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IRS Provides Transition Relief for New Schedules K-2 and K-3
Posted by Tracy Dalpe on Mar 18, 2022 1:40:01 PM

On February 16, the IRS issued additional relief for certain pass-through entities required to file new Schedules K-2 and K-3, along with a set of “Frequently Asked Questions.” The relief is outlined in News Release IR-2022-38 and Schedules K-2 and K-3 Frequently Asked Questions (Forms 1065, 1120S, and 8865). This additional relief was in response to the widespread commentary among tax return preparers and taxpayers in the current filing season. Under the new relief, certain taxpayers will not need to file the new Schedules K-2 and K-3 relating to partnerships and S corporations. 

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Topics: IRS, pass-through entities, Private Equity & Venture Capital, PE/VC, Schedule K-3, Schedule K-2

Key Private Equity Takeaways Related to Proposed Partnership Audit Rule Change
Posted by Claudia Mullen on Mar 16, 2021 12:36:45 PM

When released as part of the Bipartisan Budget Act of 2015 (the BBA), several elements of the IRS audit rules for partnerships and LLCs were unclear, including opt out rules, methods for modifying an imputed underpayment, and allocation of imputed underpayments. Despite these and other provisions that partnerships hoped the IRS would clarify before the centralized audit regime went into effect, the new rules were applicable starting with the 2018 tax year.

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Topics: IRS, Partnerships, Partnership Audit Rules, Private Equity & Venture Capital, PE/VC, QSub

The Final Section 163(j) Regulations and Their Impact on PE/VC Firms
Posted by Claudia Mullen on Feb 2, 2021 4:19:07 PM

The IRS has released additional final regulations for IRC Section 163(j), a provision that limits the amount of business interest expense a taxpayer can deduct. The business interest expense limitation, established by the tax reform law commonly known as the Tax Cuts and Jobs Act (TCJA) generally stipulates that 30% of adjusted taxable income (ATI) may be deducted by affected taxpayers in any given year. Any amount disallowed is carried forward indefinitely and may be deducted in a subsequent year. A small business exemption to the business interest limitation applies to taxpayers with average annual gross receipts for the three prior tax years of $26 million or less. Aggregation rules may make it more difficult to apply this small business exemption to portfolio companies owned by private equity (PE) and venture capital (VC) firms. Businesses that qualify as real property trades or businesses are also excluded from the limitation.

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Topics: IRS, Partnerships, Private Equity & Venture Capital, PE/VC, Sec. 704(b), Sec. 163(j), Debt-Financed Distributions

IRS Unveils 2020 Tax Basis Capital Reporting Requirement for Partnerships
Posted by Robert Kerr on Nov 12, 2020 2:08:28 PM

On October 22, the IRS made its opening foray into the expanded 2020 tax basis capital reporting requirement that will apply to all partnerships. The IRS news release summarizes proposed rules for the reporting requirement that are more fully described in draft Form 1065 instructions for the 2020 tax year. The 2020 reporting requirement is broadened from years past, with all balances of tax capital (both positive and negative) required to be reported. The IRS requested comments on the new reporting requirement and indicated that it may update the instructions based on the comments it receives. In any event, it is fairly clear that the IRS is resolved to move forward with the expanded reporting requirement for the 2020 tax year. Partnerships should form and implement a compliance plan now, as the scope and complexity of the calculations and data gathering will be impractical to administer at the same time that the 2020 return is filed.

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Topics: IRS, Partnerships, Private Equity & Venture Capital, PE/VC, tax capital reporting, Tax Basis Capital Reporting, Form 1065

Updated Sec. 163(j) Guidance for Private Equity & VC Funds
Posted by Claudia Mullen on Oct 27, 2020 11:27:38 AM

The Treasury Department issued final regulations (TD 9905) under Section 163(j), providing binding guidance for applying the limitation on the deductibility of business interest expense that was enacted as part of the Tax Cuts and Jobs Act (TCJA). Concurrently, Treasury issued proposed regulations (REG-107911-18) which address the application of certain facets of the limitation to partnerships, among other items.

