Contributions, Distributions & Basis

Interaction of S shareholders’ loss limitations

Shareholder basis and other applicable loss limitations must be applied in a specified order, with differing rules.

The ‘one class of stock’ requirement: An interesting letter ruling

While it might stand to reason that if there is only one shareholder, then there can be only one class of stock, that is not necessarily what the Code and regulations provide.

Real property losses are capital, not ordinary

In Musselwhite, T.C. Memo. 2022-57, the Tax Court held that a taxpayer’s losses from the sale of four lots (real property) were ordinary in nature, as opposed to capital.

Self-employment tax and LLCs

An LLC member’s distributive share of LLC income and loss from a trade or business is generally subject to self-employment tax, raising several issues around guaranteed payments, retirement payments, rental income, and members who are employees of the LLC.

Guaranteed payments vs. distributive share of income

For certain partners, the presumed preference for receiving a distributive share of income (including a priority profit allocation) may need further evaluation to determine how it coordinates with various international tax provisions.

Nonliquidating distributions: Ways to determine basis

This item considers to what extent taxpayers may be able to apportion basis instead under Sec. 704(c) principles.

Trusts as S corporation shareholders

Generally, a trust cannot hold stock of an S corporation; however, grantor trusts, testamentary trusts, voting trusts, ESBTs, and QSSTs are permissible S corporation shareholders (Sec. 1361(c)(2)).

Making tax-free distributions to the extent of AAA

AAA and AE&P calculations are key to determining stock basis and, thus, the taxability of shareholder distributions.

Reporting aspects of Sec. 743(b) adjustments

Partnerships and their partners need to work closely to maintain strong communications to overcome challenges to information sharing and, ultimately, to computational matters and information reporting.

Current developments in partners and partnerships

The discussion covers developments in the determination of partners and partnerships, gain on disposal of partnership interests, partnership audits, and basis adjustments.

Outside basis of an LLC interest acquired by purchase, gift, or bequest

When an LLC interest is transferred, the transferee’s basis depends on the transferor’s basis and numerous other potential factors.

S corporation shareholder recomputation of basis

stock and debt basis under Sec. 1366(d)(1). Failing to properly track basis may require a recomputation of the shareholder’s basis.

Compensatory split-dollar life insurance benefits are compensation

Economic benefits from a compensatory split-dollar life insurance arrangement are not property distributions.

Partnership interests, Sec. 465 at-risk limit, and Form 6198

This article focuses on the Sec. 465 at-risk limitation, one of the rules that could disallow all or part of a partner’s deduction of an allocable loss from a partnership.

IRS issues final rules on the treatment of carried interests

The IRS finalized proposed regulations on certain carried interests to account for changes made by the TCJA.

Carried interests regulations are finalized

The IRS finalized proposed regulations on certain carried interests to account for changes made by the Tax Cuts and Jobs Act (TCJA). The TCJA extended from one year to three years the holding period for making carried interests eligible for capital gain treatment.

Proposed regs. on carried interests

This item discusses proposed regulations regarding the tax treatment of carried interests.

Taxpayer not a shareholder of not-for-profit corporation

The president and a director of a not-for-profit is not its beneficial owner and cannot be a shareholder of it.

IRS proposes rules on carried interests

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.

Divorce settlement payments do not increase LLC basis

Payments to ex-wife and divorce lawyer do not increase taxpayer’s basis in an LLC.
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