Partnership and LLC Excess Business Loss Limitations: Section 461(l) Challenges and Planning Techniques

Recording of a 75-minute premium CLE/CPE webinar with Q&A


Conducted on Wednesday, October 2, 2019

Recorded event now available

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Program Materials

This CLE/CPE webinar will provide tax counsel and advisers with an in-depth analysis of the loss limitation rules of Section 461(l) for non-corporate taxpayers passed in the 2017 tax reform bill. The panelist will discuss what items are included or excluded in the business loss calculations, the effect of such a loss and its carryover to other taxable years, and the interactions with the passive activity loss rules and the Section 199A pass-through business income deduction.

Description

The 2017 tax reform legislation enacted the excess business loss (EBL) limitation rule of new Section 461(l). Despite the amount of revenue that this tax provision is expected to raise, the EBL rules have not received a significant amount of attention from the IRS and Treasury.

Section 461(L) disallows the current deduction of any EBLs, which are generally the excess of the taxpayer's aggregate deductions attributable to trades or businesses over the sum of (1) the taxpayer's aggregate gross income or gain attributable to such trades or businesses, and (2) $250,000 ($500,000 in the case of a joint return).

In other words, net business losses may offset only up to $250,000 or $500,000 of investment income and other non-business income. Significant questions have arisen over what tax items will be considered business versus non-business for this purpose. Various tax items such as wages and salaries, gain on the sale of partnership interests or S corporation stock, cancellation of debt (COD) income, and the Section 199A pass-through business income deduction, will have to be carefully considered in light of the EBL rules.

EBLs are carried forward as a net operating loss (NOL), but there is some uncertainty and debate over how to apply the carryover rules. In any case, the NOL can offset only up to 80% of pre-NOL taxable income in the carryover year.

Listen as our experienced panelist provides a practical guide to the current state of Section 461(l) as it applies to non-corporate taxpayers.

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Outline

  1. Key provisions of Section 461(l) and its effect on EBL and carryover
  2. Business vs. non-business tax items and calculating EBL
  3. Interactions with other Code provisions
  4. Potential challenges and unanswered questions awaiting IRS guidance

Benefits

The panelist will review these and other key issues:

  • Computing EBL and related Code provisions
  • Treatment of partnership and S corporation items for their partners and shareholders
  • The intersection of EBL with Section 199A qualified business loss carryovers
  • Impact of Section 461(l) on passive and non-passive activities

Faculty

Zhang, Libin
Libin Zhang

Partner
Fried Frank Harris Shriver & Jacobson

Mr. Zhang is a tax partner in Fried Frank's New York office. Prior to joining the firm in 2019, he was a tax...  |  Read More

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Strafford will process CLE credit for one person on each recording. All formats include program handouts. To find out which recorded format will provide the best CLE option, select your state:

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