The IRS issued new PLR 201314004, treating a partnership cancellation of historical partnership loans to a partner as a cash distribution to the partner on the cancellation date. Thus the partner avoided cancellation of debt income and is instead subject to the normal tax rules for a cash distribution. The IRS noted that this is… Continue Reading
Category Archives: Partnership/LLC
Subscribe to Partnership/LLC RSS FeedRep. Camp Introduces Small Business/Pass-through Tax Reform
Posted in Legislative, Partnership/LLC, Passthrough Entity, S corporation, Tax reformRep. Camp (R-MI), Chair of the House Ways and Means Committee, introduced a discussion draft of tax reform proposals for small business, mostly addressing pass-through entity taxation. Rep. Levin (D-MI) issued a statement noting that many of the Camp proposals have bi-partisan support. The proposal also includes two alternative reform proposals for partnerships and S… Continue Reading
Final Regulations Issued on Non-Compensatory Partnership Options
Posted in General, Joint Venture, Partnership/LLC, Passthrough EntityThe 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 EstateIn 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
CBO Report Examines Shifting of Tax Base To Pass-through Entities
Posted in Corporate, Legislative, Partnership/LLC, Passthrough Entity, S corporationA new Congressional Budget Office Report shows a shifting of business structures to using pass-through entities, subjecting the income only to the individual income tax (as compared to the corporate income tax). The report notes that the shift has reduced federal revenues but has probably promoted overall investment and a more efficient allocation of resources. The… Continue Reading
Long-Awaited Regulations Issued on New 3.8% Net Investment Income Tax
Posted in Compensation, General, Partnership/LLC, Passthrough Entity, Real EstateThe IRS issued long-awaited proposed regulations and related FAQ guidance on the new Section 1411 3.8% tax on Net Investment Income. The 3.8% Medicare tax is part of the tax provisions in the Affordable Care Act to pay for health care reform. The IRS also issued proposed regulations and FAQs on the related Section 1401… Continue Reading
Third Circuit Concludes Historic Rehab Credit Investors Were Not Partners
Posted in Debt vs. Equity, Economic Substance, Partnership/LLC, Real Estate, Tax CreditsThe 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
IRS Clarifies Contributions to Charity’s Single-Member LLC Are Deductible
Posted in General, Partnership/LLC, Passthrough Entity, Tax ExemptAfter much anticipation, the IRS clarified that donors can receive the same charitable deduction for gifts made either directly to a parent charity or to a domestic tax-disregarded entity held by the charity. Specifically, Notice 2012-52 addressed gifts made to a domestic single-member limited liability company (SMLLC) solely-owned by a U.S. charity. The Notice concludes… Continue Reading
New IRS Safe Harbor on When COD Is Qualifying Income for Publicly Traded Partnerships
Posted in Cancellation of Debt Income, Partnership/LLC, Passthrough EntityThe IRS issued Rev. Proc. 2012-28, providing a helpful safe harbor for publicly traded partnerships (PTPs) to avoid non-qualifying PTP income from debt cancellation. Prior to this guidance, PTPs did not have clear guidance on whether Cancellation Of Debt (COD) income was qualifying income for PTP qualification purposes. PTPs need minimum amounts of qualifying income… Continue Reading
IRS Provides Sample 83(b) Election and Related Examples
Posted in Compensation, Corporate, Partnership/LLCThe IRS published new Rev. Proc. 2012-29, to provide both a sample election under section 83(b) and examples of the income tax consequences of making such an election with respect to compensatory stock. It is common for a partnership or corporation to issue equity-based compensation to an employee subject to vesting and transfer restrictions. In… Continue Reading
Tax Court Respects Related-Party Loan
Posted in Debt vs. Equity, General, Litigation/Controversy, Partnership/LLCIn 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
IRS Clarifies Partner Insolvency Computation for COD Exception
Posted in Bankruptcy, Cancellation of Debt Income, General, Partnership/LLC, Real EstateThe IRS issued new Rev. Rul. 2012-14 on applying the Section 108 insolvency exclusion to Cancellation Of Debt (COD) income from a partnership. The IRS clarified that discharged partnership nonrecourse debt should be allocated among the partners based on the way the partners share the COD income. Thus if a partner receives a disproportionate amount… Continue Reading
Court Recaptures Partner Deductions under At-Risk Rules – Subscription Note Disregarded
