Partnership and 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.

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.

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.

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).

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.

Interest Deduction on Debt-Financed Distributions

Editor: Kevin F. Reilly, J.D., CPA Although the real estate market has cooled off in many areas, the value of commercial properties seems to have been less affected than that of residential properties. In fact, many commercial properties continue to be worth substantially more than their historic cost. Most commercial

Sec. 1446 Withholding

Editor: Joel E. Ackerman, CPA, MST Foreign investment in the United States continues to rise. The investment vehicle of choice, especially in the case of real estate, is generally a tax-transparent entity such as a limited partnership, limited liability company, or similar foreign transparent entity that is treated as a

Redemptions in Conjunction with Partnership Mergers Can Create Unexpected Tax Consequences

Editor: Frank J. O’Connell, Jr., CPA, Esq. The IRS has provided a road map for partnership mergers or consolidations in Regs. Sec. 1.708-1(c). When two or more partnerships merge or consolidate into a single partnership, the resulting partnership is, for purposes of Sec. 708, considered a continuation of any partnership

Rulings Relax Related-Party Exchange Rules

Editor: Annette B. Smith, CPA Recently released IRS Letter Rulings 200709036 and 200706001 suggest a liberal trend regarding related-party exchanges under Sec. 1031(f). The rulings may indicate a more favorable Service attitude toward exchanges in which the related parties have not cashed out of their original investments through “abusive” basis-shifting.

Some Schedule K-1 Recipients Get Reportable Transaction Disclosure Relief

Editor: John L. Miller, CPA Taxpayers that discover after filing their returns that they indirectly participated in a reportable transaction through a passthrough entity may be able to rely on Prop. Regs. Sec. 1.6011-4(e)(1) to avoid reportable transaction penalties. The preamble to the proposed regulations (REG-103038-05, 11/2/06) provided that this

Allocating Partnership Depreciation Between Trusts and Beneficiaries

This article reviews how depreciation from a partnership is allocated between a trust and its beneficiaries and highlights the potential trap the allocation can cause when the depreciation deduction flows through a partnership.

Choice of Entity for Expansion of Operations into a Foreign Country

Executive Summary    When flowthrough treatment is desired, a U.S. business may expand into a foreign country with a branch office or plant. A foreign partnership is advantageous when foreign operations are expected to generate flowthrough losses to a U.S. partner, and foreign taxes are high. A foreign corporate entity

Technical Terminations: Tangible Personal Property Depreciation Issues

Editor: Mary Van Leuven, J.D., LL.M. Technical terminations of partnerships under Sec. 708 (b)(1)(B) and its regulations create numerous issues as to the proper tax treatment of depreciable tangible property owned by the terminating partnership, particularly when changing its accounting method for such property. Under Regs. Sec. 1.708-1(b)(1)(iv), the new

Partnership Freezes after Castle Harbour

A closely held C corporation that is growing rapidly or plans to enter into a new line of business may consider the creation of a “frozen” limited liability company (LLC)/partnership (frozen partnership) to reduce its income tax liability and shift future appreciation out of the corporation. However, if the frozen
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