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Tax Law Roundup current law developments in U.S. taxation

Category Archives: Debt vs. Equity

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I’ll Know it When I See It: Debt vs. Equity in a Partnership

Posted in Debt vs. Equity, Finance, Tax

Of the many financial decisions a business faces in its life cycle, one of the most frequent (and certainly most important) is how best to fuel continued growth: should the business issue new debt or new equity? Debt and equity instruments can yield very different outcomes from a tax planning perspective, and so advisors consider… Continue Reading

Final S corporation Regulations Limit Basis To Bona Fide Shareholder Loans

Posted in Debt vs. Equity, S corporation

The IRS issued final regulations granting an S corporation shareholder outside basis only in “bona fide” loans directly from the shareholder to the S corporation. A shareholder does not obtain debt basis merely by guaranteeing a loan or acting as a surety, accommodation party, or in any similar capacity relating to a loan.  Further, a… Continue Reading

Senate issues 8th Tax Reform Paper: Types of Income and Business Entities

Posted in Compensation, Debt vs. Equity, Financial Products, Legislative, REITs, S corporation, Tax reform

The Senate Finance Committee issued its 8th tax reform paper, discussing the tax treatment types of income (e.g., ordinary, wages, capital gains) and business entities (e.g., C corporations, pass-throughs, RICs, and REITs).  The report also addresses the disparate treatment between debt and equity and financial product reform.  For pdf version click here.  This follows the… Continue Reading

IRS Wins Con-Ed LILO Case On Appeal – No Substance to Lease or Debt

Posted in Debt vs. Equity, Economic Substance, Litigation/Controversy, Tax Shelters

In a reversal of the taxpayer-favorable lower court opinion, the Appeals Court for the federal Court of Claims concluded that Consolidated Edison’s Lease-In Lease-Out (LILO) transaction did not have economic substance and the purported lease was not a “true lease”.  The IRS “listed” this particular transaction in Rev. Rul. 2002-69 and Congress further stopped these… Continue Reading

Third Circuit Concludes Historic Rehab Credit Investors Were Not Partners

Posted in Debt vs. Equity, Economic Substance, Partnership/LLC, Real Estate, Tax Credits

The IRS has won a significant victory in the world of tax credit partnerships.  Federal tax credits are typically monetized through syndicated credit-investment partnerships where the investor is required to be treated as a partner for tax purposes in order to receive an allocation of the credit.  In a reversal of the Tax Court, the… Continue Reading

Tax Court Respects Related-Party Loan

Posted in Debt vs. Equity, General, Litigation/Controversy, Partnership/LLC

In a significant taxpayer win, the Tax Court concluded in NA General Partnership v. Commissioner that related-party loans from a U.K. corporation to its controlled U.S. subsidiary were respected as debt, and the U.S. subsidiary was entitled to $932 million of interest deductions.  The original loans were $4 billion in fixed-rate notes and $896 million in floating-rate… Continue Reading

Second Circuit Again Concludes Preferred Investor Was Not A Partner

Posted in Debt vs. Equity, Partnership/LLC, Tax Shelters

In the latest Castle Harbour decision, the Second Circuit Court of Appeals has again concluded that a preferred investor was not a partner for tax purposes, denying an allocation of taxable income to the tax-indifferent investor.  In 2004, the District Court originally held that the investor was a partner and the second circuit reversed under… Continue Reading