Partnership and LLC Taxation

Contributed Property in the Hands of a Partnership

A partnership that receives contributions of property must establish the basis, the holding period, and the character of the property in the hands of the partnership, and also determine available accounting and depreciation methods.

Considerations for Filing Composite Tax Returns

Taxpayers and their advisers should consider some key issues before deciding that a composite return is the best choice.

IRS Disallows Write-Off of Startup and Organizational Costs in a Technical Termination

New partnerships formed from technical terminations must step into the shoes of the terminated partnership and continue to amortize Sec. 195 startup expenditures and Sec. 709 organization fees using the same amortization period the terminated partnership used.

Proposed Regs. Issued on Amortization of Startup Expenses by Terminating Partnerships

The IRS issued proposed regulations aimed at preventing partnerships from using technical terminations to accelerate their deductions of startup and organizational expenses.

Current Developments in Partners and Partnerships

This article reviews and analyzes recent rulings and decisions involving partnerships. The discussion covers developments in partnership formation, income allocations, and basis adjustments

Valuation-Misstatement Penalty Applies to Tax Shelter Transactions

The Supreme Court held in that the Sec. 6662(b)(3) penalty for tax underpayments attributable to valuation misstatements applies to an underpayment resulting from a basis-inflating transaction that is disregarded for a lack of economic substance.

Don’t Forget the Mandatory Application of Sec. 732(d)

Sec. 732(d) applies to situations in which a partnership does not have a Sec. 754 election in effect and a partner who would have a positive Sec. 743(b) adjustment if the partnership had a Sec. 754 election in effect receives a current or liquidating distribution of property from the partnership.

Partnership Capital Account Revaluations: An In-Depth Look at Sec. 704(c) Allocations

Sec. 704(c) aims to prevent the shifting of gain, loss, or other tax attributes among partners by mandating certain adjustments to partners’ capital accounts.

Proposed Rules Address Disguised Sales and Partnership Liabilities

The IRS issued proposed regulations on disguised sales of property to or by a partnership under Sec. 707 and the treatment of partnership liabilities under Sec. 752.

Partnership Basis Rules Proposed

The IRS issued proposed regulations providing guidance on the application of Sec. 704(c)(1)(C) added by the American Jobs Creation Act and the amendments to the mandatory basis adjustment rules of Sec. 743 in the AJCA.

Proposed Rules Would Require Terminating Partnerships to Amortize Startup Expenditures

The IRS issued proposed regulations aimed at preventing partnerships from using technical terminations to accelerate their deductions of startup and organizational expenses.

Supreme Court Resolves Circuit Split on 40% Gross Valuation Misstatement Penalty

The Supreme Court held that the 40% penalty for a gross valuation misstatement applied when the partnerships at issue had been determined to be shams that lacked economic substance, and, as a result, the partners’ outside basis in the partnerships was zero.

Collaboration Agreement Gives Rise to Partnership Treatment

The IRS ruled that a joint collaboration between two corporations was a partnership for U.S. federal tax purposes and the entity could not elect out of the application of subchapter K of the Code.

Partners as Employees? Properly Reporting Partner Compensation

How do partnerships treat (former) employees once they receive an equity interest in a partnership?

Sec. 754 and Ground Leases

A partnership making an optional Sec. 754 basis adjustment for land subject to a long-term ground lease is permitted to adjust the basis of the land but may not allocate the basis adjustment to buildings or other depreciable assets the lessee constructed.

Chief Counsel Disregards Indemnification Agreements Under Anti-Abuse Rules in Transactions That Result in Disguised Sales

The Office of Chief Counsel advised that an indemnification agreement should be disregarded and, accordingly, the underlying partner contribution and distribution should be treated as a disguised sale.

Debt and Proving Basis in Flowthrough Entities

A taxpayer’s basis is often scrutinized by the IRS, particularly when basis is claimed based upon debts incurred by a flowthrough entity.

Rough Sailing for TEFRA Partnerships

Several recent cases illustrate the need for taxpayers to be extremely careful when involved in a Taxpayer Equity and Fiscal Responsibility Act audit.

Tiered Partnerships: Will Net Investment Income Tax and Proposals to Change Taxation of Carried Interests Wreak Havoc?

Tiered partnerships could become subject to ordinary income tax treatment on many forms of revenue that had previously enjoyed a lower capital gain tax rate.

Sale of Unrealized Receivables Not Eligible for Installment Method

The Tax Court held that the taxpayers could not report the portion of a sale of a partnership interest that was attributable to unrealized receivables using the installment method.
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