ATRA extended the five-year recognition period for the BIG tax to 2012 and 2013 and also changed the BIG tax treatment of installment sales and carryovers of built-in gain not taxed in the year recognized because of the taxable income limitation.
Two recent Tax Court opinions focusing on reasonable compensation for S corporation shareholder-employees provide important takeaways for owners and practitioners by addressing common issues surrounding distributions and loan repayments in the context of reasonable compensation.
The IRS ruled that S corporation members of a controlled group may use the Sec. 179 election up to the maximum election amount as if they were separate entities, and are not subject to the controlled group’s overall limit.
The exclusion of S corporations from component membership in controlled groups of corporations multiplies the planning opportunities for businesses under common control but calls for vigilance by tax professionals to use this deduction wisely.
This article discusses major changes and developments that directly affect S corporations and their tax advisers during the period of this update (July 10, 2012–July 9, 2013).
A taxpayer’s basis is often scrutinized by the IRS, particularly when basis is claimed based upon debts incurred by a flowthrough entity.
The IRS recently released an information letter to clarify the treatment of the Sec. 179 limitations applied to members of a controlled group, in which certain members had made an election to be treated as an S corporation.
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.
The IRS provided a simplified method for taxpayers to apply for relief for various late S elections
An S corporation’s revocation of its S corporation status, which caused its QSub subsidiary to lose its status as a QSub, was not a post-bankruptcy-petition transfer of property of the QSub’s bankruptcy estate.
The Tax Court held that shareholders of an S corporation improperly increased the adjusted basis of their S corporation stock when the S corporation made a QSub election for its wholly owned C corporation subsidiary.
Winners of The Tax Adviser’s 2012 Best Article Award.
While an analysis of the tax consequences of a redemption to the shareholder usually begins with whether the transaction qualifies for sale or exchange treatment, another starting point is whether the S corporation has accumulated earnings and profits.
The IRS issued final regulations on the rules to accelerate COD income that taxpayers elected to defer over a five-year period when an applicable debt instrument was reacquired by the issuer or a related party in 2009 or 2010.
A taxpayer valuing its inventory under the last-in, first-out (LIFO) method should consider two significant implications for taxable income when converting from a C corporation to an S corporation.
An S corporation shareholder reports corporate income or loss on the personal income tax return for the year in which the corporate year ends; losses or deductions passed through to the shareholder first reduce stock basis, then loss amounts are applied against debt basis.
It has never been easier to effect the choice of operating as a sole proprietorship, partnership, or corporation for federal income tax purposes; however, sometimes unforeseen problems can result.
The Tax Court held the IRS could not reclassify the taxpayer’s income from the rental of cellphone towers and the land they were situated on to his wholly owned S corporation as nonpassive income under the self-rental rule.
With its scores of new and extended provisions, the American Taxpayer Relief Act offers something for nearly all taxpayers and their preparers to assess and implement as they begin preparing 2012 returns and plan for the future.
As tax liability for COD income gives many taxpayers an unpleasant surprise in today’s economy, its tax treatment continues to be a focal point for tax professionals in tax planning and preparation.