LLC Income is INDEED Subject to Self Employment Tax: IRS Chief Counsel Advice 201436049

In 1997, the IRS issued proposed regulations governing when the distributive share of partnership income for Limited Liability Company (LLC) members was to be included in self-employment income. It basically advised that an LLC member would be treated as a limited partner — and thus the distributive share would NOT be self-employment income– unless the…

Details

Can You Establish a SEP Plan if you are a Sole Proprietor? What if that Sole Proprietorship Had Historically Passive Income?

Regardless of their nature or topic matter, off beat questions are one of the spices of life. When it comes to the realm of taxation generally speaking the answers frequently distill down to – it depends. These two questions were asked of me on my last trip to New York City and I couldn’t restrain…

Details

Schumann v. IRS: Reg. 1.469-2(f)(6) – The Nuanced Relationship Between Passive Losses & Self Rental Gains

Back to my friends that I previously wrote about who misunderstood passive activity and material participation. They are a married couple filing jointly and own a very successful business together structured as an S-corporation as well as a portfolio of rental real estate properties.  They actually consider themselves privileged to have their their tax woes shared…

Details

Defining Passive Activity Between Spouses – Beyond the Bedroom: What Is Material Participation?

One would imagine this is the script to a low budget B-rated film by the title, it is not. But if it got you reading all the better because you may want to know about my friends, a professionally successful and happily married couple who jointly own rental real estate that generated losses for tax…

Details

How to Calculate Basis of a Primary Residence Converted to Rental Property [Reg. §1.168(i)-4(b)] [Reg. §1.165-9(b)(2)]

Many people have built impressive residential real estate portfolios one property at a time, living in the property while fixing it up thus declaring it their primary residence for income tax purposes and then moving onto a new house to fix up and subsequently rent out, and repeat. Several of my friends in Colorado, Minnesota…

Details

Use IRS Form 8082 to Report An Incorrectly Issued K1

I’ve been working a very complicated file since my last post involving income in 11 states and countless K-1s, Partner’s Share of Income, Deductions, Credits, etc. Interestingly enough one of my trusted lieutenants noticed that one of the K-1s from one of the partnerships incorrectly reported a gain on the sale of a partnership asset as a…

Details

Tax Implication of Publicly Traded Partnerships: Why Purveyors or the US Tax Code Snarl at Investment Brokers

My friend Roger Botterbusch recently put together a most excellent presentation on the tax implications of owning Publicly Traded Partnerships (PTPs), also commonly referred to as Master Limited Partnerships (MLPs). As a result I developed a new profound distaste for investment brokers pedaling these things for their ‘prospective’ fat returns whilst simultaneously poo-pooing the heavy, heavy…

Details

IRS Form 1040 Schedule C: Profit or Loss from Business

The sole proprietorship or Limited Liability Corporation (LLC) is in my opinion the easiest type of business entity to set up and begin operating. It is not separate from its owner with the income and expenses reported on IRS Form 1040 Schedule C. Some people have instant success with a venture that is profitable from the…

Details

IRS Proposes New Treatment of LLC Members, Limited Partners Under Passive Loss Rules

In November 2011 the IRS issued proposed regulations (REG-109369-10) that would redefine “interest in a limited partnership as a limited partner” for purposes of determining material participation under the Sec. 469 passive loss rules. What that means in plain terms is that historically under Sec. 469(h)(2), losses from an interest in a limited partnership have…

Details

How to Report a Foreclosure to the IRS

A foreclosure on rental property technically involves the sale of the property back to the lender. Form 1099-A Acquisition or Abandonment of Secured Property reports that the lender has repossessed or foreclosed on the property. Box 2 is the amount of the outstanding mortgage debt, and box 4 is the fair market value of the property. If the value of the…

Details