Passive investment income limited in new S corp. regs
Article Abstract:
Tax provisions for passive investment income in relation to rules for terminating S corporation election have been further limited by the IRS through the issuance of Proposed Regulations PS-260-82. An S corporation's S election is terminated when earnings and profits for its subchapter C exceed 25% of gross receipts for passive investment income for a period of three consecutive tax years. Passive investment income would include gross receipts from royalties, interest of dividends, annuities, rents, and sales or exchanges of securities or stocks. Exclusions to the designation of passive investment income are provided under Proposed Regulations 1.1362-3(d)(5). Corporations may also be subject to tax for any year that it has excess passive investment income, as specified by Section 1375. The Proposed Regulations' effective dates are the tax years following 1992.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1992
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Separating partners by risk has economic effect
Article Abstract:
A ruling by the IRS showed that substantial economic effect was present in a partnership agreement wherein losses and credits were allocated based on the prospective partners' ability to use them in reducing taxes. The partnership received the IRS' approval by segregating its investments into two classes, one labeled 'special investments' and the other labeled 'general investments.' Through these two classes of investments, the partnership was able to meet all three requirements of Section 704. The IRS noted that widely disparate outcomes are likely to result from two classes of investments, indicating substantial economic effect.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1992
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