Inadequate Tax Basis: Leveraging Basis Rules for S Corporations

Regulations addressing IRC §1366 debt basis issues have perplexed S corporation shareholders in their quest to use S corporation losses. However, proper planning of transactions will help businesses adhere to the requirements of IRS final regulations and avoid misapplying legal doctrine.

The tax rules treat S corporations differently from partnerships. Specifically, while subchapter K permits a partner to include his allocable share of third-party partnership debt in the partner’s basis, subchapter S does not. This difference in treatment affects business transactions and the taxation of the business’ operations. Counsel must be prepared to leverage the latest IRS regulations to resolve these concerns.

Failure to structure third-party and self-funded debt properly can have a devastating impact on the ability of S corporation shareholders to utilize S corporation losses. The problem is exacerbated by the fact that S corp shareholders often do not realize errors until after the fact.

Listen as our experienced panel carefully reviews and provides guidance on addressing inadequate basis issues uniquely applicable to S corporations. The panelists will discuss the circumstances addressed by the IRS final regulations to include the use of guaranteed and back-to-back loans and the “incorporated pocketbook theory.”

1. Overview of final IRS regulations
2. Guaranteed loans to S corporation
3. Incorporated pocketbook theory
4. Back-to-back loans

The panel will review these and other key issues:

• How have the IRS’ final regulations addressed the inadequate basis issues that S corporations face? How must counsel leverage these regulations?
• What techniques are available to S corporations to maximize recognition of economic losses?
• How must counsel navigate confusing and inconsistent legal precedent involving the use of guaranteed loans, back-to-back loans and the incorporated pocketbook theory?

Learning Objectives

After completing this course, you will be able to:

• Identify inadequate basis issues uniquely applicable to S corporations
• Ascertain the use of guaranteed and back-to-back loans and the “incorporated pocketbook theory”
• Recognize the requirements of IRS final regulations addressing inadequate basis issues

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules; supervisory authority over other preparers/accountants. Working knowledge of S Corporation structure, shareholder agreements and liquidation.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).