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

Category Archives: Joint Venture

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IRS Concludes Upper-Tier Disregarded Entity is Continuation of Historical Partnership

Posted in Joint Venture, Partnership/LLC, Passthrough Entity, Real Estate

The IRS favorably ruled that an internal partnership restructuring was essentially a “nothing” for tax purposes even though the transaction moved the tax-regarded partnership to a different state-law entity.  Specifically, in PLR 201605004, the IRS privately ruled that an upper-tier disregarded entity succeeded to the partnership status of a lower-tier tax partnership when the second… Continue Reading

9th Circuit Disregards Purported Related-Party Partnership

Posted in General, Joint Venture, Litigation/Controversy, Partnership/LLC, Passthrough Entity

In DJB Holding Corp. the 9th Circuit concluded that a purported related-party partnership was not a bona fide partnership for tax purposes and taxable income was redirected to the taxable C corporation performing the underlying profitable services. The ultimate taxable services were performed by the C corporation but a partnership agreement between that C corporation… Continue Reading

New Restrictions on Transferring Appreciated Property to Partnerships With Related Foreign Partners

Posted in International, Joint Venture, Partnership/LLC

The IRS issued Notice 2015-54 stating that it plans to issue regulations under Section 721(c) to ensure that U.S. taxpayers do not use partnerships to shift built-in gains to non-U.S. affiliates. In 1997 Congress authorized the IRS to issue regulations to turn off the normal tax-free rules for partnership contributions if there could be a… Continue Reading

IRS Finalized and Also Proposed More Partnership “Varying Interest” Regulations

Posted in Accounting Methods, Joint Venture, Partnership/LLC

In T.D. 9728 the IRS finalized the 2009 proposed § 706(d) regulations relating to how partnerships should allocate tax items to take into account a variance in a partner’s interest during a year. A typical example is when a partner makes a disproportionate contribution or received a disproportionate distribution during the year. The IRS also… Continue Reading

Partnership Tax Filing Deadlines Speed Up Under Pending Highway Bill

Posted in Joint Venture, Partnership/LLC, Procedure

The Senate today voted 91-4  to extend the highway trust fund authorization through October 29th from its current expiration date of July 31st, 2015 and it is now headed to the President for signature.   The bill – H.R. 3236 – contains numerous revenue raising provisions (intended to raise approximately $8 billion in revenue to offset… Continue Reading

Court Holds Taxpayer is Partner for Self-Employment Tax After Election Out Of Subchapter K

Posted in Joint Venture, Litigation/Controversy, Partnership/LLC, self-employment tax

The Tax Court recently ruled that a taxpayer was liable for self employment tax based on its status as a partner, even though the partnership had elected out of the partnership tax rules. Although the court in Methvin v. Commissioner respected the entity’s Section 761 election out of the Subchapter K partnership tax rules, it… Continue Reading

At Long Lasts, Proposed Regulations Modernize Partnership “Hot Asset” Rules

Posted in Joint Venture, Partnership/LLC, Real Estate

The IRS published taxpayer-favorable proposed regulations to help minimize unnecessary tax under the Section 751(b) “hot asset” rules when a partnership makes a disproportionate distribution.  The hot asset rules are designed to prevent a shifting of higher-tax ordinary income gain assets between partners.  Thus if a partnership has a mix of capital gain and ordinary… Continue Reading

Final Regulations Provide Partnership Technical Terminations Have No Impact on Unamortized Organization and Start-Up Costs

Posted in General, Joint Venture, Partnership/LLC

The IRS issued final regulations confirming that a technical termination of a partnership does not accelerate unamortized start up or organizational costs under Sections 195 and 709.  The regulations are effective as of the date of the underlying proposed regulations and apply to a Section 708(b)(1)(B) partnership technical termination that occurs on or after December… Continue Reading

Partnership Tax Planning Severely Limited By Proposed Regulations

Posted in Joint Venture, Partnership/LLC, Real Estate

New proposed IRS partnership regulations, when finalized, promise to shut down taxpayer flexibility under debt allocation and “disguised sale” rules.  The substantive restrictions and related “clean up” rules are numerous and detailed.  Two of the most significant changes are (1) restrictions that effectively deny tax-motivated debt guarantees (e.g., no “bottom guarantees”) and (2) a safe… Continue Reading

New Partnership Regulations Address Basis Adjustments and Section 704(c)

