IRS Releases FAQ Dealing with TCJA Limitations Imposed on Tax Benefits from Charitable Contributions and Foreign Taxes for a Partner with Insufficient Basis

The IRS has issued a frequently asked questions document related to changes made by the Tax Cuts and Jobs Act of 2017 (TCJA) in the computation of a partner’s outside basis limitations due to the payment of foreign taxes and certain charitable contributions.[1]

The IRS outlines the changes in a set of three examples discussing how a partner computes his/her limitations on claiming a tax benefit from charitable contributions and payment of foreign taxes dependent on basis in the partnership under IRC §704(d).

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Partnership Provisions in LLC Operating Agreement Renders S Election Invalid

PLR 201624003 reminds us that when it comes to S corporations, the “check the box” regulations can be more complicated than they first appear.

Under the check the box provisions found at Reg. §301.7701-3 an entity that is not automatically classified as a corporation is allowed to elect whether to be treated as a corporation or, if it has one owner, a disregarded entity or, with two or more owners, a partnership. Since, once an entity elects to be treated as a corporation under check the box it is treated as a corporation for the entire IRC (IRC §7701 applies “for purposes of this title” which means the entire Internal Revenue Code found at Title 26 of the United States Code), if the entity is otherwise eligible it may elect to be treated as an S corporation.

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IRS to Require Use of Remedial Allocation and Other Special Treatment for Certain Transfers to Partnerships With Related Foreign Partners

The IRS has issued Notice 2015-54 where the agency announced it was going to be issuing regulations under IRC §721(c) that would override the general non-recognition rules of IRC §721 in a situation where a U.S. partner transfers property to certain partnerships with foreign partners.  As well, the IRS will issue related regulations under IRC §482 to grant the IRS additional authority in such situations to revise the income recognition.

Generally a taxpayer who contributes property to a partnership under IRC §721 does not recognize income on that contribution.  However, under §704(c)(1)(A) the partnership must allocate items to take into account the difference between the fair value and basis at the time of contribution. 

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