1. Topics

S Corporation, Partnership & LLC Taxation

Ensuring that allocations of LLC tax items are respected

If LLC members’ tax allocations are not made in accordance with the members’ interests in the LLC, they must fit into the substantial-economic-effect safe harbor.

IRS memorandum illustrates application of Sec. 704(c) anti-abuse rule

In FAA 20204201F, the IRS concluded that the Sec. 704(c) allocation method adopted by a partnership between a U.S. corporation and its domestic and foreign affiliates was unreasonable under the Sec. 704(c) anti-abuse rule.

Bridging the gap: GILTI and AAA

IRS Notice 2020-69 provided a new entity election that allows an S corporation to compute the deemed inclusions at the entity level, as opposed to at the shareholder level. This item provides background on the new election, illustrates its effects, and highlights opportunities and traps to consider when contemplating the election.

Partner capital account reporting gets transition penalty relief

Errors by partnerships in reporting partners’ tax capital accounts under new rules for 2020 may be excused, the IRS outlined.

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.

Draft instructions for reporting partnership capital accounts are issued

The IRS released draft instructions for Form 1065 to calculate partner capital accounts using the tax-basis method.

Rules issued on transfers of partnership interests and effectively connected income

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.

IRS finalizes rules on eligible terminated S corporations

The IRS issued final regulations on ETSCs and distributions of money from those corporations after the post-termination transition period.

The built-in gains tax

The built-in gains tax applies to C corporations that make an S corporation election, and it can be assessed during the five-year period starting with the first tax year for which the S election is effective.

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.

Centralized partnership audit regime changes proposed

The IRS issued rules on two special enforcement matters for purposes of the unified partnership audit rules.

Partnerships and S corps. can deduct state and local taxes

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.

Settlement offers for pending litigation of syndicated conservation easements

The IRS announced time-limited settlement offers, requiring tax benefit concessions and assessing penalties, to eligible taxpayers with pending cases.

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.

Draft instructions for partnership capital account reporting released

The IRS released draft instructions for Form 1065, U.S. Return of Partnership Income, to calculate partner capital accounts using the tax-basis method.

Rules govern withholding on transfers of partnership interests and ECI

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.

Divorce settlement payments do not increase LLC basis

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

Economic issues when forming 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.

Final regs. govern eligible terminated S corporation rules

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.
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