1. Topics

S Corporation, Partnership & LLC Taxation

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.

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.
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