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2008 Annual Tax Update: Corporations and Pass-Through Entities

Author/Moderator: Bill Harden, CPA, ChFC, Ph.D
Publisher: AICPA
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Description

This course has been updated to include content on the Emergency Economic Stabilization Act of 2008

In this course, you will find out about the latest federal tax law changes, court decisions and IRS pronouncements related to partnerships, LLCs and C and S Corporations. This course will help you identify ways to integrate the latest tax law changes into your planning and compliance engagements and provide more value-added services to your clients. With the ever changing tax laws and their increased complexity, you can’t afford to miss out on this course!

Objectives: 

  • Identify and comply with new tax changes
  • Utilize the latest planning ideas resulting from recent changes to tax statutes, regulations, cases and rulings

Prerequisite: Familiarity with federal tax issues for various entities

Table of Contents

  • Chapter 0 - Introduction
  • Chapter 1 - Corporate Formation and Liquidation
    • Learning Objectives
    • Transaction Designed as a Reverse Subsidiary Reorganization Treated as Stock Purchase and Subsequent Liquidation
      • Takeaway
    • Amended Regulations Regarding Transfers of Assets or Stock in Reorganizations
      • Takeaway
    • Succession to Items of Liquidating Corporation when Multiple Members Receive Assets
      • Liquidations
      • Deferred Items
  • Chapter 2 - Income and Deductions
    • Learning Objectives
    • M&IE Limitation in Employee Leasing Settings
      • Takeaway
    • Interim CEO Not Considered an Outside Director for the Compensation Limitation of ~§~162(m)
      • Takeaway
    • Payment Not Solely for Performance Goal - Involuntary Termination or Retirement Provisions
      • Takeaway
    • Production Activities Deduction - Regulations Reflect TIPRA Changes
    • Production Activities Deduction - Qualified Film and EAG Matters
      • Background
      • Film Changes
      • EAG
    • Instrument Issued and Redeemed in U.S. Dollars with Euro Based Return Is Euro Denominated Debt
      • Takeaway
    • Treatment of Medicaid Rebates Paid to State Agencies
    • Intercompany Gain with Respect to Group Member Stock
      • Background
      • New Guidance
    • Energy Efficient Commercial Building Deduction
      • Background
      • Government Owned Buildings
      • Interim Lighting Rule
      • Other Information Included
      • Takeaway
    • Geological and Geophysical Expenditures of Major Integrated Oil Companies
      • Background
      • Energy Act Increases Period to 7 Years
    • Final Regulations Taxation of Income Earned on Exchange Funds
      • Definitions
      • Loan Treatment
    • Losses on Abandoned Securities
      • Takeaway
    • Tool Reimbursement Plans
      • Takeaway
    • State and Local Location Tax Incentives
      • Takeaway
    • Final Regulations - Donees of Intellectual Property
      • Timber Gain and REITs
      • Background
      • Reduction in Corporate Timber Rate
      • Timber Gain Is Qualified REIT Income without 1-Year Period
      • REIT Prohibited Transaction Safe Harbor
      • Timber REIT
    • Housing Act REIT Changes
      • Foreign Currency Gain Excluded from Income Tests
      • Taxable REIT Subsidiary Limit Increased
      • Holding Period Safe Harbor
      • Health Care REIT
      • Effective Dates
    • Credit Card Reporting
    • Delay in Applying Worldwide Allocation of Interest
      • Background
      • Implementation Delayed
  • Chapter 3 - Taxes and Credits
    • Learning Objectives
    • Guidance Related to the New Energy Efficient Home Credit
      • Certification
      • Software
      • Manufactured Homes
    • Withholding on Supplemental Wages
      • Supplemental Wages
      • Aggregate and Optional Flat Methods
      • Percentage and Wage Bracket Methods for Regular Wages
      • Examples
      • Takeaway
    • Final Regulations Related to Employment Tax Adjustments
      • Background
      • Interest-free Adjustments
      • Payments
      • Refunds
    • Energy Act Extends FUTA (0.2%) Surtax through 2008
    • ACE Adjustment - Life/Nonlife Consolidated Groups
      • Facts
      • Analysis
      • Takeaway
    • Adjustment to Students Not Disqualifying a Low Income Housing Unit for ~§~42 Purposes
    • Differential Military Pay as Wages - Heroes Act ~§~105
      • Background
      • Differential Pay within Definition of Wages
    • Employer Wage Credit for Activated Military Reservists - Heroes Act ~§~111
      • Background
      • Employer Wage Credit
    • 990-T Availability
      • Background
      • Notice 2008-49 Guidance
    • Certain Domestically Controlled Foreign Persons Performing Services under Contract with the U.S. Treated as American Employers - Heroes Act ~§~302
      • Background
      • Controlled Foreign Persons Subject to FICA
    • Biofuel Credit
      • Background
      • Change to Credit
    • Alcohol Credit
      • Reduction in Rate
      • Limit on Denaturants
    • Modification of Awards - ~§~~§~48A and 48B
      • Background
      • Modification of Awards
    • Security Tax Credit
      • Housing Credit Changes
      • Temporary Increase in Allocation
