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

Category Archives: Partnership/LLC

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Temporary Regulations Address Allocation of Creditable Foreign Tax Expense

Posted in International, Partnership/LLC, Tax Credits

The IRS published temporary and proposed regulations on allocations of creditable foreign tax expenditures (CFTEs).  The regulations make various technical changes to the existing regulatory safe harbor for allocating CFTEs.  The regulations are effective on February 4, 2016. The existing regulations provide special rules for foreign tax expense allocations when those expenses are eligible for… Continue Reading

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

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

IRS Curtails Profits Interests In Lieu of Management Fees and More

Posted in Capital Gain, Compensation, Funds, Partnership/LLC

The IRS issued the much anticipated proposed regulations that severely curtail the practice of a fund manager waiving management fees in exchange for a share of future partnership profits. In essence the regulations tighten the necessary “entrepreneurial risk” required of the future profits interest plus list five other negative factors for recasting the profits interest… Continue Reading

IRS Eliminates Requirement to File Copy of Section 83(b) Election with Tax Return

Posted in Compensation, Partnership/LLC, Procedure

In an effort to improve e-filing, the IRS has proposed to eliminate the need to file a copy of a Section 83(b) election with the service provider’s annual tax return. Taxpayers receiving non-vested stock or partnership interest often file a Section 83(b) election within 30 days of receipt to treat the equity as vested for… Continue Reading

IRS Ruling Addresses LLC Eligibility for Cancellation of Debt Exception

Posted in Cancellation of Debt Income, Partnership/LLC, Real Estate, Workouts

In new CCA 201525010, the IRS addressed the issue of whether a general “exculpatory” debt of an LLC is recourse or non-recourse for purposes of classifying debt-relief as potential cancellation of debt (COD) income. Recourse treatment means the debt forgiveness creates COD income. Non-recourse means the debt relief is treated as proceeds from the sale… Continue Reading

New Regulations Address Treatment of Corporate Partners with Appreciated Partnership Interest

Posted in Corporate, Partnership/LLC

After much promise, the IRS issued two sets of regulations to address the potential avoidance of gain by corporate partners.  First, new § 337(d) temporary regulations, often referred to as the “May Company” regulations, define when and how a corporate partner is deemed to recognize taxable gain in its partnership interest if the partnership acquires… Continue Reading

Proposed Regulations on Publicly Traded Partnerships Affect Natural Resource Industry

Posted in Partnership/LLC

The IRS proposed regulations [REG-132634-14] to provide guidance on what is “qualified income” from a publicly traded partnership’s (PTP) activities regarding minerals or natural resources, such as oil and gas fracturing (“fracking”). The proposed changes provide some clarity and reaffirm that activities such as fracking can provide qualifying income, but they could also raise the… 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

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

IRS Will Not Follow Partner COD Bankruptcy Exception Cases

Posted in Bankruptcy, Cancellation of Debt Income, Partnership/LLC

In a new Action on Decision (AOD 2015-10), the IRS stated that it will not follow the Tax Court’s 2004 Martinez decision, which had allowed a general partner to exclude cancellation of debt (COD) income from a partnership in bankruptcy.  Mr. Martinez was a general partner who guaranteed the partnership’s debt, and the bankruptcy court… Continue Reading

5th Circuit Affirms Look Through of Partnerships for Installment Sale Limitation

Posted in Partnership/LLC

In Mingo v. Comm’r the 5th Circuit upheld a Tax Court decision and denied installment sale treatment to the extent the partnership interest sold related to underlying unrealized receivables.  The taxpayer sold its interest in a service partnership for an installment note.  The court denied installment sale treatment to the extent that the purchase price… 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

Tax Court Strikes Down “DAD” Loss Importation Tax Shelter

Posted in General, Partnership/LLC, Tax Shelters

In consolidated cases known as Kenna Trading LLC, the Tax Court shut down an attempt to contribute foreign currency losses into a US partnership and syndicate the losses to investors by selling partnership interests followed soon by the partnership selling the loss assets.  According to the court, the persons contributing loss assets did not qualify as… Continue Reading

Members of Fund Management LLC Denied Self-Employment Tax Exception

Posted in Partnership/LLC

In CCA 201436049 the IRS concluded that owners of an investment fund management company LLC were not eligible for the limited partner exception to Section 1402 self-employment taxes.  Ultimately the IRS found that the income earned by the partnership directly related to the services from such partners and was not of an investment nature that… Continue Reading

Taxpayer Failed Requisite Profit Motive When Investing In Partnership Solely for Charitable Deductions

Posted in Deductions, Partnership/LLC, Real Estate, Tax Shelters

In McElroy v. Commissioner, the Tax Court concluded that the taxpayer failed the requisite profit motive to receive a tax deduction from an investment in a charitable syndication partnership.  The case involves an attempted syndication of charitable deductions by placing real estate into a partnership, soliciting investors with promised charitable deductions well in excess of… 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

Cross-Border Interest Expense Apportionment Regulations Finalized

Posted in International, Partnership/LLC

The IRS issued cross-border interest apportionment final regulations.  These adopt the approach from the 2012 temporary regulations, requiring a 10% corporate partner to apportion its interest expense by reference to the value of the partnership’s assets.  Thus, regardless of special allocations in the partnership, a 20% corporate partner would be treated as owning a straight… 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