Pass-Through Liabilities and Federal Tax Treatment: Resolving Complex Issues With Liability Characterization

Reporting Liabilities for General or Limited Partnerships and LLCs Given Tax Code Inconsistencies

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


Conducted on Tuesday, December 22, 2015

Recorded event now available

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Program Materials

This webinar will provide tax advisers and corporate taxpayers utilizing pass-through entities (general or limited partnerships, LLCs) with a comprehensive guide to the tax treatment of liabilities from those pass-through entities. The panel will break out the different treatment of recourse vs. non-recourse debt, and will offer illlustrations of various tax scenarios in the form of detailed case studies and examples.

Description

Inconsistencies in how federal tax laws characterize liabilities generated by pass-through entities can create challenges for taxpayers and advisers. Tax professionals must first identify whether a liability is considered recourse or non-recourse under the definitions of IRC Section 1001. Determining whether a liability is recourse or non-recourse can have significant tax consequences to the partners.

Section 752 has various provisions specifying how different types of liabilities must be treated; however, these provisions often create conflicting or unclear answers on the reporting of liabilities. Additionally, the guidance on handling liabilities when a partnership converts to a disregarded entity, or vice versa, is also lacking.

Further complexity is introduced by the at-risk rules of Section 465 in analyzing an individual partner’s basis in partnership liabilities. In short, advisers must navigate several parts of the Code in determining how to report partnership liabilities.

Listen as our panel of seasoned tax advisors uses various general partnership, limited partnership and LLC scenarios to outline an action plan for making well founded decisions about proper treatment of liabilities for these entities.

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Outline

  1. Frequent sources of conflict with IRC treatment of pass-through liabilities
    1. Liability characterization under Section 1001
    2. Liability characterization under Section 752
    3. Recourse liabilities under Section 752
    4. Non-recourse liabilities under Section 752
    5. Liability characterization with Section 704(b)
  2. Frequently faced fact patterns with federal tax treatment of pass-through liabilities
    1. Inter-woven issues with state law

Benefits

The panel will analyze situations involving these and other important issues:

  • Different treatment of recourse vs. non-recourse debt
  • Handling cancellation of indebtedness income for pass-through entities
  • Resolving liability concerns during conversions with disregarded entities
  • Applying the at-risk rules of IRC Section 465 to non-recourse debt scenarios to determine deductibility

Faculty

Robert A.N. Cudd
Robert A.N. Cudd

Senior Partner
Polsinelli

Mr. Cudd advises both domestic and foreign entities on tax-efficient structures as well as on transactions between the...  |  Read More

Jonathan Raymon
Jonathan Raymon

Vice President/Trust Officer
Hilliard Lyons Trust Company

Mr. Raymon specializes in charitable trusts (CRAT, CRUT, CLAT, CLUT, and Private Foundations), trusts holding oil...  |  Read More

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