Partnership and LLC Taxation

New IRS form for partners receiving property distributions

Form 7217, Partner’s Report of Property Distributed by a Partnership, debuted for 2024, intended to apprise the IRS of factors in a partner’s basis computation.

Mandatory basis adjustments for certain LLC transfers

The partnership-level adjustment may be required for a substantial built-in loss, except for electing investment partnerships and securitization partnerships.

Strategies for information return penalties and Form 945 assessments

Penalties for failure to file correct information returns and backup withholding can be waived, but timely and correct responses to IRS notices are essential.

Using the IRS’s BBA Online Form Submission Service

To request a modification to an imputed underpayment from a Bipartisan Budget Act audit or push out the underlying adjustment, audited partnerships must use the IRS’s web-based service.

Expenses that could have been substantiated not allowed

The Cohan rule for estimating business deductions did not apply where taxpayers could have substantiated them but failed to do so, the Tax Court held.

IRS grants partnerships additional time to furnish complete Forms 8308

The IRS is providing relief from penalties imposed solely for failure to furnish Part IV of Form 8308 for partnerships by Jan. 31, 2025, if a partnership meets certain requirements.

Regs. address partnership recourse liabilities, related-party rules

The IRS issued regulations that finalize proposed regulations issued in 2013. The guidance is focused on when and to what extent a partner is treated as bearing the economic risk of loss and the special rules applying to a partner related to another partner.

Surprisingly taxable partnership distributions

Because partnerships’ income is taxed to the separate partners as it is earned, eventual distributions generally are not taxable, but there are exceptions. This article discusses several of these exceptions in which distributions of money or property or a reduction in liabilities treated as a distribution may create taxable income for partners, sometimes in unanticipated ways.

Economic substance doctrine and related-party partnership transactions

To avoid potentially onerous penalties, taxpayers in controlled groups and their advisers must consider whether the economic substance doctrine will disallow the results of basis-shifting transactions involving a related-party partnership.

Basis-shifting transactions involving partnerships and related parties

An IRS initiative targeting abusive basis-shifting transactions between partnerships and related parties featured new guidance in a revenue ruling, a notice, and proposed regulations.

Choice-of-entity analysis with the TCJA sunset approaching

Educators as well as practitioners can model the tax effects of choice of entity and possible scenarios of tax law change.

LLC validly elected into BBA partnership examination regime

To make a valid election into the Bipartisan Budget Act’s audit procedures, the IRS could not require the taxpayer to establish, as opposed to represent, that it had sufficient assets to pay any imputed underpayment, the Tax Court held.

Distributions to LLC members that contributed appreciated property

The Sec. 737 rules can cause a member to recognize precontribution gain on contributed property where the value of property later distributed to that member exceeds their basis in the LLC.

State considerations for BBA exams and adjustments

States vary in their treatment of partnership adjustments made under the centralized partnership audit regime instituted by the Bipartisan Budget Act of 2015.

Recent developments in states’ PTETs

This column offers updates and resources regarding the passthrough entity taxes that have been implemented in three dozen states.

Partnerships in distress: Raising capital and debt exchanges

Taxpayers should consider tax planning issues for partnerships and their partners when raising capital and exchanging debt for equity.

Foreign partnership reporting requirements

U.S. persons owning an interest in a foreign partnership may be required to file Form 8865, and the partnership may also face additional U.S. filings.

The past, present, and future of the BBA partnership audit regime

The Bipartisan Budget Act streamlined the partnership audit and adjustment processes, but uncertainties remain.

Partnership elected BBA procedures; TEFRA FPAA invalid

An early election into the partnership audit regime of the Bipartisan Budget Act was valid under the regulations, the Tax Court held.

Partnership distributions: Rules and exceptions

Although the general rules for how partners are taxed on distributions are relatively straightforward, many subtleties and exceptions can lead to missteps.
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