Archive for the ‘Federal Taxation’ Category

Is There Any Such Thing As An LLC Unit?

Saturday, October 3rd, 2009

That question is the title of a recent article written by L. Andrew Immerman.  See 11 No. 4 Bus. Entities 20.  Immerman argues that there is a real danger with attributing reality to LLC “units” and using that term to define LLC ownership interests.  The danger is possible unanticipated tax consequences and unfulfilled expectations of the parties as to what a business deal entailed.  Use of the word “unit” leads practitioners and business people to consider LLC units to be like stock, which they may not be.  An interest in an LLC is an undifferentiated mass, and references to “unit” may disguise this.  LLC interests are split into transferable economic interests and non-transferable governance rights.  They are not split in a way that corresponds to units.  As a result, Immerman believes defining LLC ownership interests as “units” can be risky if members do not understand exactly what is being defined.

Donald Scotten

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Effective FLP Line Drawing

Monday, September 28th, 2009

Family limited partnerships (FLPs) have become a staple of estate-tax planning.  Wendy C. Gerzog (Baltimore) has an article, Miller: Effective FLP Line Drawing, 124 Tax Notes 1273 (Sept. 21, 2009) (SSRN), that discusses a recent Tax Court opinion, Estate of Miller v. Commissioner, T.C. Memo. 2009-119.  Among other things, the opinion in Miller discusses when FLPs will be considered to have a non-tax purpose.

Gary Rosin

Posted in Federal Taxation, Limited Partnerships, Scholarship | No Comments »

Taxing Shared Economies of Scale

Tuesday, September 22nd, 2009

Modesty probably prevents him from posting this himself, but Contributing Editor Bradley T. Borden (Washburn) has an article, Taxing Shared Economies of Scale,forthcoming in the Baylor Law Review (Vol. 61) (SSRN). 

The IRS and courts have concluded that sharing economies of scale satisfies the joint-profit-motive test and that arrangements with a joint-profit motive are tax partnerships. Relying on technical analysis and economic theory, this Article argues, however, that if parties integrate resources without integrating all relevant parts of the production process, they often should not come within the definition of tax partnership.

Gary Rosin

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“Check the Box” as Diagnostic

Tuesday, September 22nd, 2009

Heather M. Field (UC-Hastings) argues in Checking in on “Check-the-Box,” 42 Loy. L.A. L. Rev. 451 (2009) that

… the check-the-box election … lacks a coherent set of limitations….  …the policy weaknesses … of the check-the-box regulations stem fundamentally from the existence of a multi-regime system for taxing businesses.

It’s not just the “multi-regime system.”  Partnership taxation is built on an extreme aggregate view of partnerships that was not true in 1954 (or before) and still isn’t true.  Even under the UPA’s tenancy-in-partnership, partners have no meaning individual rights in, or access to, partnership property.  Partnership property is dedicated to partnership purposes; all an individual partner has is the right to distributions (if, as and when approved by the partners).  RUPA-based partnership statutes now vest title to partnership property in the entity, and not the partners. 

It’s hard to ensure economic substance in partnership allocations when the partnership tax regime itself has no economic substance.  Well, apart from the tax regime itself.

Now, if I were the Tax Czar, I’d  like to see

  1. an entity-level income tax on all multi-owner businesses, with deductions of distributions to owners, and
  2. an income tax on distributions to owners, except for, in a liquidating distribution, the amount of the original investment.

That level would the field, both as between entities, and as between debt and equity. 

Hat-tip to Paul Caron (Tax Prof blog).

Gary Rosin

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