Nonrecourse Determination for Debt under §752 Does Not Control Treatment for Nature for Determining Cancellation of Debt Rules for §61(a)(12)

In tax law (and, in fact, law in general) confusion may reign because words are often given a specific definition in a particular context—such as when dealing with a particular statute or regulation.  That limited scope may exist even though an identical term is used in a very similar context—such as the same term having different (though somewhat related) meanings for two different provisions of the Internal Revenue Code.

In Chief Counsel Advice 201525010 the IRS looks at the issue of “nonrecourse debt” under the tax law and the fact that the term is used in two very different contexts.

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Officer of Parent of Member-Manager Corporation Included in Consolidated Return Must Sign Form 2848 for Partnership

The question of who is able to sign a Form 2848, Power of Attorney and Declaration of Representative is sometimes not a simple one to answer.  Chief Counsel Advice 201522005 looks at a fact pattern involving a LLC taxed as a partnership and a member manager that is an indirect subsidiary included in the consolidated return of a parent corporation—and you may find the IRS’s conclusion surprising.

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Existence of §754 Election Does Not Impact Whether Change in Treatment of an Item is an Accounting Method Change

In Chief Counsel Advice 201521012 the IRS concluded that an adjustment of the treatment of an item will not cease to be required to be treated as a change in a method of accounting merely because the taxpayer was a partnership with an election under §754 in place that would have caused a change in the §743(b) adjustment had the new method of accounting been used in the past.

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Holder of Small Interest in Oil and Gas Working Interest Found Subject to Self-Employment Tax Despite Being "Merely" an Investor

A taxpayer’s liability for self-employment tax related to income from working interests in oil and gas wells was the issue in the case of Methvin v. Commissioner, T.C. Memo 2015-81.

This is not a case of David being out there drilling for oil—rather, he had simply been acquiring working interests in several oil and gas ventures as investments.  His interests were never more a small amount in each venture.  David’s interactions were basically to invest funds and then receive his checks for his share of revenues less expenses.  He did not perform any services with regard to the wells.

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Partner Not Able to Deduct Taxes Imposed by States in Which He Performed no Services as a Business Deduction

The taxpayer in the case of Cutler v. Commissioner, TC Memo 2015-73 argued that because his only connection with various states that were imposing an income tax on him was that he owned an interest in a partnership that operated in those states, he should be able to deduct that taxes paid to those states in computing adjusted gross income, rather than being limited to deducting the taxes as an itemized deduction.

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Fifth Circuit Strikes Down Tax Court View that §1234A Eliminates Ordinary Loss on Abandonment of Capital Asset

In the view of the Tax Court (but not the Fifth Circuit) the taxpayer and the IRS didn’t understand the real issue, but the Tax Court sent them back to look at the issue in a different way, resulting in a potentially significant decision in the case of Pilgrim’s Pride Corporation v. Commissioner, 141 TC No. 17.  The case ended up turning on the issue of whether it is possible for a taxpayer to achieve an ordinary loss when abandoning a security under the current version of IRC §1234A.

While the decision has been overturned on appeal (Pilgrim’s Pride v. Commissioner, CA5, 115 AFTR 2d ¶ 2015-477, reversing 141 TC No. 17), it remains to be seen if the Tax Court will continue to apply this view of IRC §1234A outside the confines of the Fifth Circuit.

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Late Election Relief Granted Where Partnership Tax Adviser Failed to Follow Through on Providing Guidance to LLC Members on Making Qualified Real Property COD Election

Sometimes events occur during an engagement that can cause an advisor to lose focus and fail to take into account issues the adviser knows about.  That appears to have been the case in a series of private letter rulings, each of which basically duplicates what is found in PLR 201509020.

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