Category: LLC Taxation

NEW PROPOSED REGULATIONS UNDER BBA PARTNERSHIP AUDIT RULES

By , December 20, 2017 12:48 pm

On December 15, 2017, the U.S. Treasury Department issued proposed regs that permit partnerships to “push out” IRS audit adjustments to partners who are themselves partnerships in “tiered” partnerships.  Tiered partnerships are partnerships in which one or more partners in one or more levels of partners are themselves partnerships—i.e., partnerships whose partners are partnerships.  This is, of course, very good news for tiered partnerships.  We can only hope that the Treasury will also issue rules that permit partnerships to be BBA “electing partnerships” even though one or more of their members are revocable trusts or single-member LLCs whose members are individuals.

The new proposed regs are REG-120232-17 and REG-120233-17.

DEBT VS. EQUITY IN CLOSELY HELD BUSINESSES

By , November 30, 2017 11:02 am

Under the link below is a superb post from FarrellFritz on the issue of when an investor’s transfer of cash to a closely held entity is debt and when it is equity for federal tax purposes.  In my LLC practice, this issue arises often.  Perhaps also in yours.  In any event, you should know the rules and advise your clients about them—they have to characterize these transfers clearly in proper documents and comply with the terms of the documents.

Here’s the link:  http://www.taxlawforchb.com/2017/09/debt-vs-equity-form-substance-matter/

NON-TAX LAWYERS AND THE BBA PARTNERSHIP AUDIT RULES

By , November 28, 2017 12:08 pm

I’ve recently completed an article in which I propose that even if you’re not a tax lawyer, you have a duty to give a warning about the BBA partnership audit rules to your clients that are LLCs taxable as partnerships or members of these LLCs.  As you may know, these rules will become effective for partnership taxable years beginning on January 1, 2018.  A link to the article is below.  If you have any comments on the article, I’ll be very grateful for them.

Here’s the link:  http://www.cunninghamonoperatingagreements.com/wp-content/uploads/Article-for-ABA-or-other-publication-re-non-tax-lawyers-and-the-BBA-PARS-10-23-17.pdf

BBA PARTNERSHIP AUDIT DEVELOPMENTS

By , November 17, 2017 11:17 am

On November 15, Treasury officials made the following important public statements relevant to the BBA partnership audit rules:

  • They said that the development and publication of Treasury regs about the partnership audit rules are the Treasury’s top regulatory priority.
  • They strongly implied that the pending BBA proposed regs will be issued as final regs on a date significantly in advance of the January 1, 2018 BBA effective date for 2018 partnership years.
  • Key BBA issues that the Treasury intends to address soon are the conditions that partnerships must meet in order to elect out of the BBA rules.
  • Treasury also implied that in the relatively near future, it will issue new proposed regs about the BBA rules.

LLC LIQUIDATIONS

By , November 16, 2017 11:47 am

From time to time, LLC lawyers are asked by their clients to handle LLC liquidations.  If the LLCs in question are multi-member LLCs taxable as partnerships, there can be major federal income tax traps in these liquidations.  One such trap is described succinctly but with great clarity in the new by Lou Vlahos of the FarrellFritz law firm under the following link:

http://www.taxlawforchb.com/2017/09/liquidating-a-partnership-interest-beware-the-effects-of-partnership-indebtedness/

LLCS AS S CORPORATIONS

By , October 17, 2017 2:07 pm

Under the link to the post below is a brief but useful discussion of why multi-member LLCs might want to elect to be S corporations for federal tax purposes.  However, the post fails to mention Prop. Reg. § 1.1402(a)-2 or to address the key practical importance of that propose reg. (which sets forth the IRS’s audit guidelines for determining the SET liability of members of multi-member LLCs).

Here’s the link: http://www.taxlawforchb.com/2017/08/s-corporation-status-for-an-llc/

NEW HAMPSHIRE TAXES

By , October 10, 2017 10:31 am

Those of you who follow New Hampshire taxes will want to read New Hampshire Department of Revenue Administration Technical Information Release TIR 2017-004, which summarizes New Hampshire state tax changes enacted in the 2017 New Hampshire legislative session.  Here’s the link:

https://www.revenue.nh.gov/tirs/documents/2017-004.pdf

WHEN IS A PARTNER ACTING LIKE A PARTNER?

By , September 27, 2017 12:23 pm

Most multi-member LLCs are taxable as partnerships, and all members of these LLCs are taxable as partners in their capacity as partners.  A basic partnership tax issue is the issue of when partners are not acting in their capacity and thus may not be taxable as partners; and when they are not.  This very common partnership tax issue is dealt with in the post under the link below:

http://www.taxlawforchb.com/2017/08/when-a-partner-may-not-be-acting-as-a-partner/

SINGLE-MEMBER LLCS

By , September 5, 2017 9:18 am

Roughly 70% of all LLCs are single-member LLCs whose members are individuals.  Thus, single-member LLCs are central to any LLC practice.  You literally can’t know too much about them.  Below are a citation to and the introductory paragraphs of an important law journal article about single-member LLCs:

36 Va. Tax Rev. 323
Virginia Tax Review
Spring, 2017
Article
Philip Manns, Jr., Timothy M. Todd
Copyright © 2017 by The Virginia Tax Review Association; F. Philip Manns, Jr., Timothy M. Todd
THE TAX LIFECYCLE OF A SINGLE-MEMBER LLC

The single-member LLC (SMLLC) is ubiquitous. Despite its ubiquity, the Internal Revenue Code (Code) does not squarely address its tax consequences nor even contemplate its existence. This article examines the tax lifecycle of an SMLLC through its formation, operation, and exit event (e.g., sale, gift, or deathtime transfer).

