1. Topics

S Corporation, Partnership & LLC Taxation

Hedge funds: Tax structuring, planning, and compliance

Hedge funds may face tax issues of entity structuring, carried interest, management fee waivers, and trading-related rules. This article highlights planning strategies and compliance considerations as the IRS continues to increase its scrutiny of these investment vehicles.

Fifth Circuit rejects ‘passive-investor’ definition of limited partner

The Fifth Circuit, overruling the Tax Court, held that for purposes of the Sec. 1402(a)(13) exclusion from self-employment tax, “limited partner” means a partner in a limited partnership that has limited liability.

Identifying the final C corporation and initial S corporation tax years

Rules determine allowable tax years after a C corporation elects S status.

Dissolving business taxpayers: Selected procedural implications

Critical issues include marking returns as final, determining due dates for final returns, filing Form 966, closing IRS accounts, and handling audits of dissolved entities.

IRS watchdog cites resource limits, duplication in partnership audits

The Treasury Inspector General for Tax Administration assessed a soft-letter initiative and the IRS’s examinations of 82 major U.S. partnerships.

Partner redemptions from ‘dry’ partnerships

A partnership whose sole asset is all the stock of a corporation offers opportunities but with potential pitfalls.

Death of an LLC member: Basic tax considerations

A member’s death will likely require apportioning LLC income and may entail treatment of the interest as a sale or disposition or even terminate the LLC.

Penalties under codified economic substance doctrine upheld

The taxpayers’ deductions from microcaptive insurance transactions lacked economic substance under Sec. 7701(o), the Tax Court held, upholding a Sec. 6662(b)(6) underpayment penalty.

When is a QSub election considered timely filed?

An F reorganization may raise a host of issues pertaining to timely filing of a qualified Subchapter S subsidiary election.

TEFRA petition filing deadline is jurisdictional

The Tax Court held it lacked jurisdiction over the Sec. 6226(b) deadline for filing a petition for readjustment of partnership items under the Tax Equity and Fiscal Responsibility Act’s regime, and the deadline could not be equitably tolled.

Prop. regs. would make permanent safe harbor for furnishing information on Sec. 751 property

Proposed regulations would provide permanent relief from certain reporting requirements related to sales or exchanges of partnership interests in partnerships owning inventory or unrealized receivables.

Buy/sell agreements for S corporations

These common instruments raise special considerations in the S corporation context.

IRS updates FAQs on business interest limitation, premium tax credit

The updates reflect changes made in H.R. 1, P.L. 119–21, commonly known as the One Big Beautiful Bill Act.

PTEs need more notice of changes, more time to respond, AICPA says

In a letter to Treasury and the IRS, the AICPA seeks changes to tax reporting requirements for partnerships and S corporations.

Tax Court applies limited partner functional test for self-employment income

In Soroban Capital Partners, the Tax Court analyzed the roles, responsibilities, and capital contributions of three limited partners in a limited partnership and determined that they were limited partners in name only.

Late election relief in recent IRS letter rulings

The IRS may grant a reasonable extension if the taxpayer provides satisfactory evidence of acting reasonably and in good faith and the relief will not prejudice the government’s interests.

Final partnership adjustment not issued timely

The Tax Court found a regulation invalid to the extent it holds the period open for the IRS to issue a final partnership adjustment longer than the statutory 270 days after a partnership has submitted “everything required” for a complete modification request.

Changing an existing LLC’s federal income tax classification

LLCs changing from partnership tax treatment to corporation or vice-versa may encounter issues including gain recognition.

Partnership recapitalization: Lender admittance without liability reduction

The consequences under Subchapter K and Sec. 1001 must be considered in a debt modification in which a lender takes an equity position in a debtor partnership and there is no reduction in principal.

Outlier or beginning of a trend? Illinois redefines investment partnerships

With its 2023 gain-nonrecognition law, the state is welcoming more nonresident investors.
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