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By: Charles R. Levun and Michael J. Cohen
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In January 2017, the Fourth Circuit affirmed the Tax Court’s decision in QinetiQ (at 2017-1 USTC ¶50,119), and in April 2017, the Tax Court issued its decision in Austin v. Commissioner, TC Memo 2017-69, a case which not only contains its own analysis of the concepts of a missed Code Sec. 83(b) election but also contains an interesting interpretation as to what the Fourth Circuit held in QinetiQ. Both of these developments merit close scrutiny as to what they can mean in the case of blown Code Sec. 83(b) elections.
When Is A Substantial Risk of Forfeiture Not a Substantial Risk of Forfeiture - Part II
On January 17, 2017, the Tax Court issued its opinion in Hardy v. Commissioner, TC Memo. 2017-16. As will be discussed below, the discussion in this case concerning grouping activities under the passive loss rules is of particular interest, given that the IRS took a position that was contrary to a published TAM, which TAM was released after the case went to trial but before the Tax Court decision was handed down. However, for many tax professionals, just as interesting was the court’s analysis of whether the taxpayer’s allocable share of an LLC’s income was self-employment (“SE”) income.
Hardy’s Double Duty: Flexibility in Code Sec. 469 Grouping and SE Tax Reporting for LLCs
Whether converting an existing LLC (taxed as a partnership) to S corporation status or forming an LLC and immediately electing S status, it is important that the LLC have an operating agreement that governs the relationship among the members. Unfortunately, some LLC operating agreements contain provisions that are inconsistent with the S corporation eligibility requirements.
Defective Check-the-Box Election and Conversion Back to LLC Status
In January 2014, Treasury issued proposed regulations that addressed the following: (1) the treatment of debt for disguised sale purposes; (2) bottom guarantees; (3) the manner in which excess nonrecourse liabilities can be allocated among the partners; and (4) whether debt is considered to be recourse or nonrecourse for subchapter K purposes. On October 4, 2016, Treasury… (ii) issued temporary regulations addressing bottom guarantees (the “Temporary Regulations”),….Now that we have had a year to digest the October 2016 issuances by Treasury, this Partner’s Perspective will comment on a portion of the regulatory project – the Temporary Regulations addressing bottom guarantees.
The Death of Bottom Guarantees
One of the areas that might be “overthought” by tax professionals is the manner in which Code Sec. 465(e) may apply in certain partnership “refinancing-type” transactions. This Code section essentially provides that if zero exceeds a taxpayer’s amount at risk at the end of a taxable year, the taxpayer must recognize gross income in an amount equal to that excess (with such “recapture” being treated as a deduction in succeeding taxable years). This month’s Partner’s Perspective will take a look at some garden-variety transactions and analyze the limitations on the applicability of Code Sec. 465(e).
The Integration of Code Sec. 465(e), Minimum Gain Chargebacks and Deemed Distributions
Treasury has granted to taxpayers the ability to opt into the proposed Code Sec. 751(b) regulations now, before they are final, and this month’s Partner’s Perspective will examine why a tax professional should not wait until these particular proposed regulations are finalized to examine the concepts embodied in these regulations.
Whether or Not to Opt Into the Code Sec. 751(b) Proposed Regulations