Suddenly, 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
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