1. Topics

S Corporation, Partnership & LLC Taxation

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.

Planning to Escape the S Corporation Built-in Gains Tax in 2010

The American Recovery and Reinvestment Act of 2009 suspended imposition of the built-in gains (BIG) tax for tax years beginning in 2009 and 2010 for qualifying S corporations.

Appeals Court Overturns Taxpayer Win in Tax Shelter Case

The Tenth Circuit held that a taxpayer’s investment in a “son of boss” tax shelter lacked economic substance and therefore did not generate deductible losses, reversing a taxpayer win on the issue in which a district court had allowed the taxpayer to deduct losses from the investment.

Potential Implication of Recent Sec. 469 Court Decisions for Self-Employment Tax Rules

For purposes of self-employment taxes, many members of LLCs have treated themselves as limited partners and have therefore reported that their distributive share of income was not subject to self-employment tax under Sec. 1402(a)(13). If recent Sec. 469 court cases were to be applied beyond Sec. 469, this self-employment tax position might be more difficult to sustain.

Temporary Regs. Held Invalid

The Tax Court held that temporary regulations the IRS issued after an earlier adverse decision did not apply to that case and that the temporary regulations were invalid because they were contrary to the Supreme Court’s opinion in Colony, Inc., 357 U.S. 28 (1958).

Sec. 465 Traps for the Unsuspecting S Corporation Shareholder

Without proper planning, the at-risk rules set out in Sec. 465 can limit the amount of deductible S corporation losses.

IRS Issues Partnership Anti-Abuse Rule Regulations

The IRS and Treasury issued final regulations 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).
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