1. Topics

S Corporation, Partnership & LLC Taxation

Partnership Interest Expense Allocation Rules Are Finalized

Final regulations make permanent four changes to the rules for allocating and apportioning interest expense for partners in partnerships.

IRS Guidance Shows Risks to Nonguarantor LLC Members

Recent IRS guidance clarifies the treatment of both guarantor and the nonguarantor LLC members.

Determining If a Technical Termination Occurs

To determine if an LLC terminates, the practitioner must determine whether an LLC interest was disposed of in a “sale or exchange” as defined in the Sec. 708 regulations. If so, did the sale or exchange result in 50% or more of the total interests in LLC capital and profits being sold or exchanged during a consecutive 12-month period?

Startup and Organizational Costs in a Partnership Technical Termination

Proposed regs. clarify treatment of startup and organization costs for partnership technical terminations.

Sec. 752 Recourse Liabilities and Related-Party Rules

Proposed regulations on partnership recourse liabilities and special rules for related persons address issues that are either ambiguous or not covered under current regulations.

Impact of Sec. 1411 on S Corporations and Their Shareholders

One of the more significant changes to the tax landscape in recent years is the new 3.8% tax on net investment income under Sec. 1411. This tax, which was further clarified in recently finalized regulations, will affect many entities and taxpayers including S corporations and their shareholders. This discussion outlines noteworthy aspects of these rules pertaining to S corporations and their owners.

Contributed Property in the Hands of a Partnership

A partnership that receives contributions of property must establish the basis, the holding period, and the character of the property in the hands of the partnership, and also determine available accounting and depreciation methods.

Considerations for Filing Composite Tax Returns

Taxpayers and their advisers should consider some key issues before deciding that a composite return is the best choice.

IRS Disallows Write-Off of Startup and Organizational Costs in a Technical Termination

New partnerships formed from technical terminations must step into the shoes of the terminated partnership and continue to amortize Sec. 195 startup expenditures and Sec. 709 organization fees using the same amortization period the terminated partnership used.

Maintaining Single Taxation: Sec. 336(e) and S Corporations

Final regulations under Sec. 336(e) provide special rules for S corporations and their shareholders to make an election to treat a sale or disposition, including a distribution of control of a corporation’s stock of a qualified subsidiary, as a disposition of all the subsidiary’s assets.

Proposed Regs. Issued on Amortization of Startup Expenses by Terminating Partnerships

The IRS issued proposed regulations aimed at preventing partnerships from using technical terminations to accelerate their deductions of startup and organizational expenses.

Current Developments in Partners and Partnerships

This article reviews and analyzes recent rulings and decisions involving partnerships. The discussion covers developments in partnership formation, income allocations, and basis adjustments

Valuation-Misstatement Penalty Applies to Tax Shelter Transactions

The Supreme Court held in that the Sec. 6662(b)(3) penalty for tax underpayments attributable to valuation misstatements applies to an underpayment resulting from a basis-inflating transaction that is disregarded for a lack of economic substance.

Don’t Forget the Mandatory Application of Sec. 732(d)

Sec. 732(d) applies to situations in which a partnership does not have a Sec. 754 election in effect and a partner who would have a positive Sec. 743(b) adjustment if the partnership had a Sec. 754 election in effect receives a current or liquidating distribution of property from the partnership.

Partnership Capital Account Revaluations: An In-Depth Look at Sec. 704(c) Allocations

Sec. 704(c) aims to prevent the shifting of gain, loss, or other tax attributes among partners by mandating certain adjustments to partners’ capital accounts.

Determining the Taxability of S Corporation Distributions: Part II

This article covers the taxability of distributions from an S corporation with accumulated E&P and ancillary issues and planning opportunities.

Proposed Rules Address Disguised Sales and Partnership Liabilities

The IRS issued proposed regulations on disguised sales of property to or by a partnership under Sec. 707 and the treatment of partnership liabilities under Sec. 752.

Partnership Basis Rules Proposed

The IRS issued proposed regulations providing guidance on the application of Sec. 704(c)(1)(C) added by the American Jobs Creation Act and the amendments to the mandatory basis adjustment rules of Sec. 743 in the AJCA.

Late S Corp. Return Not an Income Disclosure Despite Reference in Stockholder’s Form 1040

When information disclosing income that should have been included in the taxpayer’s return is provided to the IRS after the return is filed, that information is not considered to be disclosed on the return.

Determining the Taxability of S Corporation Distributions: Part I

This two-part article provides a comprehensive review of the rules for determining the taxability of an S corporation’s distributions to its recipient shareholders. Part I provides an overview of the intent of Sec. 1368 and the related regulations, the shareholder- and corporate-level attributes that drive a distribution’s taxability, and the rules for determining the tax consequences of distributions made from an S corporation without accumulated earnings and profits.
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