Posted in General, Joint Venture, Partnership/LLC, Passthrough Entity

The IRS issued proposed partnership regulations to address a series of longstanding partnership tax issues relating to basis adjustments and built-in gains and losses.  The regulations primarily address a series of questions from the 2004 American Jobs Creation Act (AJCA) not previously covered in Notice 2005-32.  As a bonus, the regulations address two key section… Continue Reading

IRS Issues Historic Rehabilitation Credit Safe Harbor

Posted in General, Joint Venture, Partnership/LLC, Real Estate, Tax Credits

After much anticipation, the IRS issued Rev. Proc. 2014-12, a Safe Harbor for when an investor in an historic rehabilitation credit partnership will be respected as a partner for tax purposes.  Such partner status is essential to allocating rehabilitation credits to the investor and the guidance is a direct result of the 2012 Historic Boardwalk… Continue Reading

IRS Cleans Up Partnership Recourse Debt Allocation Regulations

Posted in Joint Venture, Partnership/LLC, Passthrough Entity, Real Estate

The IRS issued proposed partnership recourse debt allocation regulations to address issues long unaddressed by current guidance.  How debt is allocated among partners is critical in determining whether a partner has sufficient basis to report a tax deduction or avoid gain upon a partnership distribution of cash.  For this purposes a “recourse” liability is one that… Continue Reading

Developing a Tax Strategy to Invest in US Real Estate

Posted in International, Joint Venture, Passthrough Entity, Real Estate, REITs

Article by Steven Schneider, John Grumbacher, and Bob Towsner of Goulston & Storrs PC as published in AFIRE News Introduction Most non-US persons do not directly invest into US real estate. Instead, both tax and non-tax considerations generally drive investments through various intervening entities, depending on the optimal tax structure for the particular investor and… Continue Reading

IRS Throws the Book At Leveraged Partnership Structure

Posted in Economic Substance, Joint Venture, Partnership/LLC, Passthrough Entity, S corporation

In ILM 201324013 the IRS sent a resounding message to taxpayers using partnerships and debt financing to “sell” assets to a buyer without paying tax – make sure your seller guarantees are real and subject to normal commercial terms.  In attacking  one such “seller”  indemnity, the IRS concluded that: (1)  “The indemnity lacked important features… Continue Reading

Final Regulations Issued on Non-Compensatory Partnership Options

Posted in General, Joint Venture, Partnership/LLC, Passthrough Entity

The IRS finalized the 10-year-old proposed regulations on the treatment of non-compensatory partnership options.  The IRS also published some clean-up changes in Announcement 2013-28.  In general the final regulations follow the taxpayer-favorable approach of the proposed regulations to treat the exercise of a non-compensatory option as tax-free to the partnership and the partners under section 721. … Continue Reading

IRS Removes De Minimis Exception For Testing Partnership Allocations

Posted in Deductions, Joint Venture, Partnership/LLC, Real Estate

In 2008, the IRS published regulations on how to apply the section 704(b) substantiality tests when one or more partners is a “look-through” entity.  In general the 2008 regulations required looking through these partners to the ultimate owner to determine if there was an overall net tax savings from partnership special allocations. The 2008 final regulations had included a… Continue Reading

Final Regulations Address Partnership Debt-For-Equity Transactions

Posted in General, Joint Venture, Partnership/LLC, Workouts

Today the IRS issued final regulations under section 108(e)(8) to clarify the mechanics of loan workouts when a lender contributes its loan in exchange for equity in the borrower-partnership.  In 2004, Congress extended this historical corporate rule to partnerships, providing that the partnership is required to recognize cancelation of debt (COD) income to the extent… Continue Reading

IRS Proposes Revocation of Partnership De Minimis Rule

Posted in Joint Venture, Partnership/LLC

In 2008, the IRS finalized regulations on how to apply the section 704(b) substantiality tests when one or more partners is a “look-through” entity.  In general the regulations required looking through these partners to the ultimate owner to determine if there was an overall net tax savings from partnership special allocations that would be policed by the… Continue Reading

Tax Court Denies Partnership Status to 100% Related Joint Venture

Posted in Joint Venture

The Tax Court denied partnership tax status to a joint venture between a C corporation and pass-through partner that were 100% commonly controlled. The result was that the income allocations of the joint venture were ignored and income was reallocated between the owners. In practice the corporate partner was the face of the business but… Continue Reading