Posted in Partnership/LLCThe Tax Court has held that an individual partner was subject to at-risk recapture with regard to prior partnership losses when the taxpayer’s obligations under a partnership subscription note were subsequently disregarded. In Zeluck v. Commissioner, T.C. Memo 2012-98, the taxpayer invested in an oil and gas partnership by contributing cash and giving the partnership… Continue Reading
Is It the End or Just the Beginning: Planning with the Final Partnership Debt-for-Equity Regulations
Posted in Partnership/LLC, WorkoutsFor years taxpayers had argued that a “partnership debt-for-equity” exception to cancellation of debt (COD) income lurked in the far corners of the tax rules. That argument was abruptly taken off the table on October 22, 2004 when Congress added partnerships to the scope of § 108(e)(8), confirming that partnerships have COD income when using… Continue Reading
Levin Reintroduces Carried Interest Legislation
Posted in Legislative, Partnership/LLCRep. Levin (D-MI) today introduced the Carried Interest Fairness Act of 2012. According to the Democrat press release, the legislation “would fix the loophole that enables private equity managers to pay reduced income tax rates.” The bill is proposed to apply to income from partnerships from taxable years ending after the date of enactment or… Continue Reading
Featured in the New York Times – The Advantages and Risks of Gingrich’s Tax Strategy
Posted in General, Partnership/LLC, Passthrough EntitySteven R. Schneider, a tax lawyer, said that not all companies were suited for the S corporation, a tax structure used by Newt Gingrich. Steven Schneider was recently featured in an article in the New York Times regarding New Gingrich’s tax planning strategy. “Steven R. Schneider, a partner at Goulston & Storrs,… Continue Reading
New Final and Temporary Foreign Tax Credit Regulations – Technical Taxpayer Rule and Credit Splitter Rules
Posted in Corporate, International, Partnership/LLCThe IRS issued Final Regulations under section 901 and Temporary Regulations under Section 909. The section 901 regulations adopt, with some changes, the 2006 proposed regulations, relating to who is considered to pay a foreign income tax for purposes of the foreign tax credit (the technical taxpayer rule). The temporary section 909 regulations include and… Continue Reading
Second Circuit Again Concludes Preferred Investor Was Not A Partner
Posted in Debt vs. Equity, Partnership/LLC, Tax SheltersIn 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
IRS Revamps Definition of “Limited Partner” for Section 469 Passive Activity Loss Rules
Posted in General, Partnership/LLC, Real EstateIn response to a series of losses in court, the IRS has proposed to dramatically change the definition of “limited partner” under the section 469 passive activity loss rules. This change is significant because limited partners are subject to more stringent tests to avoid passive activity loss restrictions. The new test will no longer be based on… Continue Reading
Final Regulations Address Partnership Debt-For-Equity Transactions
Posted in General, Joint Venture, Partnership/LLC, WorkoutsToday 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
First Circuit Applies 40% Valuation Penalty On Son of BOSS Transaction
Posted in Economic Substance, General, Partnership/LLC, Tax SheltersIn Fidelity International, the First Circuit upheld a 40% valuation penalty on a so-called “Son of BOSS” transaction described in Notice 2000-44. These transactions involved contributing offsetting long and short options into a partnership and claiming that the net effect of the options resulted in a very high tax basis in the partnership for purposes of… Continue Reading
IRS Proposes Revocation of Partnership De Minimis Rule
Posted in Joint Venture, Partnership/LLCIn 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
IRS Has Three New Wins On Tax Shelter Cases
Posted in Economic Substance, General, International, Litigation/Controversy, Partnership/LLCThe Justice Department touted three significant wins on tax shelter cases involving importing foreign built-in tax losses, foreign tax credits, and generating tax losses from “underwater” commercial leases. In the first case, Southgate Master Fund LLC v. United States, the Fifth Circuit Court of Appeals, affirmed a lower court ruling that a purported “partnership” was… Continue Reading
American Jobs Act – Carried Interest and Itemized Deduction Limitations
Posted in General, Legislative, Partnership/LLC, Real EstateOn September 12, President Obama released details of the American Jobs Act, including revenue raisers such changing the taxation of Carried Interest and a limitation on itemized deductions for certain individuals. The Carried Interest proposal is similar in concept to those introduced in prior years in the House and Senate that imposed ordinary income treatment… Continue Reading
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