Daily Tax Update - April 13, 2009


TREASURY, IRS ISSUE PROPOSED REGULATIONS RELATING TO DETERMINATION OF DISTRIBUTIVE SHARES WHEN PARTNERS’ INTERESTS VARY DURING TAXABLE YEAR:  Today, the Treasury and IRS issued long-awaited proposed regulations under Code section 706 regarding the determination of partners’ distributive shares of partnership items when any partner’s interest in a partnership changes during the taxable year of such partnership. The proposed regulations generally incorporate legislative changes made to Code section 706 in 1984 and 1997.

  • Under the proposed regulations, if a partner’s interest changes during the partnership’s taxable year, the partnership must use the interim closing method to determine each partner’s distributive share of partnership items, although the partnership may, by agreement of the partners, use the proration method. A partnership must use the same method for all variations in the partners’ interests during any single taxable year of the partnership.
  • The proposed regulations apply in all cases in which a partner’s interest changes during the partnership taxable year, whether through a disposition of the partner’s entire interest in the partnership or a disposition of less than the partner’s entire partnership interest.
  • Special safe-harbor rules are proposed for certain service partnerships and publicly-traded partnerships.
  • The proposed regulations do not preclude changes to certain allocations among contemporaneous partners resulting from amendments to the partnership agreement made by the due date of the partnership return (excluding extensions).
  • The proposed regulations also reflect the change to Code section 706(c)(2)(A) in 1997, which requires that the taxable year of a partnership closes with respect to a partner who dies.
  • The proposed regulations also amend the rules for determining the taxable year of a partnership when partnership interests are held by disregarded foreign partners.
  • The proposed regulations would be effective for partnership taxable years that begin after the date the final regulations are published, but not before taxable years beginning after December 31, 2009.
  • For additional information, contact Mark J. Silverman - msilverman@steptoe.com or Aaron P. Nocjaranocjar@steptoe.com 

IRS LISTS “DIRTY DOZEN” TAX SCAMS FOR 2009:  Today, the IRS released its list of “dirty dozen” tax scams for 2009, including schemes involving phishing, hiding income offshore and false claims for refunds. Additional items on the list include:  abuse of charitable organizations and deductions, return preparer fraud, frivolous arguments, false claims for refund and requests for abatement, abusive retirement plans, disguised corporate ownership, zero wages, misuse of trusts, and fuel tax credit scam.

  • IRS Commissioner Doug Shulman said, “Taxpayers should be wary of scams to avoid paying taxes that seem too good to be true, especially during these challenging economic times. There is no secret trick that can eliminate a person’s tax obligations. People should be wary of anyone peddling any of these scams.”
  • Additional information can be accessed here

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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