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

Category Archives: Passthrough Entity

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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

Congress Passes Partnership Audit Reform – Obama Expected to Sign

Posted in General, Legislative, Partnership/LLC, Passthrough Entity, Procedure

This morning the Senate passed H.R. 1314 (The Bipartisan Budget Act of 2015), which will completely change the way partnerships (and LLCs taxed as partnerships) are audited.  The House passed the legislation on Wednesday and it is reported that President Obama will sign the legislation as soon as it reaches his desk.  As discussed in… Continue Reading

Partnership Audit Reform Marches Forward

Posted in General, Litigation/Controversy, Partnership/LLC, Passthrough Entity, Tax reform

As part of the current Bipartisan Budget Act of 2015, sweeping changes to the partnership audit rules could be imminent.  The new rules would greatly simplify the IRS procedures for auditing partnerships and likely increase the audit rate of partnerships.  The new rules would replace the current “TEFRA” and “Electing Large Partnership” rules with a… 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

IRS Resumes Publicly Traded Partnership PLRs – New Formal Guidance Expected

Posted in Partnership/LLC, Passthrough Entity

The IRS announced that it has made significant progress on its  publicly traded partnership (“PTP”) guidance and is lifting its moratorium on private letter rulings that started in 2014. It is reported that the IRS plans to release guidance in the near future to cover what is qualifying income from the exploration, development, mining and… Continue Reading

Tax Court Decision Will Help Trusts Avoid Passive Loss Limitations and New 3.8% Tax

Posted in General, Passthrough Entity, trusts and estates

In a highly watched case of The Frank Aragona Trust v. Comm’r., the Tax Court held that it was possible for a trust to qualify for the coveted title of “real estate professional” under the Section 469 passive loss rules.  This result greatly expands the ability of trusts to avoid the passive loss deduction limitations… Continue Reading

Rep. Camp Tax Reform – Top 10 Real Estate Considerations

Posted in General, Partnership/LLC, Passthrough Entity, Real Estate, REITs, Tax reform

Last week Rep. Camp (R-MI), Chair of the House Ways and Means Committee, announced a comprehensive tax reform discussion draft as part of his efforts to reduce top corporate tax rates to 25% and provide individual brackets at 10%, 25%, and for many, 35% (after adding a 10% surtax for non-domestic production income of high-income… 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 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

Final 3.8% Net Investment Income Tax Regulations

Posted in General, Passthrough Entity, Real Estate

The IRS published lengthy final Section 1411 regulations regarding the new 3.8% healthcare tax and issued robust proposed regulations to address additional issues.  The 3.8% Medicare tax is part of the tax provisions in the Affordable Care Act to pay for health care reform.  Section 1411 imposes a 3.8% tax on Net Investment Income of… Continue Reading

IRS Finalizes Corporate Section 362(e) Loss Duplication Regulations

Posted in Corporate, General, Partnership/LLC, Passthrough Entity

The IRS and Treasury issued final Section 362(e) regulations that restrict the importation and duplication of built-in losses into corporations.  The final regulations generally adopt the substantive rules of the 2006 proposed regulations.  The final regulations are effective for transactions after September 3, 2013, but taxpayers may apply these rules to any transaction occurring after… Continue Reading

IRS Revamps and Expands Late Election Relief For S corporations

Posted in General, Passthrough Entity, Procedure, S corporation

The IRS published Rev. Proc. 2013-30, which is a consolidation and extension of a series of prior procedures to assist taxpayers with late elections relating to S corporations.   The revenue procedure provides the exclusive simplified methods for taxpayers to request relief for late S corporation elections, Electing Small Business Trust (ESBT) elections, Qualified Subchapter S… Continue Reading

Private Equity Fights Back – Taxpayer Appeals Sun Capital Decision Attributing Partner’s Business to Fund

Posted in Funds, Partnership/LLC, Passthrough Entity

Two weeks after the First Circuit struck a blow to the private equity industry in Sun Capital Partners, investment funds affiliated with Sun Capital have filed a petition for a rehearing.  The petition, which was filed August 7, 2013, argues that the First Circuit’s decision in Sun Capital is contrary to prior First Circuit decisions. … Continue Reading

IRS Issues Final RIC and REIT Built-In Gain Regulations

Posted in Corporate, Passthrough Entity, Real Estate, REITs

The IRS published final regulations under section 337(d) to provide helpful technical clarification on rules addressing the transfer of C corporation built-in gain assets to a RIC or a REIT.  The final regulations are effective for applicable transactions that occur after August 2, 2013, but taxpayers can apply them to earlier transactions. What are the… 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

Final Regulations Address Temporary Exception to Cancellation of Debt Income

Posted in Cancellation of Debt Income, General, Passthrough Entity, Workouts

During the recession Congress passed Section 108(i), allowing taxpayers to elect under Section 108(i) to defer Cancellation of Debt (COD) income from 2009 and 2010 so that the income is taxed 20% a year from 2014-2018.  Because of the short timing the IRS addressed taxpayers’ immediate questions through Rev. Proc. 2009-37 and two sets of… 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

Rep. Camp Introduces Small Business/Pass-through Tax Reform

Posted in Legislative, Partnership/LLC, Passthrough Entity, S corporation, Tax reform

Rep. 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 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

CBO Report Examines Shifting of Tax Base To Pass-through Entities

Posted in Corporate, Legislative, Partnership/LLC, Passthrough Entity, S corporation

A 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 Estate

The 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

IRS Clarifies Contributions to Charity’s Single-Member LLC Are Deductible

Posted in General, Partnership/LLC, Passthrough Entity, Tax Exempt

After 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 Entity

The 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

Featured in the New York Times – The Advantages and Risks of Gingrich’s Tax Strategy

Posted in General, Partnership/LLC, Passthrough Entity

Steven 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