1. Topics

S Corporation, Partnership & LLC Taxation

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.

IRS withdraws prop. regs. affecting corporate spinoff transactions

The proposed regulations were withdrawn in response to comments that criticized the proposed guidance, according to the IRS.

Signing partnerships’ returns and other tax documents

A recent Chief Counsel Advice memo underscores the importance of having the right person sign a partnership’s returns and other tax documents filed with the IRS.

Deferring gain in liquidation with an installment sale and noncompete agreement

Liquidating S corporations may defer corporate-level gain by distributing a qualifying installment obligation arising in a 12-month liquidation period; a planning strategy pairs this exception with a noncompete agreement.

Guidance on research or experimental expenditures under H.R. 1 issued

The revenue procedure advises taxpayers how to make various elections, file amended returns, and change accounting methods as provided under Section 70302 of the new law.

Prop. regs. would modify reporting obligations for Form 8308, Part IV

The IRS issued proposed regulations that would modify partnerships’ reporting obligations for Part IV of Form 8308 with respect to sales or exchanges of certain interests in partnerships owning inventory or unrealized receivables.

AICPA presses IRS for guidance on domestic research costs in OBBBA

In its letter, the AICPA said small businesses that have not filed returns for the 2024 filing period face uncertainty about how to treat domestic research and experimental expenditures.

IRS includes several AICPA recommendations in corporate AMT interim guidance

In a notice issued Tuesday, the IRS said it intends to partially withdraw proposed regulations and issue revised proposed regulations.

Current developments in S corporations

This annual update covers recent developments relating to S corporations, including IRS relief for common inadvertent S election lapses; the transfer of clean-energy credits; and other cases, rulings, and regulations.

Potential recapture pitfall for profits-interest partners

Allocations under Regs. Sec. 1.1245-1(e)(2)(i) may result in profits-interest partners being allocated ordinary income even though they were not previously allocated any depreciation or amortization deductions.
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