Partnership and LLC Taxation

Proposed Regulations Would Change Treatment of Sec. 751 Property

The IRS issued proposed regulations under Sec. 751 that would amend the rules governing how a partner measures its interest in a partnership’s unrealized receivables and inventory items and the tax consequences of a distribution to a partner reducing that interest.

Procedures for Withholding Foreign Partnerships and Withholding Foreign Trusts Coordinated With FATCA

The IRS issued updated procedures in Rev. Proc. 2014-47 for "withholding foreign partnerships" and "withholding foreign trusts" that elect to assume certain U.S. withholding tax responsibilities.

Active Members of an Investment Adviser LLC Are Subject to Self-Employment Tax

The IRS Office of Chief Counsel determined that actively working members of an investment management company formed as a limited liability company were not limited partners within the meaning of Sec. 1402(a)(13), and, thus, their net distributive shares of management fee income were subject to self-employment tax.

Transfers of Installment Obligations Would Trigger Gain or Loss Under Proposed Rules

The IRS issued proposed regulations relating to the nonrecognition of gain or loss on certain dispositions of an installment obligation.

Valuing Partnership Interests Acquired in Exchange for Services

This column addresses the rules that currently govern the receipt of a partnership interest in exchange for services. Practitioners should be aware that proposed regulations and Notice 2005-43 provide new rules and new safe-harbor provisions that will apply to the receipt of a partnership interest by a service partner when the regulations are finalized.

Proposed Rules Would Change Partners’ Treatment of Unrealized Receivables and Inventory Items

The IRS issued proposed regulations under Sec. 751 that would amend the rules governing how a partner measures its interest in a partnership’s unrealized receivables and inventory items and the tax consequences of a distribution to a partner reducing that interest.

Navigating the Net Investment Income Tax: Key Issues for Investment Funds and Their Partners

This item summarizes the aspects of the net investment income tax that are most relevant to hedge fund investors and general partners.

Proposed Partnership Liability Regulations Under Sec. 752

Treasury and the IRS issued comprehensive and particularly adverse proposed regulations regarding the allocation of partnership recourse and nonrecourse liabilities under Sec. 752.

The Limited Liability Company Basis Limitation

Under Sec. 704(d), a member’s allocable share of loss from a limited liability company (LLC) taxed as a partnership is deductible only to the extent of the member’s outside basis in his or her LLC interest at the end of the LLC year. In determining a member’s outside basis at year end, adjustments for increases and decreases are made in a specific order according to Regs. Sec. 1.704-1(d)(2).

Target Capital Allocations: Up to Code?

Target capital allocations attempt to have the allocations of profit and loss follow the cash by making partner capital accounts equal what the partner would receive if the partnership actually liquidated at the end of the year.

Computing the Domestic Production Activities Deduction for Passthrough Entities

Some unique issues can arise when computing the domestic production activities deduction for a passthrough entity.

Revisiting the Vainisi Decision: Why S Corporation Banks Are Not Completely in the Clear

While the Seventh Circuit’s decision in Vainisi was favorable for S corporation banks investing in tax-exempt obligations, those banks nonetheless must pay close attention to the specific type of tax-exempt obligations they purchase if they expect to reap the benefits of that decision.

Proposed Disguised-Sale Regs. Offer Clarification and Issues for Real Estate

The Treasury Department issued new proposed regulations intended to clarify the disguised-sale rules under Sec. 707 and the allocation of partnership liabilities under Sec. 752.

Using a Buy/Sell Agreement to Restrict Transfers of Partnership Interests

A buy/sell agreement is a popular way to establish some parameters for the disposition of a partnership interest while establishing a method that can be used to value the interest and the terms of a potential payout.

Final Rules Issued on Bona Fide Indebtedness and Terminating Partnership’s Startup Expenses

Final regulations were issued on S corporation shareholder basis of indebtedness of the S corporation to the shareholder only if the indebtedness is bona fide and on the deductibility of startup expenditures and organizational expenses for partnerships following a termination of a partnership.

Partnership Interest Expense Allocation Rules Are Finalized

Final regulations make permanent four changes to the rules for allocating and apportioning interest expense for partners in partnerships.

IRS Guidance Shows Risks to Nonguarantor LLC Members

Recent IRS guidance clarifies the treatment of both guarantor and the nonguarantor LLC members.

Determining If a Technical Termination Occurs

To determine if an LLC terminates, the practitioner must determine whether an LLC interest was disposed of in a “sale or exchange” as defined in the Sec. 708 regulations. If so, did the sale or exchange result in 50% or more of the total interests in LLC capital and profits being sold or exchanged during a consecutive 12-month period?

Startup and Organizational Costs in a Partnership Technical Termination

Proposed regs. clarify treatment of startup and organization costs for partnership technical terminations.

Sec. 752 Recourse Liabilities and Related-Party Rules

Proposed regulations on partnership recourse liabilities and special rules for related persons address issues that are either ambiguous or not covered under current regulations.
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