Four Tiers of Loss Limitations: A Guide to the New Rules for Pass-through Entities

Description

Owners of S corporations and partnerships are subject to numerous limitations on pass-through losses, each with unique rules, applications, and complexities. With the increase in popularity of pass-through business entities, it is essential for CPAs to understand the complexities and interactions of these pass-through loss limitations.

Highlights

Tier 1: Basis limitations for S corporation shareholders and partners Tier 2: Section 465 at-risk limitations for S corporation shareholders and partners, including the impact of debt, indemnities, guarantees, and shareholder/partner agreements Tier 3: Section 469 passive loss limitations and exceptions to the limitations Tier 4: The new excess business loss limitation of the Tax Cuts and Jobs Act of 2017 (new section 461(l))

Objectives

Analyze how basis in an ownership interest in a pass-through entity is established Discuss how activity of the entity, distributions, and optional adjustments increase or decrease basis Discuss when basis is "at-risk" under section 465, and the resulting loss disallowance and carryforward related to basis that is not at-risk Define passive activities under section 469 and exceptions to the passive loss rules Discuss when and how aggregation of activities should be used to avoid the passive loss rules Analyze new 461(l) created by the Tax Cuts and Jobs Act of 2017 and understand the limitation calculation and resulting carryforward Analyze the hierarchy of the loss limitations with examples of the application of the four tiers of losses and how they interact

Designed For

Experienced practitioners who desire a refresher on loss limitations and an analysis of the new rules. Inexperienced practitioners who desire to learn the basics of all four pass-through loss limitations and their interactions in one course.



Leaders

Michael Reilly

Michael E. Reilly, CPA, is a sole practitioner with offices in West Chester, PA.

In addition to maintaining his practice, Mr. Reilly has been an adjunct professor at several colleges and was a visiting professor of Economics and Business at Lafayette College. He was also the CFO for a large insurance agency in Delaware County, PA, and was a licensed insurance agent in Pennsylvania.

Mr. Reilly earned his bachelor’s degree in business administration with an accounting concentration from Temple University and his master of taxation degree from Villanova University School of Law. He also holds the Chartered Financial Consultant (ChFC) and Chartered Life Underwriter (CLU) certifications. In 2016, he received the Surgent Outstanding Discussion Leader Award because of his consistently high evaluations for knowledge and presentation skills.