3.8% Federal Net Investment Income Tax Challenges for Tax Professionals

Tackling Tax Compliance and Planning for High-Income Individuals and Pass-Through Entities

Recording of a 110-minute CPE/CLE webinar with Q&A

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Conducted on Thursday, September 18, 2014

Recorded event now available

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Course Materials

This course will address practical planning and compliance issues that taxpayers should anticipate arising from the 3.8% net investment income (NII) tax, given the likelihood for their drawing extra IRS attention.


The 3.8% federal NII tax already poses a range of new issues for tax professionals to contemplate, given that investment income generally is not subject to withholding. While the tax directly affects many high-income individuals, estates and trusts, businesses don't escape completely.

Income from investing working capital can also be taxed. Meanwhile, tax professionals should advise pass-through and S corporation businesses to reconsider prior activity groupings, and whether income from various rental activities can be considered to arise from the ordinary course of business.

Taxpayers that sell an interest in a partnership or S corporation may, through a deemed sale analysis, avoid NII tax. Throw in complexities for individual, estate and trust taxpayers about the thresholds for the tax and its inter-workings with the new Medicare tax, and the tax advisor priority list grows longer.

Listen as our panelists explore the NII tax planning and compliance issues to which tax advisors already should be focusing their attention, given that they could soon come up in IRS exams and hearings.



  1. Mechanics and thresholds of the 3.8% NII tax
  2. Special issues for individual, estate and trust taxpayers
  3. Potential issues for business taxpayers and investors in businesses
  4. Passive vs. active activities
  5. Impact on sales or transfers of interests in closely held entities


The panel will explore relevant and practical topics such as:

  • Surprises in the working capital exception for owners of non-passive businesses using investment or interest-bearing accounts.
  • How to regroup activities and potentially meet the material participation standards for non-passive activity.
  • Rental activities such as "triple net leases" that seem most likely to draw an IRS challenge.
  • Steps for a deemed sale analysis before selling a partnership or S corporation interest.


Jon P. Brose
Jon P. Brose

Seward & Kissel

Mr. Brose represents investment funds and their managers on all aspects of their businesses, including management...  |  Read More

Mitchell S. Fuerst
Mitchell S. Fuerst

Managing Partner
Fuerst Ittleman David & Joseph, PL

Mr. Fuerst concentrates his practice in the areas of tax law and tax litigation, among others. His ability to...  |  Read More

Patti S. Spencer
Patti S. Spencer

Spencer Law Firm

Ms. Spencer assists clients with federal estate, gift and generation-skipping tax planning, estate and trust...  |  Read More

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