1. Topics

S Corporation, Partnership & LLC Taxation

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.

IRS Not Allowed to Reclassify Passive Activity Income

The Tax Court held the IRS could not reclassify the taxpayer’s income from the rental of cellphone towers and the land they were situated on to his wholly owned S corporation as nonpassive income under the self-rental rule. 

Final Regs. Remove De Minimis Partner Rule

The IRS issued final regulations that remove the de minimis partner rule from Regs. Sec. 1.704-1(b)(2)(iii)(e).

Debt Discharge Under Sec. 108: Partnerships vs. S Corps.

As tax liability for COD income gives many taxpayers an unpleasant surprise in today’s economy, its tax treatment continues to be a focal point for tax professionals in tax planning and preparation.

Rehabilitation Credits Disallowed

The Third Circuit held that a corporate partner in a partnership was not entitled to claim historic rehabilitation credits passed through to it from the partnership because the corporation was not a bona fide partner in the partnership.

Organizational and Startup Costs for Single-Member LLCs

Despite the widespread use of single-member LLCs, some confusion still exists regarding the tax treatment of the initial expenditures to form and operate this type of entity.

Measuring Insolvency Under Sec. 108

While determining if a taxpayer is bankrupt is straightforward, determining whether a taxpayer is insolvent can be tricky.

Providing Sec. 132 Fringe Benefits to S Corporation Employees

S corporations can offer employees the same fringe benefits as other business entities; however, so-called 2% shareholders are treated as partners for fringe benefit purposes. Work related fringe benefits are an exception.

Income from Partnership Is Self-Employment Income Where Taxpayer Chose Not to Be a Partner

The Eleventh Circuit held that payments a taxpayer received from a nursing home business were taxable self-employment income despite the taxpayer’s convoluted attempts to characterize them as partnership distributions.

The Partnership “Technical Termination” Trap

A sale or exchange of 50% or more of the total interest in a partnership’s capital and profits within a 12-month period causes the tax year of the partnership to close.

Timing a Loss Deduction

When a real estate venture is structured so that one partner provides the capital and the second provides operational experience, how are losses incurred by the capital partner treated?

Inadvertent S Corp. Terminations

When an S election is made, requirements must be met to avoid an inadvertent termination of S status.

Planning for Redemptions of S Corporation Stock Using Contingent Payments

When shareholders of an S corporation choose to part ways, they often do so by redeeming a departing shareholder’s stock.

How Changes in Corporate Tax Rate Can Affect Choice of C vs. S Corp.

This item examines the effect of the proposed lower corporate tax rates in an analysis of the tax results of converting an S corporation to a C corporation.

Current Developments in S Corporations

During the period of this S corporation tax update, some major changes that directly affect S corporations took place. This article also presents tax planning ideas for S corporations and their shareholders.

Santa Clara Valley Housing Group: An S Corporation Abusive Tax Shelter

Consideration of tax shelter case about whether warrants issued by an S corporation are a prohibited second class of stock reveals that the entire tax shelter is an arrangement that is a second class of stock.

S Corporation Shareholder Basis From Bona Fide Indebtedness

The IRS issued proposed regulations on the subject of when an S corporation shareholder can increase his or her basis in the S corporation’s stock based on loans to the corporation.

Reporting Life Insurance Transactions by S Corporations

There is room for disagreement, if not confusion, over how to report transactions involving life insurance on the tax returns of S corporations.

Operating a QSub

A qualified subchapter S subsidiary (QSub) is a subsidiary corporation 100% owned by an S corporation that has made a valid QSub election for the subsidiary.

Contributions Increase Shareholders’ S Corporation Basis

The Tax Court held that shareholders in two related S corporations could increase their basis in one of the corporations by contributing assets to it that they had received in a distribution from the other corporation.
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