Posts Tagged ‘Check-the Box’

“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