Taxation of Business Entities II: Pass-Through Entities

Go to Course: https://www.coursera.org/learn/taxation-business-entities-part-2

Introduction

### Course Review and Recommendation: Taxation of Business Entities II: Pass-Through Entities #### Overview The course "Taxation of Business Entities II: Pass-Through Entities" offered on Coursera provides a comprehensive introduction to the complexities of U.S. federal income taxation as it pertains to pass-through entities. This includes Subchapter S corporations, partnerships, and limited liability companies (LLCs). As the landscape of business entities evolves and the choice of organizational structures becomes increasingly pivotal for entrepreneurs and tax professionals, this course expertly unravels the relevant provisions of the Internal Revenue Code, Treasury Regulations, and judicial opinions that govern these entities. #### Course Structure The course is structured into eight modules, each systematically building on the last, ensuring a thorough understanding of both fundamental concepts and nuanced details in the taxation of various pass-through entities: 1. **Introduction to Course**: An essential orientation module where learners familiarize themselves with the course structure and technical requirements, setting the stage for an engaging learning experience. 2. **Partnership Formation**: This module dives into the nuances of forming partnerships, distinguishing them from other business entities. Key topics include nonrecognition provisions and the eligibility of legal persons in partnership. 3. **Partnership Operations**: Here, the operational dynamics of partnerships are dissected, focusing on how income and tax distributions are allocated to partners, including essential details on adjustments to outside tax basis. 4. **Partnership Distributions**: In this module, learners explore the tax treatments of various types of partnership distributions, enhancing their understanding of nonrecognition principles and distribution classifications. 5. **Partnership Sales and Terminations**: This segment covers the tax implications involved in buying and selling partnership interests, along with the complexities involved in partnership termination that tax advisors often face. 6. **Other Pass-Through Entities**: Beyond traditional partnerships, this module introduces additional pass-through entities like LLCs, LLPs, and S corporations, highlighting their unique structures and tax implications. 7. **S Corporation Operations**: A deep dive into S corporations, this module focuses on income measurement, allocation methods, and the implications of shareholder distributions, enhancing the learner's grasp of how these entities operate within the tax framework. 8. **Professional Tax Practice & Ethics**: Rounding off the course, this module examines the ethical standards and professional guidelines that tax advisors must adhere to, including the roles of the IRS and the penalties for non-compliance. #### Learning Experience What sets this course apart is its practical orientation; in-class study problems encourage a hands-on approach, allowing learners to apply theoretical concepts to real-world scenarios. This experiential learning fosters self-discovery and problem-solving, essential skills for any tax professional. The instruction is clear, concise, and punctuated with relevant examples that illustrate complex concepts, making this course suitable for both beginners and those with some background in taxation. Additionally, the course is conducted in a flexible online format, allowing learners to adjust their pace to fit their schedules. #### Recommendation I highly recommend "Taxation of Business Entities II: Pass-Through Entities" for anyone looking to deepen their knowledge of taxation concerning pass-through entities. Whether you are a current tax professional, a business owner, or a student aspiring to enter the field, this course offers invaluable insights and practical skills relevant to today’s tax environment. The depth and breadth of the material covered, alongside the ethical considerations in tax practice, equip learners not only with knowledge but with the ability to apply this knowledge effectively. With passing trends in tax legislation and business formation, understanding the taxation of pass-through entities is not just beneficial; it is essential for anyone operating in this field. Enrolling in this course is an investment in your professional development that will significantly enhance your expertise in taxation, making it a worthy addition to your academic or professional portfolio.

Syllabus

Introduction to Course

In this module, you will become familiar with the course, your instructor and your classmates, and our learning environment. This orientation will also help you obtain the technical skills required to navigate and be successful in this course.

In this module, you will be introduced to partnerships. We will delve into the formation of partnerships along with the characteristics that differentiate this form of business from other U.S. entities. This module focuses on the eligibility of legal ‘persons’ to form a partnership and the nonrecognition provisions and holding periods that apply to the contribution of such capital. Exceptions to the nonrecognition rules will be highlighted along with additional elections and treatments available to partnership formation.

In this module, you will be introduced to the operations of a partnership. We will examine how the operations of a partnership are a conduit by which transactions “pass through” to the partners. The module focuses on how the partnership measures and allocates the income based on the partner’s distributive share in accordance with the appropriate means of reporting. Next, we will discuss the appropriate adjustments to the partner’s outside tax basis in relation to the income, loss, and liability claims of the partnership. Finally, we will discuss the loss and related party limitations imposed on the partnership.

In this module, you will be introduced to the tax treatments of partnership distributions. We will first determine what is a distribution and how it is different from a partner’s share of partnership earnings. Partnership distributions will be further classified into proportionate operating, proportionate liquidating, and disproportionate distributions. We will then discuss the nonrecognition principle of partnership distributions, loss limitations, and exceptions to these general rules.

In this module, you will be introduced to the tax consequences of selling and terminating a partnership interest. We will explore the tax consequences to the buyer and seller in a transaction to sell a partner’s interest. You will learn to differentiate between sales subject to capital and ordinary gain. Since the partner’s capital account and tax basis often differ at the point of sale, you will learn about the § 754 election, which allows the buyer to step up the inside basis in the partnership. Finally, we will discuss the implications of partnership termination.

In this module, we will examine the concepts of pass-through entities with an introduction to other pass-through business models. We will analyze limited liability companies (LLC), limited liability partnerships (LLP), family partnerships, and Subchapter S corporations (S corp). We will discuss the unincorporated nature of the LLC, which offers both the limited liability of a corporation and the tax implications of a partnership. Next, we will discuss LLP and family partnership. We will also explore the increased limitation to liability and eligibility requirements necessary. Finally, we will analyze the qualifications and procedures for a corporation to elect S corporation status.

In this module, we will further examine the specifications of electing S corporation status. We will explore income measurement and allocation methods followed in passing through the earnings to the shareholders; including the differentiation between ordinary items and separately stated items. Next, we will discuss the calculation of the shareholder’s basis in the S corporation and how it is adjusted in accordance with company earnings. We will also explore loss limitations with respect to the shareholder’s tax basis and at-risk basis. Accordingly, you will be introduced to the implications of distributions from the company to the shareholder with special tax consequences. Finally, we will discuss the exceptions that subject the pass-through to entity level tax.

In this module, you will examine the ethical guidelines that encompass the professional tax practice. It will begin with a discussion of the mission and authority of the Internal Revenue Service (IRS), the enforcement agency overseeing the professional tax industry. Next, we will highlight the various penalties that can be assessed at the taxpayer level, both civil and criminal. Finally, you will be introduced to the ethical standards imposed upon tax advisors: Circular 230 and AICPA standards.

In this module, you will apply the concepts learned from previous lessons on corporate and pass-through entities to designed scenarios. You will analyze organizational form dilemma and four organizational form choices. The module will conclude with a summary and recommendation.