On Tuesday, the IRS issued T.D. 9682, which finalized proposed regulations relating to basis of indebtedness of S corporations to their shareholders that provide that S corporation shareholders increase their basis of indebtedness of the S corporation to the shareholder only if the indebtedness is bona fide, which is determined under general Federal tax principles and depends upon all of the facts and circumstances.
The final regulations were adopted without substantive change, other
than changes to the effective/applicability date and minor clarifying
revisions. Originally, the regulations were to apply to loan
transactions entered into on or after the final regulations were
published in the Federal Register. But in response to comments that
the rules should apply retroactively, the IRS decided to permit
taxpayers to apply the new rules to indebtedness in any transaction
that occurred in a year for which the statute of limitation on the
assessment of tax has not expired as of July 23, 2014. (For earlier
coverage of the proposed regulations, see “Proposed Regs. on Basis
for S Corporation Shareholders From Bona Fide
Indebtedness.”)
The IRS also finalized proposed
regulations on the deductibility of startup expenditures and
organizational expenses for partnerships following a termination of a
partnership under Sec. 708(b)(1)(B), (a technical termination) (T.D.
9681). In response to reports that some taxpayers have taken the
position that a technical termination of a partnership permitted an
accelerated deduction of unamortized amounts of startup and
organizational expenditures, the regulations provide that after a
technical termination, the new partnership must continue to amortize
the startup and organizational expenditures over the remaining portion
of the amortization period adopted by the terminating partnership.
The only change from the proposed regulations was a change in language that the IRS says is not intended to be a substantive change. In Regs. Sec. 1.708-1(b)(6)(i), “[U]sing the same amortization period adopted by the terminating partnership” has been changed to “over the remaining portion of the amortization period adopted by the terminating partnership” to clarify that the amortization period does not restart.
The final regulations apply to technical terminations of partnerships
that occur on or after Dec. 9, 2013.
—Sally P. Schreiber (
sschreiber@aicpa.org
) is a JofA senior editor.
