparent entity such as a limited partnership, limited liability company, or similar foreign transparent entity that is treated as a
Redemptions in Conjunction with Partnership Mergers Can Create Unexpected Tax Consequences
Editor: Frank J. O’Connell, Jr., CPA, Esq. The IRS has provided a road map for partnership mergers or consolidations in Regs. Sec. 1.708-1(c). When two or more partnerships merge or consolidate into a single partnership, the resulting partnership is, for purposes of Sec. 708, considered a continuation of any partnership
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.
Some Schedule K-1 Recipients Get Reportable Transaction Disclosure Relief
Editor: John L. Miller, CPA Taxpayers that discover after filing their returns that they indirectly participated in a reportable transaction through a passthrough entity may be able to rely on Prop. Regs. Sec. 1.6011-4(e)(1) to avoid reportable transaction penalties. The preamble to the proposed regulations (REG-103038-05, 11/2/06) provided that this
Allocating Partnership Depreciation Between Trusts and Beneficiaries
This article reviews how depreciation from a partnership is allocated between a trust and its beneficiaries and highlights the potential trap the allocation can cause when the depreciation deduction flows through a partnership.
Choice of Entity for Expansion of Operations into a Foreign Country
Executive Summary When flowthrough treatment is desired, a U.S. business may expand into a foreign country with a branch office or plant. A foreign partnership is advantageous when foreign operations are expected to generate flowthrough losses to a U.S. partner, and foreign taxes are high. A foreign corporate entity
Technical Terminations: Tangible Personal Property Depreciation Issues
Editor: Mary Van Leuven, J.D., LL.M. Technical terminations of partnerships under Sec. 708 (b)(1)(B) and its regulations create numerous issues as to the proper tax treatment of depreciable tangible property owned by the terminating partnership, particularly when changing its accounting method for such property. Under Regs. Sec. 1.708-1(b)(1)(iv), the new
Partnership Freezes after Castle Harbour
A closely held C corporation that is growing rapidly or plans to enter into a new line of business may consider the creation of a “frozen” limited liability company (LLC)/partnership (frozen partnership) to reduce its income tax liability and shift future appreciation out of the corporation. However, if the frozen
Incorporating a Partnership or LLC: Does Rev. Rul. 84-111 Need Updating?
Taxpayers’ widespread adoption of the limited liability company (LLC) has caused Treasury and the IRS to take a closer look at transactions using it. For example, most states’ enactment of rules allowing for mergers involving LLCs was one reason Treasury issued Regs. Sec. 1.368-2(b), to address statutory mergers involving disregarded
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