1. Topics

S Corporation, Partnership & LLC Taxation

The Story of Basis

Basis is a beneficial concept for a taxpayer—it shields the taxpayer from tax on the sale of an asset and can produce losses that reduce tax liability. It has been described as a “summary of the tax impact of [past] events” that have affected an asset. Nevertheless, basis can be elusive: It can appear or disappear when we are not paying attention. It can cling to an asset, be adjusted up or down, replicate itself, or shift to another asset. In other words, the summary that basis provides can have a number of potential twists and turns.

Tax Court Holds Invalid Temporary Regulations on Overstatement of Partnership Basis

The Tax Court held that temporary regulations issued by the IRS last year that defined an overstatement of partnership basis as an omission from gross income are invalid.

IRS Continues Focus on Disallowing Annual Exclusions for Gifts of Partnership Interests

The Tax Court held, in Price, T.C. Memo. 2010-2, that taxpayers were not entitled to annual gift tax exclusions under Sec. 2503(b) for the outright gifts of partnership interests.

Assessment Period Remains Open in Partnership Case

In Blak Investments, the Tax Court applied Sec. 6501(c)(10) to extend the assessment statute of limitation for a taxpayer with an undisclosed listed transaction on a return due prior to October 22, 2004.

Choice of Entity: Benefits of a Partnership

In the choice-of-entity decision, there are many considerations that should play a role. The S corporation form may lead to decreased compliance costs in the short run, but the flexibility provided by the partnership rules may lead to increased value for the business and easier operations in the future.

Careful Analysis Required for Potential Regs. Sec. 1.752-7 Liabilities

Regs. Sec. 1.752-7 defines what constitutes a 1.752-7 liability, how these liabilities are treated when assumed by the partnership or another partner, and the impact of a later sale (or redemption) of a partnership interest by the partner that contributed the debt to the partnership.

S Corp. Shareholder Basis for Circular or Certain Back-to-Back Loans

Practitioners advising on proper methods to use for shareholders to acquire basis in loans made to S corporations incurring losses can take away several points from recent court decisions.

S Corporation Basis Reductions for Nondeductible Expenses

When an S corporation has losses and deductions in excess of basis, some of which are nondeductible, noncapital expenses, will there be a carryover of the nondeductible items for purposes of reducing basis in a future year?

Consequences of S Corporation Termination in a Reorganization

An S corporation can participate as a corporate entity in a corporate reorganization; this leads to a substantive advantage of S corporations over partnerships

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.

Trusts Owning Partnership Interests and the Revised UPIA

A special problem faces trustees whose principal or sole asset is a partnership that does not distribute all its taxable income. The problem arises because partnership distributions not in liquidation are “trust income” payable to the income beneficiary. Yet if the trustee pays the income beneficiary the full amount of the partnership distribution, the trust may not have sufficient cash to pay the trust’s own tax liability.

Definition of Omission from Gross Income for Partnership Items and the Six-Year Period for Assessing Tax

The IRS has issued temporary and proposed 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.

Final Regs. Issued on S Corp. DOI Income Exclusion and Tax Attributes

The IRS issued final regulations governing how an S corporation reduces its tax attributes under Sec. 108(b) when the S corporation has discharge of indebtedness income that is excluded from gross income under Sec. 108(a).

C Corporations as S Corporation Subsidiaries

An S corporation can elect to treat a 100% owned subsidiary as a qualified subchapter S subsidiary (QSub), which causes the subsidiary to be disregarded for most federal tax purposes. The subsidiary must be a corporation that would be eligible to be an S corporation if the shareholders of its parent S corporation held its stock directly.

Recapture of Sec. 179 Expense Deduction for Passthrough Entities

How to report the recapture of Sec. 179 expense for passthrough entities at both the entity and owner levels.

LLC Interests as Limited Partnership Interests: Sec. 469 Revisited

The focus of recent cases has been on application of the “limited partner” rule of Sec. 469(h)(2) and, based on the specific language contained in Temp. Regs. Sec. 1.469-5T, whether an interest in an LLC should be treated as an “interest in a limited partnership as a limited partner.”

Recognizing When an S Corporation Has Accumulated Earnings and Profits

Both a C corporation and an S corporation can distribute taxable dividends to the extent that the corporation has accumulated earnings and profits (AE&P). An S corporation cannot generate earnings and profits (E&P) but a C corporation’s AE&P transfers to the S corporation when the S election is made.

LLCs, LLPs, and the Passive Loss Rules

Sec. 469(h)(2) treats a limited partner’s losses from an interest in a limited partnership as presumptively passive. The IRS has taken the position that a taxpayer who is a member of an LLC or LLP that is taxed as a partnership should be treated as a limited partner and therefore any losses passed through to the member are passive activity losses.

Current Developments in S Corporations (Part II)

This article discusses S corporation eligibility, elections, and termination issues. It covers significant topics related to a second class of stock, trusts owning S corporation stock, and an interesting ruling on the reelection of S status.

Impact of Anticipated COD Income on Investors Joining Existing Partnerships

When appreciated property is contributed to a partnership, the precontribution gain is accounted for under Sec. 704(c), which provides that income, gain, loss, and deduction for property contributed to the partnership by a partner are shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair market value (FMV) at the time of contribution.
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