1. Topics

S Corporation, Partnership & LLC Taxation

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.

Passive Activity Rules Not Presumed to Apply to LLCs and LLPs

In the Garnett case, the Tax Court set precedent for the reporting of losses from LLPs and LLCs by limited liability partners who materially participate in the operations of the businesses in which they are investors.

Current Developments in S Corporations (Part I)

This two-part article discusses recent legislation, cases, rulings, regulations, and other developments in the S corporation area. Part I covers operational issues; part II, in the November issue, will cover S corporation eligibility, elections, and termination issues.

Partnership Structural Changes: Deductibility of Expenses

This item examines several partnership restructuring transactions and discusses the circumstances in which a restructuring expense can be deducted and amortized under Sec. 709 or must be capitalized under Regs. Sec. 1.263(a)-5(a).

Trusts Owning Partnership Interests

When a trust instrument is silent and no discretionary power of administration exists, trustees and their advisers need to be knowledgeable of how partnership activity (including both taxable income and distributions received) is affected by the trust administration statutes of the state of situs of the trust.

Interests in LLCs and LLPs Not Presumed to Be Passive Activities

The Tax Court held that the taxpayers’ interests in their LLPs and LLCs were not presumptively passive because they did not hold their interests in the entities as limited partners in a limited partnership.

Restructuring Partnership Debt May Create Unexpected Results

A partnership or an LLC taxed as a partnership contemplating a debt restructuring should carefully consider the tax effects of Sec. 108.

Ninth Circuit Rules on Tax Court Jurisdiction in Partnership Cases

The Ninth Circuit has held in a group of consolidated cases that the Tax Court has jurisdiction to decide in partner-level proceedings whether a partnership’s transactions were tax motivated.

Avoiding S Corporation Debt Obligations That Are a Second Class of Stock

Under certain circumstances, debt owed by an S corporation to one or more shareholders will be a second class of stock.

Revenue Ruling on S Elections for Partnerships Converting to Corporations

The IRS has issued a revenue ruling that addresses the question of whether, when a partnership becomes a corporation for federal tax purposes, it is eligible to elect to be taxed as an S corporation in its first tax year.

Taxpayer Not Allowed to Defer Income on Sale of Partnership Interest

A partner in a consulting partnership who received restricted stock in the sale of her interest in the partnership to a corporation and agreed by contract to report the full value of the stock in income in the year the stock was transferred could not defer including part of the value of the stock in income until the year the restrictions on the stock were lifted.

Tax Shelter Transactions Disregarded

The Fifth Circuit joined the majority of circuits and held that a lack of economic substance will invalidate the results of a transaction even if a taxpayer had a genuine motive other than tax avoidance for entering into the transaction.

Allocating Liabilities Among Related Partners: Determining the Impact of IPO II

This item discusses IPO II’s potential impact on allocating partnership liabilities under Sec. 752 and, given the decision, the unique considerations that must be taken into account in reaching a desired liability allocation among related partners.

Recent Amendment to Sec. 1374 Provides Limited Opportunity for S Corps.

An amendment to Sec. 1374(d) provides a temporary exemption from the application of Sec. 1374 to sales of assets in 2009 and 2010, but only for S corporations that meet certain requirements.

Prop. Regs. on Determining Partners’ Distributive Shares

The IRS has issued proposed regulations on determining partners’ distributive shares of partnership items of income, gain, loss, deduction, and credit when a partner’s interest varies during a partnership tax year.
Next
Previous