      • Increase in Applicable Percentage
      • Modifications to Eligible Basis
      • Other Reform of Low-income Housing Incentives
      • Treatment of Basic Housing Allowances for Income Eligibility
      • Recycling Tax Exempt Debt
      • Coordination of Low-income Housing Credit and Qualified Residential Rental Project Exempt Facility Bonds
      • Hold Harmless Provision
      • Annual Recertification Requirement
    • Other Housing Act Bond and Credit Related Issues
      • Modifications to Qualified Private Activity Bond Rules for Housing
      • AMT Related Issues
      • Bonds Guaranteed by Federal Home Loan Banks
      • Modification Related to FIRPTA Nonforeign Affidavits
      • Modification of the Definition of Tax-Exempt Use Property for the Rehabilitation Credit
      • Mortgage Revenue Bonds in Presidentially Declared Disaster Areas
    • Election to Accelerate Research and Minimum Tax Credits
    • Corporate Estimated Tax Gimmickry Changes Again
  • Chapter 4 - S Corporations
    • Learning Objectives
    • S Corporation Contributions of Appreciated Property - Basis Affects
      • Takeaway
    • Proper EIN in F Reorganizations Involving QSubs
      • Takeaway
    • Two Percent Shareholder for-AGI Health Deduction
      • Takeaway
    • Key Person Life Does Not Increase AAA
      • Takeaway
    • S Corp Bank Changing from Reserve Method
      • Background
      • Election Mechanics
      • Takeaway
    • Capital Gains from Stock Sales - Not Passive Investment Income
      • Takeaway
    • Excess Passive Income in an S Corporation
      • Takeaway
    • Interaction of Built-In Gains and ~§~481 Adjustments
      • Review of Built-in Gain Rules
      • Facts
      • Analysis
      • Takeaway
    • S Corporation Changes in the Mortgage Forgiveness Act of 2007
      • Failure to File S Corporation Return
      • Disclosure of S Corporation Return to Shareholder
    • Late S Election Relief
      • New Relief for S Election
      • New Relief S Election and Entity Classification
      • Takeaway
  • Chapter 5 - Partnerships and Partners
    • Learning Objectives
    • Substantial Economic Effect - Look-Through Entity Partners
      • Substantial Economic Effect
      • Final Regulations
    • Partnership Changes in the Mortgage Forgiveness Act of 2007
      • Failure to File Partnership Return
      • Disclosure of Partnership Return to Partner
      • Section 6698 Penalty Increase by $1 for Years Beginning in 2008
    • Partnership and Trust Auto Extension Reduced
      • Takeaway
    • LLC Allowed to Revoke Election Out of Installment Method Due to Accountant's Error
      • Takeaway
    • Distinguishing Management Fees of Upper and Lower Tier Partnerships
      • Takeaway
    • Income Timing of Crop Insurance Proceeds
      • Facts
      • Analysis
    • ~§~704(c) Anti-abuse - Proposed Regulations
      • Background
      • Proposed Guidance
  • Chapter 6 - Owner-Entity and Related Party Transactions
    • Learning Objectives
    • Corporate Distributions - Tax Fraud - Boulware Case - Supreme Court Decision - 128 SCt 1168 (2008)
      • Background
      • Supreme Court Decision
      • Takeaway
    • Repayment of Loan versus Corporate Distribution
      • Facts
      • Holding
      • Takeaway
    • Bad Debt Deduction with Corporate Grantor
      • Takeaway
    • Allocation of Additional Tax and AMT Exemption Reduction in Controlled Groups
      • Reduction in Tax Benefits
      • Proportionate Method
      • FIFO Method
      • AMT Exemption Reduction
      • Testing Dates and Periods
    • Final Regulations Excess Benefit Transactions
    • DAT Transactions Are Listed Transactions
  • Chapter 7 - Accounting Periods and Methods
    • Learning Objectives
    • Safe Harbor for Rolling Method of Inventory
      • Takeaway
    • Use of the Recurring Item Exception for Payroll Taxes on Vacation Pay and Bonuses
      • Takeaway
    • Withdrawal of Proposed Regulations Affecting Receivables Acquired for Services
    • Correcting Inventory Calculation - Accounting Method Change
      • Facts
      • Holding
      • Takeaway
    • Alternative Dollar-Value LIFO Pooling Method for Vehicles
      • Vehicle-Pool Method
      • Takeaway
    • Treatment of Expenditures Related to Tangible Assets - Deduct or Capitalize
      • Materials and Supplies
      • Capital Expenditures
      • Facilitative Costs
      • De Minimis Rule for Acquisition or Production of Property
      • Improvements
      • Routine Maintenance Safe Harbor
      • Betterments
      • Restoration
      • Optional Regulatory Accounting Method
      • Repair Allowance
      • Method Change
    • Proposed Regulations for Construction Contracts
      • Background
      • Proposed Guidance
    • Percentage of Completion Method Allowed
      • Facts
      • Reasoning
  • Chapter 8 - Depreciation and Amortization
    • Learning Objectives
    • Section 179
      • Background
      • Current Limits
      • Go Zone and Enterprise Zones
    • Bonus Depreciation
      • Property Requirements
      • Binding Contract
      • Electing Out and AMT
      • Self-Constructed, Sale-Leaseback, and Related Parties
      • Increased ~§~280F Limit
      • Original Use
      • Interaction with ~§~179 and Regular MACRS
      • Placed in Service and Disposed in the Same Tax Year
