1. Topics

S Corporation, Partnership & LLC Taxation

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.

Proposed Rules Would Require Terminating Partnerships to Amortize Startup Expenditures

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

Supreme Court Resolves Circuit Split on 40% Gross Valuation Misstatement Penalty

The Supreme Court held that the 40% penalty for a gross valuation misstatement applied when the partnerships at issue had been determined to be shams that lacked economic substance, and, as a result, the partners’ outside basis in the partnerships was zero.

The New Five-Year Built-In Gain Recognition Period

ATRA extended the five-year recognition period for the BIG tax to 2012 and 2013 and also changed the BIG tax treatment of installment sales and carryovers of built-in gain not taxed in the year recognized because of the taxable income limitation.

Electing S Corporation Status for a Limited Liability Company

In some situations, business owners have state-law reasons for wanting their business to be formed as a limited liability company, but for tax purposes they would prefer S corporation (rather than partnership) tax treatment.

Collaboration Agreement Gives Rise to Partnership Treatment

The IRS ruled that a joint collaboration between two corporations was a partnership for U.S. federal tax purposes and the entity could not elect out of the application of subchapter K of the Code.

S Corp. Members Are Not Subject to Controlled Group Sec. 179 Limitations

The IRS ruled that S corporation members of a controlled group may use the Sec. 179 election up to the maximum election amount as if they were separate entities, and are not subject to the controlled group’s overall limit.

Partners as Employees? Properly Reporting Partner Compensation

How do partnerships treat (former) employees once they receive an equity interest in a partnership?

Controlled Groups and the Sec. 179 Election for S Corporations

The exclusion of S corporations from component membership in controlled groups of corporations multiplies the planning opportunities for businesses under common control but calls for vigilance by tax professionals to use this deduction wisely.

Reasonable Compensation for S Corporation Shareholder-Employees

Two recent Tax Court opinions focusing on reasonable compensation for S corporation shareholder-employees provide important takeaways for owners and practitioners by addressing common issues surrounding distributions and loan repayments in the context of reasonable compensation.

Sec. 754 and Ground Leases

A partnership making an optional Sec. 754 basis adjustment for land subject to a long-term ground lease is permitted to adjust the basis of the land but may not allocate the basis adjustment to buildings or other depreciable assets the lessee constructed.

Chief Counsel Disregards Indemnification Agreements Under Anti-Abuse Rules in Transactions That Result in Disguised Sales

The Office of Chief Counsel advised that an indemnification agreement should be disregarded and, accordingly, the underlying partner contribution and distribution should be treated as a disguised sale.

Debt and Proving Basis in Flowthrough Entities

A taxpayer’s basis is often scrutinized by the IRS, particularly when basis is claimed based upon debts incurred by a flowthrough entity.

Current Developments in S Corporations

This article discusses major changes and developments that directly affect S corporations and their tax advisers during the period of this update (July 10, 2012–July 9, 2013).

Sec. 179 Deduction Limitation Applied to S Corps. in a Controlled Group

The IRS recently released an information letter to clarify the treatment of the Sec. 179 limitations applied to members of a controlled group, in which certain members had made an election to be treated as an S corporation.

Rough Sailing for TEFRA Partnerships

Several recent cases illustrate the need for taxpayers to be extremely careful when involved in a Taxpayer Equity and Fiscal Responsibility Act audit.
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