Route To: Partners Managers Staff File LIST OF SUBSTANTIVE CHANGES AND ADDITIONS PPC's 1065 Deskbook Twenty fifth Edition (October 2014) Highlights of this Edition The following are some of the important update features of the 25th edition of PPC's 1065 Deskbook. Net Investment Income Tax (NIIT). The discussion dealing with NIIT has been expanded to provide coverage of the final and additional proposed regulations that were issued in December 2013. Tangible Property Regulations. Updated for the final tangible property regulations, including favorable elections that can be made on the 2014 Form 1065 and the 2014 revenue procedures governing changes in accounting methods. A table has also been added that summarizes the accounting method changes available under the final regulations. Schedule M 3. Changes have been made in the requirement to file Schedule M 3 for tax years ending on or after December 31, 2014, and the discussion on this topic has been updated accordingly. Election to Defer Cancellation of Debt Income. Updated the discussion of the special Section 108(i) election to defer cancellation of debt income from certain 2009 and 2010 debt discharge transactions to reflect 2014 tax reporting issues. 2014 Form and COLA Changes. Updated discussion throughout for presentation of income, deductions, credits, etc., on the 2014 versions of Form 1065, Schedule K 1, and the related forms and schedules, as well as the 2014 depreciation, fringe benefit, and retirement amounts. Proposed Regulations. Addressed proposed regulations in several areas that have been issued in 2014 dealing with topics such as contributions of built in loss property, allocations of recourse liabilities, and disguised sales. In addition to these featured items, your Deskbook includes the following update items: 1 Organizational, Syndication, and Start up Expenses 2 Contributions of Property or Services 1. Noted the finalization of regulations that address how to handle organization costs when a partnership technical termination occurs. 2. Noted the finalization of regulations that provide guidance on handling unamortized start up costs when a partnership technical termination occurs. 1. Updated discussion of substantial risk of forfeiture in connection with contributions of services in exchange for partnership interests to include guidance in new final regulations. 2. Clarified current status of proposed regulations on contributions of services in exchange for partnership interests. Key Issue 1A Key Issue 1C Key Issue 2H Key Issue 2H t65p14sub 1
4 Accounting Methods 5 Tax Elections 6 The TMP, Amended Returns, and Due Diligence in Form 1065 Preparation 7 Trade or Business Income 9 Nonbusiness Income 10 Installment Sales and Like kind Exchanges 11 Trade or Business Property Transactions 12 Debt Discharge Income and Foreclosures 15 Depreciation and Depletion 3. Added coverage of Tax Court s Crescent Holdings decision which confirms that IRC Sec. 83 applies to the receipt of a partnership interest in exchange for services provided to the partnership. 1. Noted the limitations on partnerships categorized as tax shelters on using the recurring item exception. 2. Updated for 2014 revenue procedures that enable partnerships to make automatic accounting method changes related to the tangible property regulations. 1. Noted that the election to file as a qualified joint venture can be made by same sex married couples. 1. Noted the statute of limitations on assessment runs separately for each partner not on the partnership. 1. The discussion on reporting payment card and third party network transactions has been updated due to changes to Form 1099 K. 1. The 3.8% net investment income tax (NIIT) discussion in this chapter has been updated to address the possible exclusions for rental income. 1. Expanded the list of situations in which electing out of installment reporting could prove beneficial. 2. Updated for the Mingo case disallowing the use of installment reporting for the portion of a note that represents unrealized receivables. 1. Clarified the use of Form 8949 (Sales and other Dispositions of Capital Assets) for reporting sales and other dispositions of capital assets. 1. Expanded discussion of looking through disregarded single member LLCs for purposes of excluding COD income from qualified real property business debt to include the new safe harbor rule established by Rev. Proc. 2014 20. 2. Updated discussion of the special Section 108(i) election to defer cancellation of debt income from certain 2009 and 2010 debt discharge transactions to reflect 2014 tax reporting issues. 3. Added discussion of the impact of a Section 108(i) election on an affected partner s Section 704(b) book capital account. 1. Updated to reflect final tangible property regulations which generally apply to tax years beginning on or after 1/1/14, including various taxpayer favorable elections that can be made on the 2014 Form 1065. Key issue 2H Key Issue 4B Key Issue 4E Key Issue 5C Key Issue 6D Key Issue 7B Key Issue 9D Key issue 10F Key Issue 10A Key Issue 11A Key Issue 12B Key Issue 12H Key Issue 12H Key Issues 15L and 15M 2
