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THE NEW PARTNERSHIP AUDIT RULES

Under the link below is a brief but fairly good post summarizing the new and draconian federal statutory partnership audit rules that, for most multi-member LLCs taxable as partnerships, will become effective on 1-1-18.  A few comments about the post:

  1. Puzzlingly, the post doesn’t mention the key fact that under the above rules, the federal tax on any partnership audit deficiency will be a terrifying 39.6 percent.
  2. The post doesn’t mention that even if your LLC qualifies as a “small partnership” exempt from the rules, you need to elect out of coverage by the rules in your annual federal tax return.
  3. The post suggests that LLCs with members that are trusts and single-member LLCs may still qualify as “small partnerships” under the rules.  Based on certain recent Treasury statements, this suggestion is very probably incorrect.
  4. The post does not describe even briefly the types of audit provisions that the operating agreements of LLCs taxable as partnerships and other partnership entities ought to include.
  5. The post does not address the issue whether tax professionals whose clients are partnership entities should offer or agree to be available to serve as partnership audit “partnership representatives” for their clients.  I think they should, as long as the governing operating agreement  provides them with adequate contractual protection.

Chapter 50A in Drafting Limited Liability Company Operating Agreements, my Wolters Kluwer LLC formbook and practice manual, addresses all of the above issues.  If anyone would like a summary of the chapter by e-mail. I will be glad to provide you with one.

Here is the link to the above post:   http://www.lexology.com/library/detail.aspx?g=6fea3fe5-9c8a-4b37-a766-ab1666cefd36&l=7UML737

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CONTRIBUTING PROPERTY TO A PARTNERSHIP

LLC lawyers are sometimes asked by clients about the tax issues in contributing property to multi-member LLCs taxable as partnerships. The post under the link below provides brief but very helpful advice about deferring federal income tax in these situations.

Here’s the link: http://www.taxlawforchb.com/2017/03/protecting-tax-deferral-for-a-contribution-to-a-partnership/

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GETTING STEPPED-UP BASIS IN ASSET PURCHASES

The new post under the link below provides guidelines on how you can help your clients ensure that they get stepped-up basis in asset acquisitions.

Here’s the link:

http://www.taxlawforchb.com/2017/03/a-buyers-guide-to-acquiring-targets-assets-with-a-stepped-up-basis/

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S CORP ISSUES ON WHICH THE IRS WILL NOT ISSUE PRIVATE LETTER RULINGS

An ever-increasing number of LLCs are making S elections; so LLC accountants who advise their clients about S corporation matters need to follow IRS Subchapter S developments.

Under the link below is a new post about a recent IRS announcement as to three S corporation issues on which the IRS will no longer issue private letter rulings to taxpayers including, of course, LLCs taxable as S corporations and their members.  These issues involve disproportionate distributions, certain types of agreements and other arrangements among shareholders raising single-class-of-stock issues, and certain types of defective S corporation filings.

Here is the link: http://www.lexology.com/library/detail.aspx?g=b82bfc37-1bf2-4217-b510-5afd783485ef&l=7U9VCHQ

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LLCS AS S CORPS

The post under the link below contains a brief but useful discussion concerning the basic pros and cons for LLCs in electing to be S corporations. The big pros of Subchapter S as compared with the default federal tax regimens of sole proprietorship and partnership tax are greater ease in reducing member Social Security Tax burdens and, in general, in achieving pass-through taxation.  However, the post fails to discuss or even to mention many of the unique sole proprietor and partnership tax benefits that LLC members will forgo if they make S elections.  The partnership tax benefits include, above all, those under Sections 701, 704, 721, 734,743, 754 and 752.

Here’s the link:  http://www.lexology.com/library/detail.aspx?g=0787f2eb-5fdd-479b-aacf-951af7768bae

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TOP 12 TAX SCAMS

As you may know, the IRS has just released its list of what it views as the dirty dozen top federal tax scams. The link to the list is below. It’s possible that the list may be of interest to you or to some of your LLC clients.

Here’s the link: https://www.irs.gov/uac/newsroom/irs-summarizes-dirty-dozen-list-of-tax-scams-for-2017

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DISPOSING OF REAL ESTATE IN A TAX EFFECTIVE MANNER

LLC accountants are sometimes requested by their clients to help them dispose of real estate; and of course their clients want to do so in a tax effective manner.  The post under the link below provides a succinct but useful set of guidelines for handling this task.

Here’s the link:  http://www.taxlawforchb.com/2016/12/disposing-of-real-property-in-a-tax-advantaged-manner/

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CAPTIVE INSURANCE COMPANIES

Under the link below is an excellent post about captive insurance companies.  It’s a hot topic for many LLC formation clients.

Here’s the link:  http://www.taxlawforchb.com/2016/12/reining-in-captives/

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WHAT TAX RECORDS SHOULD LLCS AND THEIR MEMBERS MAINTAIN, AND FOR HOW LONG?

The IRS issued new guidelines about the tax records that taxpayers should keep, and for how long.  These rules apply, of course, to LLCs and their members, and the members should structure their LLC record keeping accordingly.

See IR-2016-162 (Dec. 7, 2016).  The link is https://www.irs.gov/uac/tax-preparedness-series-tax-records-what-to-keep

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THE IMPACT OF THE NEW PARTNERSHIP AUDIT RULES ON INVESTMENT PARTNERSHIPS

Every LLC accountant should have at least a basic knowledge of the draconian new partnership audit rules in the Bipartisan Budget Act of 2015.  The new post under the link below addresses the impact of these investment partnerships.

Here is the link:  http://www.lexology.com/library/detail.aspx?g=1d2a521d-d225-4cfe-a58a-9d610bdb2101&l=7TAYUBB

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