      • Like-kind Exchanges and Involuntary Conversions
      • Change in Use
      • Other Items
    • Depreciation of Race Horses
      • Background
      • Under Two-Year-Old Horses Are Three-Year Property (2009-2013)
  • Chapter 9 - Retirement Plans and Fringe Benefits
    • Learning Objectives
    • Limitation Amounts
      • Plan Limits
      • IRA Limits
    • Pension Protection Act Guidance
      • Rollovers to Roth IRAs
      • Additional Survivor Annuity Options
      • Interest Rate
      • Gap Period Earnings
    • HSAs
      • Adjusted HSA Amounts for 2008 and 2009
      • Final Regs - Comparable Contributions - No HSA on December 31
      • Proposed Regulations
      • Notice 2008-52
      • Notice 2008-51
      • Other Guidance
    • Parity in Mental Health Benefits - Heroes Act ~§~401
      • Background
      • Extension for One Year
  • Chapter 10 - IRS Compliance Matters
    • Learning Objectives
    • Change in Realistic Possibility Standard and Return Preparer Definition - Updated Guidance
      • Background
      • 2007 Transitional Relief for Return Preparer Penalties
      • Notice 2008-13, 2008-3 IRB 282, Interim Rules
      • Supplemental Guidance to Notice 2008-13
    • Proposed Regulation Changes Related to Preparer Penalties
      • Electronic Filing
      • Responsibility
      • Disclosure
    • Disclosure of Tax Return Information by Preparers and Consent
      • Penalties
      • Preparer
      • Information
      • Use and Disclosure
      • Consent
      • Permitted Disclosures without Consent
      • Disclosure to Other Preparers and Contractors
      • Provision of Consent
      • Consent or Disclosure for the Form 1040 Series
    • Form Disclosure for ~§~6662(d) and ~§~6694(a) - Years Beginning by December 31, 2007
      • Background
      • New Guidance
    • Contingent Fee Guidance
    • IRS Commissioner's Term
    • Authority to Disclose Return Information for Certain Veterans Programs Permanent - Heroes Act ~§~108
      • Background
      • Authority to Disclose to Veterans Affairs Permanent
    • Minimum Penalty for Failing to File - Heroes Act ~§~303
      • Background
      • Amount Increased
  • Chapter 11 - Practice Aids
    • Learning Objectives
    • Tax Rate Schedules for 2008
      • Married Individuals Filing Joint Returns and Surviving Spouses
      • Heads of Households
      • Unmarried Individuals (Other than Surviving Spouses and Heads of Households)
      • Married Individuals Filing Separate Returns
      • Estates and Trusts
      • Corporations
    • Circuit Court of Appeals by State/Territory
    • 2008 Mileage Rates
      • January 1 through June 30, 2008
      • July 1 through December 31, 2008
    • Maximum Auto Value Amounts
    • Auto Depreciation Limits - ~§~280F
    • Lease Inclusion Amounts - ~§~280F
  • Chapter 12 - Ethics Focus: Taxation
    • Ethics Overview
    • Recent Developments
    • Spotlight on Independence in Tax Services
    • Key Ethical Dilemmas and Judgment Calls
    • Addressing Ethical Dilemmas
    • Available Resources
  • Chapter 13 - Latest Developments
  • Appendix A
  • Introduction
  • Start-up Expenditures New Regulations
    • Start-up Costs
    • Organizational Costs
    • Effective Dates
  • ~§~1031 Exchange - Development Rights for Fee Interest
    • Takeaway
  • Supplemental Unemployment Compensation Benefits - CSX Corp.
    • Facts
    • Analysis
  • Qualifying Joint Ventures
    • Self-Employment Tax - Qualifying Joint Venture Election
    • IRS Website Information
  • Business Interest of Securities Trading Partnership Subject to ~§~163(d) Limitation at the Partner Level
    • Takeaway
  • Additional Detail on Interest Expense of Partnerships
    • Takeaway
  • Further Practical Guidance on Investment Interest of Partners
  • DRO Did Not Increase At-risk Amount
    • Facts
    • Analysis
    • Takeaway
  • Indexing Amounts SECA Optional Methods
    • Background
    • Indexing to Provide Coverage
  • Disposing of Unused Health Benefits in a FSA - Heroes Act ~§~114
    • Background
    • Qualified Reservist Distributions Allowed
  • Postponement of Deadlines in Disaster Cases
  • Qualified Conservation Contributions
    • Background
    • Provision Extended Two Years
  • Farm Act Loss Limitation
    • Background
    • Limitation on Farm Losses
  • Farm Endangered Species Recovery Plan Expenses
    • Background
    • Endangered Species Included
  • Kansas Disaster Area Provisions
    • Casualties
    • Involuntary Conversions
    • Employee Retention Credit
    • Special Depreciation
    • Section 179
    • Expensing Demolition and Clean-up Costs
    • Public Utility Property Disaster Losses
    • Net Operating Losses Due to Storms
    • Income Eligibility for Qualified Residential Rental Projects
    • Using Retirement Funds
  • Housing Act Changes to Go Zone Incentives
    • Use of Amended Returns for Hurricane-Related Casualty Loss Grants
    • Waiver of Deadline on Construction of Go Zone Property for Bonus Depreciation
    • Inclusion of Certain Counties in Go Zone for Tax-Exempt Bond Financing
  • S Corporation Attribution Reduction for Excluded COD Income - Proposed Regulations
  • Forced Sale of S Corporation Shares Contested
    • Facts
    • Tax Court Analysis
    • Circuit Court
    • Takeaway

