Impact of TRA '97 on small businesses and their owners

Article Abstract:

The Taxpayer Relief Act of 1997 (TRA '97) contains significant changes to tax law governing all forms of business, including small companies such as S corporations, partnerships, limited liability partnerships and limited liability companies. Revisions specific to S corporations include technical corrections/modifications and changes to the treatment of employee stock ownership plans, while amendments affecting partnerships include those that cover pre-contribution gains, disposition of partnership interests, contributions to Sec 401(k) plans and self-employment taxes. Tax changes particular to small companies structured as C corporations include those that pertain to alternative minimum tax exemptions, Sec 1202 stock and contribution of computer equipment. TRA '97 present both opportunities and challenges for small businesses, their owners and their business advisors.

Tax Law, Public Finance Activities, Small business

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Tax year choice affects tax deferral opportunities

Article Abstract:

Partnerships, S corporations, and personal service corporations (PSCs) are required to use as their tax year the one that their owners also use, which is usually the calendar year. However, when allowed to choose a different tax year, these entities must thoroughly analyze which alternative years they must opt for for better tax deferral opportunities. Partnerships, S corporations and PSCs can qualify either under the business-purpose rule or the Section 444 election. Under the former, a business-purpose requirement can be satisfied by establishing a 'natural business year,' which can be determined using the 25% gross receipts test. On the other hand, the 'Section 444 election' allows the entity some flexibility since it can use as tax year any year other than its required tax year.

Tax Management, Analysis, Tax accounting, Tax shelters, Professional corporations

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Treatment of entity items that become non-entity items

Article Abstract:

Recent tax cases have demonstrated that items of a partnership or an S corporation can be considered in proceedings at the level of the individual partner or shareholder when these items are converted to non-entity items. In 'Aufleger,' 99 TC No 5, it was deemed that entity items were changed into non-entity items upon the S corporation shareholder's receipt of the deficient notice from the IRS. In a second case, 'Harris,' 99 TC No 6, partnership items were assigned the status of non-partnerhip items after the parties involved had reached an agreement. In the 'Treaty Pines Investments Partnership' case, it was ruled that the settlement agreement mailed by the IRS to the taxpayers was binding and had converted the partnership items into non-partnership items.

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