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Topics: IRS, Partnerships, Private Equity & Venture Capital, PE/VC, Sec. 704(b), Sec. 163(j), Debt-Financed Distributions

The Impact of the Carried Interest Proposed Regulations on PE/VC
Posted by Robert Kerr on Sep 21, 2020 3:30:16 PM

The carried interest proposed regulations released on July 31, 2020 seek to interpret the three-year holding period requirement for carried interests that was first introduced in Section 1061 of the Internal Revenue Code (IRC), and issued as part of the tax reform law commonly known as the Tax Cuts and Jobs Act (TCJA). President Trump’s landmark tax law altered the timeline for when gains recognized in regards to an Applicable Partnership Interest (API) could qualify for long-term capital gains treatment. Beginning in 2018, capital gains from the sale of assets with a less than three-year holding period and allocated to an API holder will qualify for recharacterization from long-term to short-term. This holding period requirement also extends to a partner that sells his/her API in an external sale transaction.

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Topics: IRS, Private Equity & Venture Capital, PE/VC, carried interest, Carried Interest Regulations, section 1061

IRS Releases More Proposed Carried Interest Regulations
Posted by Claudia Mullen on Jul 31, 2020 4:12:10 PM

The IRS released proposed updates to clarify its carried interest rules, provisions that put restrictions on how much investment related income can qualify for a lower tax rate. The expansive proposed regulations released on July 31 are designed to provide some additional application and implementation guidance for private equity and venture capital fund managers to the carried interest regulations enacted by the tax reform law commonly known as the Tax Cuts and Jobs Act (TCJA).

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Topics: IRS, Private Equity & Venture Capital, PE/VC, carried interest, Carried Interest Regulations

IRS Proposes Additional Guidance on Partnership Tax Capital Reporting Requirement
Posted by Robert Kerr on Jun 17, 2020 4:49:17 PM

The IRS recently issued Notice 2020-43 (the Notice) to seek public comment on a proposed requirement for partnerships to use only certain accepted methods to satisfy the tax capital reporting requirement with respect to partnership taxable years that end on or after Dec. 31, 2020. Changes to the tax capital disclosure requirement had initially been slated for the 2019 tax year, but the IRS had delayed the requirement until the 2020 tax years for partnerships except those with negative tax basis capital balances.

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Topics: IRS, Private Equity & Venture Capital, PE/VC, tax capital reporting, Notice 2020-43

Cayman Islands Registration Affects Investment Firms
Posted by Scott Costa on Mar 17, 2020 6:04:00 PM

By Scott Costa, CPA and Brendan Donovan, CPA

Investment firms, including private equity and venture capital funds, with Cayman Islands domiciled investment vehicles may need to comply with new registration requirements later this year. The Cayman Islands government recently enacted two pieces of legislation called the Private Funds Law and the Mutual Funds (Amendment) Law that were passed into legislation on Feb. 7, 2020 and will affect small and closed-ended investment funds.

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Topics: FATCA, investments, IRS, CRS, Private Equity & Venture Capital, PE/VC, CIMA, Cayman Islands

IRS Delays Several Reporting Requirements for 2019 Partnership Tax Filings, Others Remain in Effect
Posted by Scott Costa on Dec 19, 2019 1:38:13 PM

The IRS recently announced that several information reporting requirements will be delayed for tax year 2019.

Tax Basis Capital Disclosure Requirement

In Notice 2019-66, the IRS noted that the expanded requirement to report partners’ shares of partnership capital on the tax basis method for all partners will not apply to 2019 returns. Notice 2019-66 delayed the requirement for one year. Partnerships are not wholly exempt from reporting partners’ shares of partnership capital in 2019; the requirement to report partners’ shares of partnership capital on the tax basis method is still in effect for those partners with negative tax basis capital balances.

The requirement to report partners’ shares of partnership capital on the tax basis method for all partners will be effective for partnership taxable years that begin on or after Jan. 1, 2020.

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Topics: IRS, Private Equity & Venture Capital, PE/VC

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