1. Topics

S Corporation, Partnership & LLC Taxation

Split Widens as Courts Hold Basis Overstatement Is Not Income Omission

The ongoing controversy over whether a taxpayer’s overstatement of basis triggers a six-year statute of limitation period continues as the Fourth Circuit and Fifth Circuit both held within days of each other that the extended period does not apply. These decisions are at odds with a Seventh Circuit opinion issued in January and with regulations finalized in December.

Distributing Property to S Corporation Shareholders

This item discusses the factors to consider for an S corporation distributing property to its shareholders.

Increased Opportunities for Sec. 338(h)(10) Elections

The Small Business Jobs Act changes the S corporation built-in gains (BIG) tax for tax years (and only for tax years) beginning in 2011. This article discusses the increased opportunities this affords buyers to elect to treat purchases of S corporation stock as asset purchases without triggering BIG tax.

IRS Wins Again on Annual Exclusion of Gifts of Partnership Interests

In Fisher, the IRS has again won on the issue of whether taxpayers’ transfers of partnership interests were transfers of present interests in property. The court held the transfers did not qualify for the gift tax annual exclusion.

Built-In Gains Recognition Period Temporarily Reduced for 2011 Transactions

The Small Business Jobs Act of 2010 includes an additional temporary reduction of the recognition period for built-in gains tax under Sec. 1374.

Overstatement of Basis Is Not Omission from Gross Income, Appeals Court Rules

A federal appeals court has handed the IRS another defeat on the issue of whether an overstatement of basis amounts to an omission from gross income for purposes of invoking the longer, six-year limitation period for assessing tax under Sec. 6501(e).

Another Circuit Says Overstatement of Basis Is Not an Omission from Gross Income

The ongoing controversy over whether a taxpayer’s overstatement of basis triggers a six-year statute of limitation period continues as the Fourth Circuit has held that the extended period does not apply.

Current Developments in Partners and Partnerships

This article reviews and analyzes recent rulings and decisions involving partnerships. The discussion covers developments in partnership formation, debt and income allocations, distributions, passive activity losses, and basis adjustments during the period November 1, 2009–October 31, 2010.

Classification of Business Entities That Are Not Corporations

An organization with two or more owners that is an entity separate from the owners and that is not a corporation is an eligible entity that can be classified as a corporation or a partnership. The regulations provide a set of default rules that establish the classification of an eligible entity if no classification election is made.

IRS Maintains Stance on Omissions from Gross Income and Overstatement of Basis

The IRS released final regulations defining an omission from gross income for purposes of the six-year minimum period for assessment of tax attributable to partnership items and the six-year period for assessing tax. The regulations are designed to resolve whether an overstatement of basis in a sold asset results in an omission from gross income.

Increasing Passive Activity Loss Deductions with Self-Charged Interest

Generally, portfolio income cannot be used to offset passive activity losses, but there is a special rule for self-charged interest. This column examines the conditions under which such interest income is considered passive activity income.

S Corporations with Earnings and Profits

S corporations that have accumulated C corporation earnings and profits have both problems and opportunities. This article discusses the opportunities and explores solutions to the problems.

Elections Available to S Corporations with Significant Ownership Changes

This item examines why shareholders are typically motivated to request various S corporation elections and addresses why tax advisers should raise the question of the election at the time of ownership change and not at a later date.

Current Developments in S Corporations (Part II)

This article discusses S corporation eligibility, elections, and termination issues from the period July 2009–July 2010.

Current Developments in S Corporations (Part I)

This article discusses recent legislation, cases, rulings, regulations, and other developments in the S corporation area for the period July 9, 2009–July 9, 2010. This part focuses on various S corporation operating provisions.

Termination of an LLC

This column reviews the determination of when an event triggers the termination of an LLC classified as a partnership

QSubs Included in Definition of S Corp. for Purposes of Sec. 291(a)(3)

In Vainisi, the Seventh Circuit reversed a decision in which the Tax Court held that the 20% interest expense reduction imposed by Sec. 291(a)(3) would apply to a qualified subchapter S subsidiary (QSub) bank even for its tax years following the third year after it converted from C corporation to S corporation status.

The Tax Cost of Hot Assets upon the Disposition of a Partnership Interest

A disposition of a partner’s interest in an entity that holds hot assets may convert long-term capital gain to ordinary income or in certain cases may force the partner to recognize ordinary income offset by a nonutilizable capital loss upon the disposition.

S Corporations: Facing the 15% Sunset

One change with major implications for S corporations with prior C corporation earnings is the sunset of the 15% tax rate on qualified dividends. This favorable rate is due to expire on December 31, 2010.

IRS Issues Partnership Anti-Abuse Rule Regs.

The IRS and Treasury issued final regulations on June 8 to provide that the Sec. 704(c) anti-abuse rule takes into account the tax liabilities of both partners and certain owners of partners (T.D. 9485). The regulations also provide that partnerships cannot use an allocation method to achieve tax results that are inconsistent with the intent of the partnership rules in the Internal Revenue Code.
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