Anti-abuse reg. confuses and clarifies

Article Abstract:

The partnership anti-abuse Regulation aims to identify partnership activities that are not compatible with the intent of tax rules. The first part of the Regulation defines the intent of Subchapter K, which contains the partnership tax rules. According to the Regulation, particularly referred to as Reg. 1.701-2, TD 8588, 12/29/94, the intent of Subchapter K is to enable taxpayers to hold joint business activities via flexible economic systems that are not taxable on the entity level. The Regulation then holds that the provisions of Subchapter K must be consistent with this intent and provides a list of factors that may be considered by the IRS in deciding if an activity is consistent with such intent. A series of examples is then presented to show how the principles function in different situations. Although an improvement over the proposed Regulation, several aspects of the Regulation remain to be clarified.

Public Finance Activities, Tax Administration, Partnership, Partnerships

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Limit on penalty for substantial understatements

Article Abstract:

The Eleventh Circuit decided in the 'Osteen' case that the substantial understatement penalty was not applicable on the ground that a court would not have have been clearly incorrect had it judged for the taxpayer on the underlying issue. Involved in the case was the propriety of the imposition of the IRS of the 20% penalty for the significant tax understatement by the taxpayer. The penalty is usually cut or even cancelled if a taxpayer can show that a position was based on 'substantial authority' even if it eventually turns out to be false. The Eleventh Circuit expressed that an analysis other than the 'conclusory decision' arrived at by the Tax Court would be needed to impose the penalty. The Tax Court is thus compelled to create a better articulated standard for 'substantial authority.' This may make it difficult for the IRS to implement the substantial understatement penalty.

Cases, Tax assessment, Tax penalties

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Rehabilitation of older buildings can still result in a substantial tax credit

Article Abstract:

Substantial rehabilitation of older buildings provides a 20% tax credit for historic buildings and a 10% tax credit for other buildings placed in service after 1936. The Tax Reform Act of 1986 requires that the expenditures are greater than $5,000 or the taxpayer's adjusted basis in the building, whichever is greater. The adjusted basis can be lowered by obtaining the building through a like-kind exchange, entering into a partnership with the current owner, taking a long-term lease, or buying a partially renovated building. The test for substantial rehabilitation is complicated when more than one party has interests in the building and when the rehabilitation is done by a lessee. Non-historical buildings must meet complex structural tests.

Analysis, Buildings, Remodeling and renovation, Rehabilitation, Tax credits

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