Partnership and LLC Taxation

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.

Restructuring Partnership Debt May Create Unexpected Results

A partnership or an LLC taxed as a partnership contemplating a debt restructuring should carefully consider the tax effects of Sec. 108.

Ninth Circuit Rules on Tax Court Jurisdiction in Partnership Cases

The Ninth Circuit has held in a group of consolidated cases that the Tax Court has jurisdiction to decide in partner-level proceedings whether a partnership’s transactions were tax motivated.

Revenue Ruling on S Elections for Partnerships Converting to Corporations

The IRS has issued a revenue ruling that addresses the question of whether, when a partnership becomes a corporation for federal tax purposes, it is eligible to elect to be taxed as an S corporation in its first tax year.

Taxpayer Not Allowed to Defer Income on Sale of Partnership Interest

A partner in a consulting partnership who received restricted stock in the sale of her interest in the partnership to a corporation and agreed by contract to report the full value of the stock in income in the year the stock was transferred could not defer including part of the value of the stock in income until the year the restrictions on the stock were lifted.

Tax Shelter Transactions Disregarded

The Fifth Circuit joined the majority of circuits and held that a lack of economic substance will invalidate the results of a transaction even if a taxpayer had a genuine motive other than tax avoidance for entering into the transaction.

Allocating Liabilities Among Related Partners: Determining the Impact of IPO II

This item discusses IPO II’s potential impact on allocating partnership liabilities under Sec. 752 and, given the decision, the unique considerations that must be taken into account in reaching a desired liability allocation among related partners.

Prop. Regs. on Determining Partners’ Distributive Shares

The IRS has issued proposed regulations on determining partners’ distributive shares of partnership items of income, gain, loss, deduction, and credit when a partner’s interest varies during a partnership tax year.

Navigating Secs. 743 and 734 in the Current Economy

Given the current economy and the resulting decline in the value of investment partnership portfolios, tax practitioners must be familiar with the mandatory basis adjustments under Secs. 743 and 734 and the alternative rules for electing investment partnerships.

Target or Waterfall: Partnership Allocations

In recent years, more and more partnership agreements have been drafted using the targeted capital account approach for allocating partnership items of income or loss (targeted capital approach) versus the typical Sec. 704(b) economic effect approach (waterfall approach).

Partner Cannot Sue for Refund of Penalty Paid by Partnership

The Eighth Circuit reversed a district court and held that where a partnership paid a penalty under a closing agreement with the IRS, a partner in the partnership did not have standing to sue for a refund of part of the penalty payment.

Using a Limited Liability Partnership as the Entity of Choice

A new type of entity that has appeared in the United States in recent years is the limited liability partnership (LLP) or registered limited liability partnership (RLLP). This entity is similar in many respects to the limited liability company (LLC). All states now have LLP statutes.

Current Developments in Partners and Partnerships

This article reviews and analyzes recent rulings and decisions involving partnerships.

Temp. Regs. Allow Deemed Election to Expense Startup, Organizational Costs

Effective July 8, 2008, the IRS issued new temporary regulations to amend the rules under Secs. 195, 248, and 709 regarding elections to deduct startup expenditures and organizational expenditures of corporations and partnerships (T.D. 9411).

Like-Kind Exchanges of Partnership Properties

A partnership can distribute real property to its partners so that the partners can exchange the property in a Sec. 1031 like-kind exchange; if the exchange is properly structured, some of the partners can trade their interests in the property distributed in Sec. 1031 exchanges and some of the partners can sell their interests in the property in taxable transactions.

Partner Allowed to Make Different Elections for Different Partnership Interests

The Tax Court held that taxpayers owning multiple interests in the same partnership were entitled to make different elections under Sec. 6223 for each interest.

Termination of a Partnership Interest

This item explores the two main methods used when terminating a partnership interest: purchase and liquidation.

Treatment of Investment Interest Expense Allocable to Partnerships Trading Activity

IRS rulings confirm the proper tax treatment of investment interest expense allocable to a partnership’s trading activity
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