1. Topics

S Corporation, Partnership & LLC Taxation

IRS Flexes Its Muscles Under the Partnership Anti-Abuse Rules

Co-Editors: Steven F. Holub, CPA; Jane T. Rubin, CPA Prior to 1997, taxpayers had to navigate a complex set of rules to determine whether their association was one that would be taxed as a corporation or one that would be taxed as a partnership. In many situations the entity of

Treatment of Loans to U.S. Partners Under the U.S.-Germany Tax Treaty

Germany’s federal tax court ruled that interest payments received by a U.S.-resident partner on a loan to his German partnership can be taxed only in the United States in accordance with Article 11(1) of the U.S.-Germany income tax treaty and are exempt from German taxation.

A Practical Guide to the Tax Issues of Investing in Master Limited Partnerships

The tax reporting related to publicly traded partnerships has become an increasingly significant issue facing the tax practitioner community.

Tax Treatment of Government Grants to Partnerships Becomes Less Clear

Federal, state, and local governments have been providing tax incentives to businesses for many years. Along with the long history of government incentives to taxpayers, there is a long history of controversy over the tax treatment of these incentives.

IRS Issues New Rules on Allocation of Partnership Items

Proposed regulations under Sec. 704(c) provide that the Sec. 704(c) anti-abuse rule takes into account the tax liabilities of both the partners in a partnership and certain direct and indirect owners of such partners.

Transfers of Partnership Interests Are Not Indirect Gifts of Stock Held by Partnership

The Tax Court held that a transfer of interests in a family limited partnership that held only stock in one corporation was a transfer of the partnership interests, not an indirect transfer of stock held by the partnership.

Qualifying a Marital Deduction Trust as an Eligible S Shareholder

The marital deduction permits the estate of the spouse who dies first to claim an estate tax deduction for property passing to the surviving spouse if certain requirements are met.

F Reorg. of an S Corp. May Require a New EIN

Rev. Rul. 2008-18 posits two situations in which an S corporation becomes a QSub of a newly formed corporation that will qualify as an F reorganization. The ruling also provides new guidance on the proper employer identification number (EIN) to be used by the entities in each situation.

Flexibility in Retroactive Partnership Agreement Amendments

Timely modifications to a partnership agreement can allow partners to engage in a measure of self-help to change their economic and tax situations.

Compensation Issues for Self-Employed S Corp. Owners

This item discusses how reporting a higher wage can actually maximize long-term profits for the owner-employee of an S corporation.

IRS Offers Opportunity for 2% Shareholders of S Corp.

The IRS recently offered an opportunity for 2% shareholders of an S corporation to receive a deduction for health insurance premiums under Sec. 162(l).

Partnership Returns: Late Filing Penalties Increase

Late 2007 legislation brought changes to Sec. 6698, which provides for penalties against a partnership for filing a late or incomplete return.

Understanding the Tax Consequences of Liquidation to an S Shareholder

The shareholder consequences of a complete liquidation of an S corporation are governed by Secs. 331 and 1001. The dividend rules that otherwise apply to corporate distributions are not applicable to distributions in complete liquidation.

Holding Period and Basis Considerations of Partnership Conversions

This article summarizes the tax consequences of entity changes involving the conversion to or from any entity treated as a partnership for federal income tax purposes (e.g., general partnerships, limited partnerships, LLCs with two or more members, and limited liability partnerships).

S Corporations’ Charitable Contributions of Appreciated Property and Shareholders’ Adjusted Basis in S Stock

PPA amended Sec. 1367(a)(2) to limit the reduction in a shareholder’s basis to the shareholder’s pro-rata share of the S corporation’s adjusted basis of the contributed property, not the FMV.

Current Developments in Partners and Partnerships

During the period of this update (November 1, 2006–October 31, 2007), Treasury and the IRS worked to provide guidance for taxpayers on numerous changes that had been made to subchapter K over the past few years.

Special Issues Related to Distributions of Partnership Interests by Estates and Trusts

The complex rules governing the tax treatment of distributions from estates and trusts are further complicated when a partnership interest is distributed.

Prop. Regs. Reflect S Corporation Changes Made by AJCA and GO Zone Act

Proposed regulations provide guidance on S corporation family shareholder rules, the definitions of “powers of appointment” and “potential current beneficiaries” (PCBs) with regard to electing small business trusts (ESBTs), and the allowance of suspended losses to the spouse (or former spouse) of an S corporation shareholder.

Simplified Method Relief for Late S and Entity Classification Elections

The IRS provided an additional simplified method for certain eligible entities to request relief for late S elections and for late entity classification elections that were intended to be effective as of the intended effective date of the S election.

Preventing a Dissident Shareholder from Transferring Stock to Cause a Loss of S Status

When a corporation first elects S status, all shareholders of the corporation must consent to the election (Sec. 1362(a)(2)). However, once S status is in place, new shareholders, whether acquiring stock by purchase or gift, need not consent to the election, nor are they given the opportunity to consent.A voluntary
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