Owners of S corporations and partnerships are subject to numerous limitations on pass-through losses, each with unique rules, applications, and complexities. With the increase in popularity of pass-through business entities, it is essential for CPAs to understand the complexities and interactions of these pass-through loss limitations.
Learning Objectives
- Analyze how basis in an ownership interest in a pass-through entity is established
- Discuss how activity of the entity, distributions, and optional adjustments increase or decrease basis
- Discuss when basis is "at-risk" under Section 465, and the resulting loss disallowance and carryforward related to basis that is not at-risk
- Define passive activities under Section 469 and exceptions to the passive loss rules
- Discuss when and how aggregation of activities should be used to avoid the passive loss rules
- Analyze §461(l) created by the Tax Cuts and Jobs Act of 2017 and understand the limitation calculation and resulting carryforward
- Analyze the hierarchy of the loss limitations with examples of the application of the four tiers of losses and how they interact
- Use case studies to reinforce the learning objectives
Major Topics
- The Inflation Reduction Act of 2022
- Tier 1: Basis limitations for S corporation shareholders and partners
- Tier 2: Section 465 at-risk limitations for S corporation shareholders and partners, including the impact of debt, indemnities, guarantees, and shareholder/partner agreements
- Tier 3: Section 469 passive loss limitations and exceptions to the limitations
- Tier 4: The excess business loss limitation of the Tax Cuts and Jobs Act of 2017 (new §461(l)), American Rescue Plan Act, and Inflation Reduction Act
