What is a Partnership: State Law vs. Federal Tax Law

One of the nuances that come up in tax planning involves the interplay of state law and federal tax law. This brings in all of the nuances and challenges under state law to federal tax law. For example, one common nuance in business transactions arises when the parties to a business arrangement do not document…

Partnerships Have to Maintain Accurate Capital Accounts

One of the tax benefits of partnerships is that they are flexible. The parties can agree to differing terms and the values and dollars associated with those terms can be trued-up in subsequent years. The allocation of profit and loss provisions provides an example. Depending on their agreement, the parties can allocate profits and losses…

Funding a Business: LLC Capital Contribution vs. Loan

Taxpayers have several choices to make when starting a business. One of these choices is how to fund the business. They can fund the business with capital contributions or debt (or a combination thereof). The IRS and courts will usually follow the method the taxpayer uses. Many taxpayers do not consciously decide this issue. They…

Limited Partner Subject to Self-Employment Tax

Limited Partner Subject To Self-employment Tax

When it comes to tax law, there are quite a few known-unknowns. These are tax questions that have been raised tangentially in court cases and rulings, but have not been fully answered. These situations confuse taxpayers. Tax practitioners are often asked to provide answers. The answers from tax practitioners often differ, as practitioners have different…

Final Regulations Issued: Leveraged Partnership Distributions Still Viable

Avoiding Hobby Loss Limits For Long-term Projects

The “leveraged partnership distribution” or “disguised sale” is a common tax savings technique used by real estate owners. Taxpayers pushed the envelope with these transactions by using “bottom dollar guarantees.” This led to guidance from the government making it more difficult to benefit from leveraged partnership distributions. The Treasury recently finalized regulations that say what…

No Tax Due on Foreign Corporation’s Redemption of U.S. Partnership Interest

No Tax Due On Foreign Corporation’s Redemption Of U.s. Partnership Interest

Many businesses that operate outside of the U.S. want to do business in the U.S. and they want to limit their exposure to U.S. income taxes. To do this, many in-bound investments are structured as U.S. partnerships with the parntership being formed in the U.S. to carry on the business activities in the U.S. This…

Issue for the New Partnership Audit Procedures Raised in TEFRA Case

Tax Law Is Not Determined By Common Industry Term

The Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”) procedures were intended to make it easier for the IRS to audit partnership tax returns. TEFRA failed to deliver. The rules are nuanced and hard to apply. The new partnership audit procedures are intended to remedy this. With the new partnership IRS audit procedures coming…