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Excerpts

Chapter 0 - Introduction

This update will review sections of multiple laws passed since last year's update. They are labeled in the update as follows:

  • The Housing Assistance Tax Act of 2008 - Housing Act
  • The Heartland, Habitat, Harvest and Horticulture Act of 2008 - Farm Act
  • The Heroes Earnings Assistance and Relief Act of 2008 - Heroes Act
  • The Economic Stimulus Act of 2008 - Stimulus Act
  • The Mortgage Forgiveness Debt Relief Act of 2007 - Mortgage Act

In addition to these laws this course will discuss guidance from both the executive and judicial branches. Given the volume of statutory, administrative, and judicial guidance that is issued every year, it is impossible to cover all items. The goal of this course is to provide insight into the areas deemed most likely to affect CPAs in general practice. The table of contents lists the topical coverage of this course.

In addition to formally published guidance, this update includes some cases that are listed as unpublished opinions by the various courts. These cases are not included in the update to be used as precedent. Legal advice should be sought before such use is made. They are included, however, to provide the participant in this course with knowledge of how the courts are interpreting matters of interest. Likewise, private rulings issued by the Service, while only binding, with regard to that particular taxpayer, are useful to practitioners in identifying the Service's opinion of various issues for which higher levels of administrative guidance have not been issued.

