Partnership Tax Seminars | TaxConnections

Access Leading Tax Experts And Technology
In Our Global Digital Marketplace

Chevron Dethroned: Supreme Court Reverses Course On Deference

On June 28, 2024, the US Supreme Court overturned its 40-year-old precedent concerning deference (often referred to as “Chevron deference”) given to a federal agency’s interpretation of a statute in Loper Bright Enterprises, et. al., v. Gina Raimondo, No. 22-451 (S. Ct. 2024). Since the issuance of the Loper Bright opinion, tax professionals have been speculating as to the impact of the opinion. For example, see our email blast on July 2, 2024.

Exhibit 2 from the 2022 Tax Forum was a simplified version of the facts in the case of Tribune Media Co., et al. v. Commissioner, TC Memo 2021-122 (Oct. 26, 2021), which involved the sale of the Chicago Cubs to the Ricketts family. Unlike the senior debt, the junior debt was determined by the court to be equity and, therefore, treated as additional sale consideration rather than a debt-financed distribution under Reg. §1.707-5(b) (that is not tainted by the disguised sale rules). One of the issues in Tribune Media, now pending in the Seventh Circuit Court of Appeals, is the “general” partnership anti-abuse rule of Reg. §1.701-2, which is the topic of today’s email.

On July 3, 2024, counsel for Tribune Media submitted a letter to the Seventh Circuit Court of Appeals about the impact of Loper Bright on the validity of the partnership anti-abuse rule of Reg. §1.701-2. In the letter, counsel claimed that the regulation is an “extraordinarily broad assertion of agency authority,” and that “the agency [i.e., Treasury] even contends that it can invalidate a transaction that follows ‘the literal words’ of a statute that Congress enacted.” Counsel reiterated that “Loper Bright confirms that this Court should scrutinize [Treasury’s] assertion of authority carefully to ensure that the agency stayed within permissible statutory bounds.”
Read More

Written by TaxConnections Admin | Posted in Partnership Tax Seminars • Partnership Training • TaxConnections

Alert: Advisors To Clients Who Have Created Family Limited Partnerships

We wanted to share with you a topic discussed at last week’s live Q&A session, which was held during one of this spring’s Fundamentals of Flow-Through® Partnership, LLC & S Corporation Tax Seminars. FYI: As noted below, there are two more spring programs coming up shortly!

Many of us are advisors to clients who have created family limited partnerships (“FLPs,” generally formed as LLCs), which hold marketable securities and often have been used to make “discounted” gifts to family members. Presumably, when such an FLP has been formed, the investment company rules of §721(b) have been properly navigated to avoid gain recognition on the contribution of any appreciated securities to the FLP. Very generally, gain will be recognized on the contribution of appreciated property to a partnership when, post-contribution, more than 80% of the value of the partnership’s assets consists of stock and securities (even if non-marketable) and the contributor obtains “diversification.”

What sometimes has been overlooked is that the rule is NOT that a contribution of stock or securities to an investment company can be taxable, rather a contribution of any property to an investment company where the contributor obtains diversification is taxable to the contributor. For example, assume there is an FLP that holds exclusively stock and securities with a value of $1.8 million, which FLP is owned by non-grantor trusts created for family members. Parent decides to contribute to the FLP a parcel of appreciated real estate (held in a single-member LLC) having a value of $200,000 in exchange for a 10% FLP interest with a view to making gifts of the 10% FLP interest at a later date. This contribution will be taxable to the parent, because (1) post-contribution the FLP is an investment company by virtue of more than 80% of its assets consisting of stock and securities, and (2) parent has obtained diversification by reason of “exchanging” 100% ownership of the real estate for a 10% interest in the real estate and a 10% interest in the stock and securities owned by the FLP.

It is easy to avoid this trap. Just form a new FLP (that is a recognized entity) and make gifts to the same trusts that had received gifts of interests in the securities FLP. The cost of a new and virtually identical FLP agreement should not be too costly, and the cost of filing an additional partnership tax return likely is relatively small.

Written by TaxConnections Admin | Posted in Partnership Tax Seminars