Tax Section Webinar Q & A

If a non-member signs the return can this be made valid by a retroactive designation of that person as a member? While it generally is true that an unauthorized action can be retroactively ratified, that rule probably does not apply to an improperly signed tax form.

What if you have a Manager-managed LLC and the sole Manger is not a member? Who has authority to sign Form 1065? Can you name a Member as a limited scope Manager? Example: Corp = Member and Individual A = Manager of Manager-managed LLC. What needs to be done? Only a member of the entity can sign the form. If the sole manager is not a member, then a member (who by definition is not a manager) must sign.

How do you handle the EIN when the LLC changes entity status? Treasury Regulation §301.6109-1(h)(1) says:  "Any entity that has an employer identification number (EIN) will retain that EIN if its federal tax classification changes under section 301.7701-3."  So a change in classification that is attributable simply to a “check the box” election should not result in a change in EIN.

If the TMP is not designated in the LLC operating agreement can the TMP be designated by a member consent or meeting? So long as the amendment procedure is valid under applicable state law, the amendment should be binding on the government.

How will the "2 removed for every new rule" effect the audit rules? Hard to know: at the moment, the rules applies to every agency including the Treasury.

How will the freeze on hiring (including IRS employees) effect probable effect of audits? The audit rate will decline. Presumably the IRS will focus on taxpayers likely to generate significant revenue from an audit.

Can you explain more about the transferee liability on distributions? Section 6901 authorizes the collection of a tax liability "at law or in equity, of a transferee of property of a taxpayer." Transferee liability usually is based on a state fraudulent conveyance statute or explicit state law authorizing transferee liability although the potential for federal common law under this statute is a possibility. Fraudulent conveyance usually requires a transfer for less that full and fair consideration in money or money's worth and usually has a limited time period. Note that shareholders of a corporation who receive distributions in liquidation from the corporation can be subject to transferee liability even though the underlying shares were acquired for full consideration.

To be clear an LLC consisting of mom and dad and a grantor trust for the kids MAY be subject to the new rules. Absent guidance to the contrary, yes.

May the partnership representative be an entity rather than a living breathing indiviudal? Yes, any "person" having a substantial US presence can be the PR.

Can more than one person be designated the PR? This does not seem to be allowable under the statute unless the individuals form an entity (such as corporation) and then the corporation is designated the PR.

Are tax-exempt orgs. ineligible members disqualifying election out? So long as the exempt organization is a C corporation, the answer should be no.

Under TEFRA and BBA if a member that is a trust is disregarded revocable trust does it still disqualify the LLC from opting out? Or is that an individual for this purpose? Under TEFRA, a recvocable trust should be fatal to election out, just as a DRE is fatal. Under the new rules, the answer is less clear. The courts have divided over the proper treatment of a granter trust. See Abrams & Witt, 704-2nd T.M., Disregarded Entities, at A-1.

What is the effect of a partnership technical termination between the reviewed year and the adjustment year? What if the technical termination occurs by reason of a reverse merger in which the state law entity being adjusted continues in existence? Under Rev. Rul. 2008-18, 1008-13 I.R.B. 674, the surviving corporation of an "F" reorganization must use the EIN of the prior corporation so long as the prior coporation does not require an EIN after the reorganization (that includes, for example, as an disregarded entity). This suggests that the EIN should continue after the technical termination.

Can you make a special class of membership interest to allow a manager to sign 1065? If the class of membership is not recognized for tax purposes, the answer should be no.

Could you give us some practical examples of how imputed underpayments arise and the most frequently occurring types? Sure: (1) The LLC deducts 100% of the cost of employee meals in violation of section 274(n); (2) The partnership misallocates an item of income or deduction; (3) The partnership miscomputes a depreciation deduction.

Is there a need to amend the LLC Operating Agreement for tax reasons when the LLC is not subject to the TEFRA rules? Yes, the partnership must consider the impact of the new audit rules including the possibiloity of election out and designation of a PR. Note that even a partnership that intends to opt out should designate a PR in case the opt-out election is determined to be invalid. Is is not clear if the PR is the one who can litigate whether a nominal election out is valid.

For a tiered partnership that makes a push-out election will the partners be required to continue to push-out the adjustment up the equity chain? The Joint Committee on Taxation has opined that an upper tier partnership is not permitted to elect to push-out.

Can a member without an economic interest validly sign the 1065? It is doubtful that such a "member" will be recognized for tax purposes. If not, then the answer should be no.

Can LLC appoint a non-member agent under a power of attorney to sign the Form 1065 for the LLC? No.

Can an LLC agreement provide that no member will sue or otherwise try to hold accountable a partnership representative for its PR work? Sure, but the question is whether such a provision will be effective. The answer is determined under state law and should be yes.

Can the PR be changed once it has been filed on the 1065? It has to be the case that the PR can be changed, and presumably the law under chaning the TEFRA TMP can be followed.