Partnership and LLC Taxation

Navigating the QSBS rules in pass-through structures

The rules for qualified small business stock become more complex when it is held through a pass-through entity or when the corporation operates through one or more partnerships. This article discusses QSBS eligibility rules, planning opportunities, and areas of uncertainty.

Multiyear redemption payments under a partnership promissory note

The complexities of redeeming a partner’s interest in a partnership with payments over multiple years are increased when the redeemed partner receives a promissory note.

The hidden costs and tax burdens of European waterfalls

These distribution provisions for sharing earnings between private fund managers and investors can clash with Sec. 704 partnership rules in certain ways.

Structuring partnership mergers

Focusing on private-equity acquisitions, this article compares merger forms and highlights tax considerations, particularly where some partners cash out and others continue the business.

Qualified real property business debt exclusion

The election to exclude a discharge of qualified real property business debt from cancellation-of-debt income can provide valuable tax planning opportunities.

LLC cannot raise due process claim for its members

The limited liability company lacked standing to bring the Fifth Amendment claim on its individual members’ behalf, the Tax Court held.

Startups and the OBBBA: Rethinking C corporation vs. passthrough

With enhanced Sec. 1202 gain exclusion, permanency of Sec. 199A, and other provisions, the calculus for entity choice has shifted.

Management fee waivers in investment funds: Tax treatment and regulatory considerations

Determining the appropriate tax treatment of an investment fund’s waived management fee involves a number of factors, the most important which is significant entrepreneurial risk.

Hedge funds: Tax structuring, planning, and compliance

Hedge funds may face tax issues of entity structuring, carried interest, management fee waivers, and trading-related rules. This article highlights planning strategies and compliance considerations as the IRS continues to increase its scrutiny of these investment vehicles.

Fifth Circuit rejects ‘passive-investor’ definition of limited partner

The Fifth Circuit, overruling the Tax Court, held that for purposes of the Sec. 1402(a)(13) exclusion from self-employment tax, “limited partner” means a partner in a limited partnership that has limited liability.

Dissolving business taxpayers: Selected procedural implications

Critical issues include marking returns as final, determining due dates for final returns, filing Form 966, closing IRS accounts, and handling audits of dissolved entities.

IRS watchdog cites resource limits, duplication in partnership audits

The Treasury Inspector General for Tax Administration assessed a soft-letter initiative and the IRS’s examinations of 82 major U.S. partnerships.

Partner redemptions from ‘dry’ partnerships

A partnership whose sole asset is all the stock of a corporation offers opportunities but with potential pitfalls.

Death of an LLC member: Basic tax considerations

A member’s death will likely require apportioning LLC income and may entail treatment of the interest as a sale or disposition or even terminate the LLC.

Penalties under codified economic substance doctrine upheld

The taxpayers’ deductions from microcaptive insurance transactions lacked economic substance under Sec. 7701(o), the Tax Court held, upholding a Sec. 6662(b)(6) underpayment penalty.

TEFRA petition filing deadline is jurisdictional

The Tax Court held it lacked jurisdiction over the Sec. 6226(b) deadline for filing a petition for readjustment of partnership items under the Tax Equity and Fiscal Responsibility Act’s regime, and the deadline could not be equitably tolled.

Prop. regs. would make permanent safe harbor for furnishing information on Sec. 751 property

Proposed regulations would provide permanent relief from certain reporting requirements related to sales or exchanges of partnership interests in partnerships owning inventory or unrealized receivables.

IRS updates FAQs on business interest limitation, premium tax credit

The updates reflect changes made in H.R. 1, P.L. 119–21, commonly known as the One Big Beautiful Bill Act.

PTEs need more notice of changes, more time to respond, AICPA says

In a letter to Treasury and the IRS, the AICPA seeks changes to tax reporting requirements for partnerships and S corporations.

Tax Court applies limited partner functional test for self-employment income

In Soroban Capital Partners, the Tax Court analyzed the roles, responsibilities, and capital contributions of three limited partners in a limited partnership and determined that they were limited partners in name only.
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