Throughout the text, references made to the Service should be taken by the reader to mean the Internal Revenue Service (IRS) unless otherwise noted. Similarly, in some cases in which the statutory guidance refers to either the Secretary or Commissioner, the author may have substituted the term Service. This is done for simplicity since the Service is the designee of the Secretary in the case of tax matters. Use of the word Section (at the beginning of sentences or paragraphs) or the § symbol (within sentences) throughout the course should be taken to mean the relevant section of the Internal Revenue Code unless otherwise noted.

It is important to note that as of the time this manual went to print, many expiring provisions have not yet been extended to cover 2008. It will be important that practitioners watch for changes in this area prior to filing 2008 returns. Some of the major provisions not yet extended for 2008 include the following:

  • AMT Exemption Patch
  • Use of Most Individual Credits for AMT
  • Sales Taxes Instead of State Income Taxes as an Itemized Deduction
  • Tuition and Fees Deduction
  • For-AGI Educator Deduction
  • Distributing IRA Amounts Directly to Charities if 70 ~½~ or Over
  • 15 Year Expensing of Qualified Leasehold Improvements
  • 15 Year Expensing of Qualified Restaurant Property
  • Research Credit
  • Indian Employment Credit
  • DC Homebuyer Credit

Chapter 1 - Corporate Formation and Liquidation

Learning Objectives After completing this chapter you should be:

  • Updated regarding reverse subsidiary reorganizations.
  • Updated regarding the amended Regulations for transfers of assets or stock in reorganizations.
  • Updated regarding the succession to items of a liquidating corporation.

Transaction Designed as a Reverse Subsidiary Reorganization Treated as Stock Purchase and Subsequent Liquidation

Revenue Ruling 2008-25, IRB 2008-21, examines a merger of a corporation's newly-formed subsidiary into a target corporation, which is subsequently followed by the liquidation of the target. The Ruling determined that this did not qualify as a reverse subsidiary reorganization. It was instead determined to be a qualified purchase of stock followed by a liquidation of the target. Section 368(a)(1)(A) defines a reorganization as a statutory merger or consolidation, commonly referred to in practice as a state law merger or an A reorganization.

Section 368(a)(2)(E) provides that a transaction otherwise qualifying as an A reorganization is not disqualified simply because stock of a corporation in control of the merged corporation is used in the transaction, provided certain requirements are met. To meet these requirements, after the transaction, the corporation surviving the merger must hold substantially all of its properties and of the properties of the merged corporation (other than stock of the controlling corporation distributed in the transaction). In addition, the former shareholders of the surviving corporation must have exchanged, for voting stock of the controlling corporation, stock in the surviving corporation which constitutes control of that surviving corporation. The Ruling notes that additionally, Regulation §1.368-2(j)(3)(iii) provides that assets transferred from the controlling to the merged corporation as part of the plan of reorganization are not taken into account as part of the substantially all test with regard to the merged corporation.

Section 368(a)(2)(B) provides for a B reorganization, commonly referred to as a stock for stock reorganization, which involves one corporation acquiring substantially all of the properties of another corporation, and which would qualify under §368(a)(1)(C) except that the acquiring corporation exchanges money or other property in addition to voting stock, and the acquiring corporation acquires, solely for voting stock described in §368(a)(1)(C), property of the other corporation having a fair market value which is at least 80% of the fair market value of all of the property of the other corporation. In this type of reorganization, any liabilities assumed by the acquiring corporation are treated as money paid for the property. Section 368(a)(1)(C) provides for a C reorganization, commonly referred to as an assets for stock reorganization, which involves the acquisition by one corporation, in exchange solely for all or part of its voting stock, of substantially all of the properties of another corporation. In addition, in determining whether the exchange is solely for stock, the assumption by the acquiring corporation of a liability of the other shall be disregarded.

The Ruling notes that Regulation §1.368-1(a) generally provides that in examining the qualifications of a reorganization, the step transaction doctrine must be considered along with any other relevant provisions of the Code.

733691

Videocourse Details

NASBA Field of Study: Taxes
Level: Update
Recommended CPE Credit: 21
2008 Annual Tax Update: Corporations and Pass-Through Entities
Text
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