1. Topics

S Corporation, Partnership & LLC Taxation

Recently Issued Sec. 108(e)(8) Regulations: Liquidation Value Safe Harbor

Recently issued final regulations on partnership debt-for-equity exchanges contain a liquidation value safe-harbor method for valuing the partnership interest received in exchange for the cancellation of debt.

Deducting S Corporation Losses to Extent of Shareholder Basis

An S corporation shareholder reports corporate income or loss on the personal income tax return for the year in which the corporate year ends; losses or deductions passed through to the shareholder first reduce stock basis, then loss amounts are applied against debt basis.

Partners’ Income Allocations and the New Net Investment Income Tax

The health care acts, along with recently issued Treasury guidance on the applicability of the additional Medicare tax, may prompt partnerships to reevaluate the potential tax impact of the partnership’s structure on their individual partners.

Long-Awaited Final Regs. Issued on Noncompensatory Partnership Options

The IRS issued regulations on the treatment of certain call options, warrants, convertible debt, and convertible equity that are not issued in connection with the performance of services, i.e., noncompensatory partnership options.

Payments to Taxpayer Held to Be Compensation, Not Distributions

The Eleventh Circuit held that payments made to a taxpayer by limited partnerships that he controlled but did not own an interest in were compensation reportable on Schedule C, not partnership distributions.

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.
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