This article identifies and isolates a tax asymmetry that arises from the U.S. Tax Court’s decision in Pierre v. Commissioner. Despite the check-the-box regulations, which disregard the SMLLC, Pierre regards the SMLLC for federal gift tax purposes. This asymmetry has several tax consequences, including a potential prophylactic immunization of transfers to SMLLCs against application of section 2036–which claws back into the federal gross estate transfers when the transferor retains an interest–in the family partnership context.

Consequently, this article demonstrates that the SMLLC can be used to blunt the negative effects of section 2512 (a gift tax provision), section 1015 (an income tax provision), and section 2036 (an estate tax provision). In effect, due to the Pierre asymmetry, the SMLLC is the ideal initial entity in a gifting strategy.

NH TAXES

By , August 30, 2017 9:11 am

For those interested in New Hampshire taxation:

2017 Business Tax Law Changes

TECHNICAL INFORMATION RELEASE

Date July 21, 2017

A Technical Information Release is designed to provide immediate information regarding tax laws administered by the Department or the policy positions of the Department as a service to taxpayers and practitioners. A Technical Information Release represents the position of the Department on the limited issues discussed herein based on current law and Department interpretation. For the current status of any tax law, practitioners and taxpayers should consult the source documents (i.e., Revised Statutes Annotated, Rules, Case Law, Session Laws, etc.). Questions should be directed to Taxpayer Services at (603) 230-5920.

 The purpose of this Technical Information Release (TIR) is to provide taxpayers and tax practitioners with a convenient reference guide to several of the major Business Profits Tax (BPT) and Business Enterprise Tax (BET) (collectively “Business Tax”) law changes that were made during the 2017 Legislative Session by the New Hampshire General Court. This TIR is for informational purposes only and is intended to provide a summary or synopsis of enacted legislation. It is not intended to be relied upon as full and complete text or as a substitute for the actual state law. Please refer to the applicable statute and rules to determine how this information applies to specific persons or situations.

BUSINESS TAX RATE REDUCTIONS

House Bill 517 (Chapter 156, Sections 213-217, Laws of 2017) reduces the rate of the RSA 77-A BPT and the RSA 77-E BET.

For taxable periods ending on or after December 31, 2019, HB 517 reduces the BPT rate to 7.7% and the BET rate to .6%.

For taxable periods ending on or after December 31, 2021, HB 517 reduces the BPT rate to 7.5% and the BET rate to .5%.

Pursuant to existing law, for taxable periods ending on or after December 31, 2018, the BPT rate is reduced to 7.9% and the BET rate is reduced to .675%, contingent upon combined unrestricted general and education trust fund revenues of $4.64 billion being collected during the biennium ending June 30, 2017 as reported in the audited comprehensive annual financial report performed pursuant to RSA 21-I:8, II(a). On or about December 31, 2017, the Legislative Budget Assistant will report on whether revenue collections have met the threshold. The Department will issue an additional Technical Information Release at that time advising taxpayers of the applicable BPT and BET rate for taxable periods ending on or after December 31, 2018. However, based upon preliminary unaudited revenue figures, the $4.64 billion dollar threshold set forth in RSA 77-A:2, IV and RSA 77-E:2, IV appears likely to have been met.

For taxable periods ending on or after December 31, 2016, the BPT rate is 8.2% and the BET rate is .72%.

INTERNAL REVENUE CODE § 179 DEDUCTION

House Bill 517 (Chapter 156, Section 218, Laws of 2017) amends RSA 77-A:3-a to provide that a taxpayer may calculate expense deductions pursuant to Internal Revenue Code (IRC) § 179 not to exceed $500,000 for property placed in service on or after January 1, 2018. For property placed in service from January 1, 2017 through December 31, 2017, the maximum IRC § 179 deduction is $100,000. For property placed in service prior to January 1, 2017, the maximum IRC § 179 deduction is $25,000.

INTERNAL REVENUE CODE CONFORMITY

House Bill 517 (Chapter 156, Section 229, Laws of 2017) amends RSA 77-A:1, XX to conform the BPT to the IRC of 1986 in effect on December 31, 2016 for taxable periods beginning on or after January 1, 2018, subject to the adjustments required pursuant to RSA 77-A:3-b. To determine the IRC applicable to taxable periods beginning prior to January 1, 2018, please reference RSA 77-A:1, XX.

Additional information about the BPT can be obtained by referencing RSA 77-A and N.H. Code of Admin. Rules, Rev 300 and additional information about the BET can be obtained by referencing RSA 77-E and N.H. Code of Admin. Rules, Rev 2400, which can both be accessed on the Department’s website.

Individuals who need auxiliary aids for effective communication in programs and services of the Department of Revenue Administration are invited to make their needs and preferences known to the N.H. Department of Revenue Administration, 109 Pleasant Street, Concord, NH 03301 or by contacting them at (603) 230-5000.