MTC Project on State Taxation of Partnerships

The Multistate Tax Commission (“MTC”) has recently started its Project on State Taxation of Partnerships (“Project”).[1] The proposed scope of the Project is to consider a number of issues relating to state taxation of income associated with partnership income or partner income from the sale of partnership interests. Importantly, the Project is commencing on the…
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Executor Liability for Decedent’s Tax Obligations

A recent Tax Court opinion[1] highlights one of the risks of serving as executor or administrator of an estate, potential liability for a decedent’s tax obligations. The case involves application of the federal priority statute[2] applicable to fiduciaries.[3] That statute provides, in relevant part, that “a representative of a person or an estate (except a…
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LLC v. S Corp.: Is That Really the Question?

We regularly see continuing education materials, blog posts, publications, and other materials titled “LLC v. S Corp. – Which is Right for Your Business?” or something similar. Regardless of the exact title, these items purport to ask the question of whether an LLC or S Corp. is the better choice of entity. But is that…
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Monetized Installment Sale: Cash Today, Tax Today?

The U.S. Treasury recently issued its “Green Book”[1] which includes, among other items, a proposed increase in the capital gains rate up to 43.4%[2] for taxpayers with incomes over $1 million as well as an elimination of like-kind exchanges where gain deferral will exceed $500,000. This means that taxpayers will be subject to significantly higher…
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Entities and the Performance of Personal Services: Berry

Owners of legal entities typically establish those entities to achieve certain planning goals, be them tax, asset protection, contract management, or other reasons. Key to accomplishing those goals is that courts respect the entity planning structure that is established. In the recent Tax Court opinion of Berry v. Commissioner[1], we see a taxpayer who intended…
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Substance over Form: Friend of the Taxpayer?

In the recent Complex Media[1] case, the Tax Court addressed a taxpayer’s ability to recast the form of a transaction under the “substance over form” doctrine. Since taxpayers typically control the form their transactions take, tax decisions routinely stick taxpayers with the consequences of that form. Some courts have precluded taxpayers from even raising substance…
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Reasonable Compensation Revisited – Lateesa Ward

In the recent case of Lateesa Ward, TC Memo 2020-32, the Tax Court addressed a regular tax planning and reporting issue – reasonable compensation to an S corporation shareholder. The issue is important for at least a couple of primary reasons. First, as opposed to dividends, wages paid to the S corporation shareholder are subject…
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Remote Working – From a Tax Perspective

As taxpayers are preparing their 2020 income tax returns, several will face questions related to remote working. Can they deduct employment related expenses for new furniture, new equipment, and other items to facilitate working remotely? Can they take a home office deduction? In what state(s) should they file income tax returns? These questions are nothing…
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IRS Issues Carried Interest Final Regulations

On January 7, 2021, the IRS issued final regulations under § 1061 of the Internal Revenue Code (“Code”)[1]. These final regulations largely adopt the proposed regulations issued in July 2020[2] but contain a number of taxpayer favorable changes. As discussed below, the rules under § 1061 can apply in a number of situations such as…
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Is that Side Hustle a Business or Hobby?

Hobby loss tax rules of IRC § 183 are nothing new. However, there are a couple of recent developments that make the application of those rules especially relevant: Starting in 2018, the Tax Cuts and Jobs Act (“TCJA”) went into effect. Under the TCJA, taxpayers lost the ability to take miscellaneous itemized deductions. Previously, taxpayers…
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