To be deductible at the entity level, payments by passthrough entities of state and local taxes should be made in the tax year of the liability, but state-specific elections may complicate that timing, tax advocates advise.
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TOPICS / PASSTHROUGHS
S Corporation Income Taxation
Minimizing a hobby loss issue by electing S status
To avoid the hobby
loss rules, with
their limitation on
deductible expenses,
an activity must be
engaged in for profit;
electing S status
can help a taxpayer
establish profit
motive.
Illinois PTE tax would provide SALT cap workaround
This item discusses Illinois Legislature’s S.B. 2531, which includes a PTE tax that allows a workaround to the federal $10,000 limitation for state and local tax deductions.
Comparing stock sales and asset sales of S corporations
The issue of a stock sale versus an asset sale raises a number of significant issues to be considered by S shareholders.
Current developments in S corporations
This update on recent developments in taxation relating to S corporations includes cases and rulings on eligible terminated S corporations, S corporation income and losses, the one-class-of-stock requirement, and other issues.
Compensatory split-dollar life insurance benefits are compensation
Economic benefits from a compensatory split-dollar
life insurance arrangement are not property distributions.
Where individual, corporate, and passthrough entity taxation meet
Passthrough owners must consider many risks and
uncertainties, in addition to political trends on Capitol Hill, before opting into a state-level regime designed to bypass the $10,000 SALT deduction cap created by the TCJA.
Handling tax issues related to noncompete agreements
Covenants not to compete can protect a company’s interest as long as they are drafted in an appropriate manner, but their 15-year amortization period can cause issues.
Avoiding gain at the S shareholder level when a loan is repaid
When the basis in an S shareholder’s loan to the S corporation has been reduced by passthrough losses, repayment of the loan may be a taxable
event.
AICPA asks for guidance on S corp. and partnership PPP loan forgiveness
In a letter dated March 15, the AICPA asked for IRS guidance on how S corporations and partnerships should treat tax-exempt income from PPP loan forgiveness, especially when it occurs during a different tax period.
Bridging the gap: GILTI and AAA
IRS Notice 2020-69 provided a new entity election that allows an S corporation to compute the deemed inclusions at the entity level, as opposed to at the shareholder level. This item provides background on the new election, illustrates its effects, and highlights opportunities and traps to consider when contemplating the election.
IRS finalizes rules on eligible terminated S corporations
The IRS issued final regulations on ETSCs and distributions of money from those corporations after the post-termination transition period.
The built-in gains tax
The built-in gains tax applies to C corporations that make an S corporation election, and it can
be assessed during the five-year period starting with the first tax year for which the S election is effective.
Taxpayer not a shareholder of not-for-profit corporation
The president and a director of a not-for-profit is not its beneficial owner and cannot be a shareholder of it.
Partnerships and S corps. can deduct state and local taxes
The IRS said it would issue proposed regulations allowing S corporations and partnerships to deduct “specified income tax payments” paid to state and local governments above the line and not as passthrough items for partners and shareholders.
Final regs. govern eligible terminated S corporation rules
The IRS finalized proposed regulations on eligible terminated S corporations, a new provision enacted under the Tax Cuts and Jobs Act that provided favorable treatment for corporations that wished to terminate their S elections.
Regulations coming on S corporations with accumulated E&P and GILTI
The IRS announced that it will issue regulations to allow S corporations with accumulated earnings and profits to elect to have global intangible low-taxed income inclusions increase the S corporation’s accumulated adjustments account.
Private equity and F reorganizations involving S corporations
The M&A market is poised to regain its pre-COVID-19 activity levels as many business owners seek to exit closely held businesses or explore alternatives. One popular transaction that could emerge is Sec. 368(a)(1)(F) reorganizations F reorganizations) of S corporations.
Making a new S election after termination
Generally, after a corporation has revoked or terminated an S election, it cannot make an S
election for any tax year before its fifth tax year that begins after the first tax year for which the
termination was effective, unless the IRS consents to the election.
State and local considerations in using an F reorganization to facilitate an acquisition
Foresight of the potential state tax implications of an F reorganization will allow a seller to evaluate the lesser-known hazards.
TAX PRACTICE MANAGEMENT
2025 tax software survey
AICPA members in tax practice assess how their return preparation software performed during tax season and offer insights into their procedures.
