The debt obligations of partnerships are allocated among the partners and are included in the determination of a partner’s basis. Among other things, partnership basis is important because it allows for the deduction by partners of their allocable share of partnership losses. Under existing regulations, partnership liabilities are generally divided into two categories: recourse and nonrecourse.
A partnership liability is recourse to the extent that a partner is deemed to bear the ultimate “economic risk of loss” in the event the partnership’s assets become worthless. Recourse debts are allocated among the partners based on who bears this risk of loss. The current risk of loss test assumes that all partners will satisfy their payment obligations under this hypothetical worst case scenario, regardless of their actual financial condition. If no partner is considered to bear the risk of loss, then the liability is treated as nonrecourse and allocated essentially in accordance with the partners’ shares of partnership profits and losses.
The new proposed regulations eliminate
The U.S. federal tax system provides for the direct foreign tax credit and the indirect foreign tax credit. U.S. taxpayers may claim the direct foreign tax credit as a dollar-for-dollar offset against their U.S. federal income tax liability. The credit is claimed for foreign taxes paid directly by the U.S. taxpayer on foreign source income earned outside the United States. The direct foreign tax credit can be claimed by a U.S. individual or corporation that pays foreign tax on foreign source income from activities engaged in directly in a foreign country. The direct foreign tax credit is also available for
If you are a primarily a service-based business that has elected to utilize a pass-through tax operating structure treatment (i.e., S Corporation or partnership) and are not currently reporting your taxable income on the cash method, you are most likely at a disadvantaged cash flow financing position as compared to your competition.
Unlike you, your competition is not:
Ready to negotiate the sale of your business? First you should sit down with your tax advisor to gain a general understanding of the major tax considerations and constraints that should be evaluated. Partnerships, LLCs, C Corps, and S Corps all have various entity-specific tax consequences that should be evaluated before making any decisions.
The decision analysis process, however, is now more complicated because the top long-term capital gain rate was raised to 20% versus 15%, and there is an additional 3.8% Medicare tax applicable to certain passive investors. In the case of LLC sale transactions, your choices are limited and the transaction will generally be accounted for tax reporting purposes as an asset sale. In the case of a corporation, depending on whether the entity is an S Corporation or you are selling one of the subsidiaries within a consolidated group, it can qualify as
It is very important for a U.S. partnership to determine the residence status of all partners in the partnership. A U.S. partnership is required to report whether a partner is a foreign partner on the Schedule K-1 filed with the Form 1065 federal partnership tax return. A partner is considered to be a foreign partner if the partner is a foreign company formed under the laws of a foreign country. A partner is considered to be a foreign partner if the partner is a foreign individual who is not a U.S. citizen, does not hold a U.S. green card or does not meet the substantial presence test to be treated as a U.S. resident for U.S. federal tax purposes. The U.S. partnership is also required to comply with