December 18, 2015

Tax Exemption for QSBS Made Permanent by Congress

As an annual tradition, Congress passes a package of tax breaks that typically last 1 to 2 years and have come to be known as the “tax extenders.” That package includes a tax break for certain sales of “qualified small business stock” under Section 1202 of the tax code. Prior to the Great Recession, up to $10 million of gain on sales of qualified small business stock were eligible for 50% gain exclusion, but the other 50% — the taxed half — became ineligible for long-term capital gains rates. (Also, the excluded half was subject to the alternative minimum tax.) As a result, the blended tax rate on gains from QSBS was about the same as the tax rate on sales of non-QSBS, making Section 1202 largely dead wood.

August 11, 2015

IRS Quietly Reverses Course on Minimum Partner Allocations

Treasury has reversed course on minimum “floor” allocations in proposed revisions to the partnership tax regulations. Often, partnerships (and LLCs taxed as partnerships) allocate a percentage of their income to a particular partner, but provide a minimum allocation amount. Current IRS regulations bless these allocations by explicitly providing that the entire allocation is treated as the partner’s “distributive share” of partnership income if the “floor” is surpassed by the percentage amount. The current rules state that “guaranteed payment” treatment results only to the extent that the minimum “floor” is triggered. However, the IRS is proposing contrary treatment in newly proposed regulations that addressing private equity management fee waivers (a different but related issue).

July 28, 2015

Proposed Regulation Defuses One 83(b) Election “Landmine”

The IRS published a proposed regulation change that removes the requirement that taxpayers file a copy of their 83(b) elections with their tax returns. As explanation, the IRS pointed to its goal of encouraging more taxpayers to use e-filing, which is often not possible for taxpayers attempting to include their 83(b) election copy with their e-filed federal income tax return. The IRS has proposed that this change be effective for transfers occurring on or after January 1, 2016, but has also stated that taxpayers may rely on this guidance for transfers occurring on or after January 1, 2015.

July 14, 2015

A 1-Year Update on the Streamlined 501(c)(3) Application Process

The IRS released its streamlined Form 1023-EZ process about a year ago, in an effort to reduce the cost and processing time for most small charities seeking 501(c)(3) status. Most charity professionals lauded the move initially, but it’s worth revisiting a couple aspects of the streamlined process after a full year in effect.

December 10, 2014

Should Philanthropists Stop Giving to Donor-Advised Funds (and Start Their Own Private Foundation)?

A recent article in the New York Times succinctly captures the spirit of a growing body of opinion that donor-advised funds (DAFs) are oversold as vehicles for charitable giving. As the argument goes: too much money is growing within DAFs and is not being efficiently deployed toward the social and charitable goals for which it was intended. (In some situations, donors have claimed that DAF assets were used inconsistently with the donor’s wishes.)