The IRS issued rules on two special enforcement matters for purposes of the unified partnership audit rules.
S Corporation, Partnership & LLC Taxation
The IRS said it would issue proposed regulations allowing S corporations and partnerships to deduct “specified income tax payments” paid to state and local governments above the line and not as passthrough items for partners and shareholders.
The IRS issued proposed regulations under Sec. 1061, enacted by the TCJA, which requires owners of certain partnership interests to hold them for three years to be eligible for capital gain treatment.
The IRS announced time-limited settlement offers, requiring tax benefit concessions and assessing penalties, to eligible taxpayers with pending cases.
The IRS released draft instructions for Form 1065, U.S. Return of Partnership Income, to calculate partner capital accounts using the tax-basis method.
The IRS finalized proposed regulations on withholding from transfers of partnership interests to foreign persons and the definition of effectively connected income for those purposes.
Payments to ex-wife and divorce lawyer do not increase taxpayer’s basis in an LLC.
A number of issues must be considered when reviewing the organizational documents for a limited liability company, including member compensation, allocation of income and loss, and when distributions will be made.
The IRS finalized proposed regulations on eligible terminated S corporations, a new provision enacted under the Tax Cuts and Jobs Act that provided favorable treatment for corporations that wished to terminate their S elections.
The IRS announced that it will issue regulations to allow S corporations with accumulated earnings and profits to elect to have global intangible low-taxed income inclusions increase the S corporation’s accumulated adjustments account.
While the ability to temporarily file amended returns is welcome by many BBA partnerships, some unanswered questions remain about the consequences of doing so, and in some circumstances filing an AAR could be preferable.
The M&A market is poised to regain its pre-COVID-19 activity levels as many business owners seek to exit closely held businesses or explore alternatives. One popular transaction that could emerge is Sec. 368(a)(1)(F) reorganizations F reorganizations) of S corporations.
The IRS issued proposed regulations under Sec. 1061, enacted by the law known as the Tax Cuts and Jobs Act, which requires owners of certain partnership interests to hold them for three years to be eligible for capital gain treatment.
Generally, after a corporation has revoked or terminated an S election, it cannot make an S election for any tax year before its fifth tax year that begins after the first tax year for which the termination was effective, unless the IRS consents to the election.
Foresight of the potential state tax implications of an F reorganization will allow a seller to evaluate the lesser-known hazards.
The following discussion mostly focuses on the ability of partnerships to file amended returns and the QIP technical correction under the guidance issued in Rev. Procs. 2020-23 and 2020-25, respectively.
If a partnership’s allocations are not respected, the IRS or the courts can reallocate items of income or loss and assess underpayment or accuracy-related penalties.
The IRS proposes modifying the partnership form (Form 1065) to help standardize the format of international tax items.
This discussion considers reasons the purchaser of a partnership may want to rethink the use of such shortcuts when estimating the federal income tax consequences associated with a Sec. 743(b) adjustment in an acquired partnership interest.
Partnerships must weigh the benefits of amending returns now that administrative hurdles have been removed.