1. Topics

S Corporation, Partnership & LLC Taxation

Changing Level of Participation in an S Corporation for Tax Planning Purposes

A shareholder materially participates in an S corporation if the shareholder or the shareholder’s spouse is involved in the corporation’s trade or business on a regular, continuous, and substantial basis. This column discusses three tests that practitioners are likely to encounter when dealing with S corporation shareholders.

Partnership Determination of Eligible Basis for Energy Grants

This item discusses whether a partnership should take a partner’s Sec. 743(b) adjustment into account in determining eligible basis of qualified energy property that the partnership has not yet placed in service.

Partners’ Limited Liability and Self-Employment Tax

The decision in Renkemeyer, Campbell & Weaver, LLP, signals that special allocations not supported by a written partnership agreement and without substantial economic effect will not withstand an IRS challenge and that classification of an interest in a partnership as a limited partner interest should not be predicated simply on a partner’s enjoyment of limited liability.

IRS Finalizes Automatic Five-Month Extension for Partnership, Trust and Estate Returns

Final regulations set the time for automatic extensions of partnership, trust and estate income tax returns at five months (T.D. 9531). Under this rule, the extended returns and Schedules K-1 for partners and beneficiaries will generally be due September 15.

Case Addresses the Sec. 752 Anti-Abuse Regs.

The recent decision of the Tax Court in Canal Corp. may provide some insight into when a partner’s potential obligation to pay partnership debts will be disregarded in determining liability allocations.

S Corporation Reasonable Compensation

A recent district court decision highlights the employment tax risks to S corporations that are found to have paid unreasonably low compensation to shareholder-employees while making distributions to the same individuals.

Discharge of Indebtedness Rules Clarified for Grantor Trusts and Disregarded Entities

The IRS issued proposed regulations that provide rules regarding who is the “taxpayer” for purposes of applying the Sec. 108 discharge of indebtedness rules to a grantor trust or disregarded entity.

Target Allocations

This item discusses what target allocations are and how they determine income allocations during a year. It also examines some special issues with target allocations.

Did Canal Corp. Sink the Leveraged Partnership Transaction?

This item reviews the recent decision by the Tax Court in Canal Corp. and illustrates the limitations of the leveraged partnership exception to the disguised sale rules of Sec. 707(a)(2)(B).

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.
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