Archive - February 2014
Yet Another “Trader” Argument Doomed at the Tax Court Level
As I’ve been following and discussing here on this blog, in the last few years the Tax Court has been on a roll. Everything that comes through its doors related to trader status and claiming ordinary losses from trading activities appears to be doomed from the get go if the taxpayer is an individual and does not carry on trades every single day of the year. God forbid the trader has another occupation from which it derives the majority of its income. That makes the Tax Court’s test for trader status almost impossible to meet for any non-trader professional that may be trading as...
February 26, 2014 read more
The AICPA Lends a Helping Hand to the IRS on Targeted Allocations
A few weeks ago the AICPA came out with a proposed draft targeted allocation ruling with the hope that the IRS will issue much needed guidance regarding whether this type of allocations work for Sec. 704(b) purposes. Targeted allocations are prevalent in private equity deals at the portfolio company level. Basically, instead of adopting a layer cake approach that follows the distribution waterfall, the targeted approach utilizes a targeted capital account that is based on that waterfall and allocates either net, or gross, income or loss of the partnership at the end of the year so that each...
February 25, 2014 read more
The Days of the Bottom-Dollar Guarantee Are Numbered
It is official. A few weeks ago Treasury released the promised Sec. 707 and 752 proposed regulations (REG-119305-11). While the Regulations propose various material changes that could affect funds and their business, the one that stands out is the obliteration of the “bottom-dollar” guarantee. While the “bottom-dollar” guarantee is most common in the real estate fund industry, it could show up in any type of leveraged partnership deal that attempts to divest an investor on a tax deferred basis. I would imagine that readers are familiar with the disguised sale leveraged distribution...
February 11, 2014 read more