16 Retirement Plans and Fringe Benefits 17 Travel and Entertainment Expenses 18 Domestic Production Activities Deduction (Section 199) 20 Schedule K 1, Capital Account Reconciliation with Schedules M 1, M 2, and M 3 21 Pass through Items 23 Reporting Credits Allocated to Partners 24 Basis in the Interest (Outside Basis) 25 Partner s Basis from Liabilities 26 Making Valid Tax Allocations 1. Noted the implications of the Affordable Care Act with regards to health plans. 2. Updated throughout the chapter for cost of living adjustments to various retirement and fringe benefit amounts. 1. Added coverage of new final regulations on the tax treatment of business related local lodging expenses paid by or on behalf of employees and partners. 1. Updated for a 2013 directive that provided further guidance to examiners on determining who has the benefits and burdens of ownership of property when a business performs a qualifying activity under a contract with another business. 1. Updated the discussion for changes in the requirements to filing Schedule M 3 for certain partnerships. These changes in turn affect the requirement for partnerships to file Form 8916 A and Form 1065, Schedule C. 1. Updated for changes made to the Schedule K 1 on the 2014 draft form. 1. Noted that several credits have expired at the end of 2013, although it s possible that Congress may extend them retroactively for 2014. 2. Noted the issuance of a revenue procedure that provides a safe harbor for partnership allocations of rehabilitation tax credits. 3. Updated for the recently issued final regulations for the small employer health insurance credit. 1. Added discussion regarding the difference between regular tax and AMT basis in partnership interests when property with an AMT basis difference is contributed to the partnership. 1. Added a new key issue to summarize new Section 752 rules included in proposed regulations issued in early 2014. 1. Expanded discussion of partnership anti abuse rules to reflect recent developments. Key Issue 16C Throughout Key Issue 17E Key Issue 18B Key Issue 20K Key Issue 21A Throughout Key Issue 23C Key Issue 23F Key Issue 24B Key Issue 25J Key Issue 26B 3
27 When FMV and Basis of Contributed Property Differ Section 704(c) 29 At Risk Activities 30 Passive Activities 31 Transactions between Partners and s 32 Transfer of Interests and Basis Adjustments 33 Distributions and Basis Adjustments 35 LLCs and LLPs 36 The Hot Asset Rules Collapsible s 37 Death of a Partner 1. Added a discussion of rules in new proposed regulations that would apply when built in loss property is contributed to a partnership. 1. Added a discussion on the impact of partner guarantees of partnership qualified nonrecourse financing. 1. Added a discussion on when real estate foreclosure transactions can constitute complete dispositions of passive activities for purposes of freeing up suspended passive losses. 2. Updated the discussion of how the 3.8% net investment income tax (NIIT) applies to partnership interests. 1. Added a discussion regarding the potential application of the 3.8% net investment income tax (NIIT) to partnership allocations and payments to partners. 2. Added a summary of 2014 proposed regulations dealing with disguised sales. The proposed new rules would not become effective unless and until they are issued as final regulations. 3. Addressed the potential application of the 0.9% additional Medicare tax to guaranteed payments received for services rendered to a partnership. 1. Noted the issuance of proposed regulations that, when finalized, will provide guidance on making mandatory basis adjustments for substantial built in losses. 1. Noted the issuance of proposed regulations that, when finalized, will provide guidance for mandatory basis adjustments when distributions are made. Key Issues 27A, 27C, and 27F Key Issue 29D Key Issue 30B Key Issue 30H Key Issues 31B, 31C, 31E, and 31G Key Issue 31D Key Issues 31E and 31G Key Issue 32C Key Issue 33D 1. Updated the list of states that allow series LLCs. Key Issue 35A 1. Expanded the list of assets considered to be unrealized receivables for hot asset purposes. 1. Updated discussion of how the 3.8% net investment income tax (NIIT) rules may apply to partnership payments made upon the retirement or death of a partner. Key Issue 36A Key Issue 37C 4
38 Terminations, Mergers, and Divisions 1. Added coverage of IRS guidance regarding whether the sale of all partnership assets to some of the partners necessarily results in a cessation of the partnership s business, and a subsequent liquidation of the partnership, for tax purposes. 2. Added coverage on whether the retirement of a partner in exchange for Section 736 payments from the partnership counts as a sale or exchange for technical termination purposes. 3. Updated to cover new final regulations on the treatment of unamortized partnership organizational and start up costs after the partnership experiences a technical termination. Key Issue 38A Key Issue 38C Key Issue 38D Tables 1. Added a table that summarizes new tax law changes for 2014. Table T724 2. Added a table that summarizes the different cash method Table T725 options available to partnerships. 3. Added a table summarizing the accounting method changes available due to the issuance of final tangible property regulations. Table T726 5