And Now for Something Completely Different: New Rules for Partnership Audits

Partnership TaxationSuddenly, TEFRA died.

It remains to be seen if it will be missed. On November 2, 2015, the President signed the Bipartisan Budget Act of 2015, Pub. L. 114-74. Title XI of the legislation brings radical change to the world of partnership taxation.

Starting with the 2018 tax year, when a partnership audit results in adjustments, the default rule will be that the partnership pays the tax, not the partners. Consequently, someone entering a partnership may be subject to taxes that historically would have been someone else’s headache. There are two ways out of that predicament, but first a bit of history is in order.… Read More

Who Controls Tax Status? S-Corps., QSubs and Bankruptcy.

Corporations can be classified in different ways for tax purposes. The default, a C corporation, is a taxable entity under the Internal Revenue Code. Certain corporations are eligible to elect status as a small business corporation or S-Corp. under Section 1362 of the Code, which means that they are pass-through entities: their income and losses are passed through to the shareholders, who report the income or loss on their own returns. I.R.C. §§ 1363(b); 1366(a). An S-Corp. can, in turn, have a subsidiary that is also treated as a pass-through entity, which is known as a QSub, by making an election under Section 1361(b)(3)(B).Read More