Tax Reform Loophole

Potential Pass-Through Entity Loophole in Tax Reform

● The Tax Cut and Jobs Act proposes setting a maximum tax rate of 25% on pass-through business income. While lawmakers intend to benefit small business owners with the new, lower tax rate, many are concerned that certain individuals will abuse the provision by re-categorizing wage income taxed at a maximum 39.6% rate as pass-through…

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Partnership Taxes

Partnership Targeted Capital Accounts: Part II

Partnership Targeted Capital Accounts: Part II Introduction Part I explained the basic concept behind the targeted capital account approach to allocating partnership taxable income and loss. The example used in Part I assumed a simple factual pattern where the partnership admitted a partner on 12/30/2017 in exchange for a $200,000 capital contribution. The example explained…

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Partnership Targeted Capital Accounts: Part 1

Introduction Traditionally partnership agreements allocate income, gain, and loss by formula and provide for liquidating distributions based on the partners’ respective positive capital account balances. Such arrangements help ensure that the allocations comply with the “safe harbor” provisions set forth in the Treasury regulations under Internal Revenue Code (“IRC”) §704(b). Increasingly, however, partnership agreements provide…

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