Combination can provide flexibility of partnership with S corporation advantages

Article Abstract:

Pass-through entities, either partnerships or S corporations, are preferable to C corporations for the conduct of business activities due to higher corporate rates and the repeal of the General Utilities doctrine. Pass-through entities give business activities the advantages of: passing tax losses on to owners; avoiding double taxation on operating earnings distributions; and avoiding earnings taxes. A partnership structure wherein one or more of the partners is an S corporation provides flexibility in allocating profits and losses to partners and protects owners from creditor claims against the partnership. In order to pass the Internal Revenue Service's business test, the arrangement must have a business purpose beyond avoiding limitations on S corporations. The S corporation should hold assets and liabilities and conduct business activities apart from its interest in the partnership.

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Business purpose tests issued for tax year changes of partnerships, S corporations

Article Abstract:

Under the Tax Reform Act of 1986, partnerships, S corporations, and personal service corporations are required to adopt the calendar year as their tax year unless they can show a business purpose for adopting a fiscal year. The tests and procedures for satisfying the business purpose requirement are discussed. The two basic tests are the natural business year test and the ownership tax year test.

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Transferring cash or property to a partnership can be a taxable or nontaxable transaction

Article Abstract:

The options and tax effects for transfers of cash or property to a partnership are discussed. The Tax Reform Act of 1986 allows a partner to receive a guaranteed payment, income allocation, or partnership interest in exchange for cash or property. Placing funds at risk with the partnership can result in higher returns than making a third party loan.

Taxation, Business enterprises, Property acquisition, Transfer (Law), Business registration

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