1. Topics

S Corporation, Partnership & LLC Taxation

More Schedule K-2 and K-3 FAQs posted

In eight new FAQs on its website, the IRS covers some special issues, including several that it says will be added to the forms’ instructions.

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.

Illegal tax shelter seller finds no shelter in stock forfeiture provision

S corporation stock was not subject to a substantial risk of forfeiture because the stock forfeiture provision was unlikely to be enforced.

BBA partnership audits show high no-change rate, TIGTA says

The Treasury Inspector General for Tax Administration recommends setting goals and benchmarks for the centralized audit regime under the Bipartisan Budget Act.

IRS waives estimated-tax penalties for farmers and fishermen

The IRS, citing earlier problems e-filing a new form reporting S corporation owners’ basis, has granted relief to certain farmers and fishermen who missed their March 1 filing deadline.

AICPA again asks IRS to delay K-2/K-3 reporting

Comment letters from the AICPA and state CPA societies also offer further recommendations.

IRS offers further K-2/K-3 relief

The new schedules for returns of passthrough entities with international items have been greeted with antipathy by practitioners. The IRS provided relief Wednesday for eligible entities for tax year 2021.

Complying with new schedules K-2 and K-3

What partnerships, S corporations, and others with foreign partnership interests need to know for tax year 2021 and beyond.

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.

IRS rules on cancellation of debt of a disregarded entity

Taxpayers should strongly consider these letter rulings when trying to determine whether they want to structure a borrowing with a regarded entity as the legal borrower or whether they prefer to have a DRE be the legal borrower of the debt.

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.

What’s new for 2022 in federal taxes

A law change and some regulations take effect while an array of provisions expire.

SALT payments before year end a priority for passthroughs

To be deductible at the entity level, payments by passthrough entities of state and local taxes should be made in the tax year of the liability, but state-specific elections may complicate that timing, tax advocates advise.

Minimizing a hobby loss issue by electing S status

To avoid the hobby loss rules, with their limitation on deductible expenses, an activity must be engaged in for profit; electing S status can help a taxpayer establish profit motive.

Further guidance issued on tax treatment of PPP loan forgiveness

Forgiveness amounts are excluded from gross income but included in gross receipts for purposes including determining “small business taxpayer” status under Sec. 448(c).

Carried interest reporting FAQs and guidance posted

The IRS posted FAQs with sample worksheets and instructions for taxpayers to use when calculating and reporting certain net long-term capital gains from partnership interests held in connection with the performance of services that must be recharacterized as short-term capital gains.

Beware of IRS initiatives against microcaptive insurance arrangements

Microcaptive insurance arrangements have been vigorously scrutinized recently by the IRS.

Guidance issued for LLCs seeking tax-exempt recognition

The IRS clarified the standards that an LLC must satisfy to obtain a determination letter that it is exempt from taxation under Sec. 501(c)(3).
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