LLC Liability Sharing Remains a Cloudy Picture for Tax Purposes

Determining the tax basis of LLC members can be a complex task, especially when related parties are involved as loan guarantors or when individual members themselves guarantee loans while other members do not. The calculations to determine liability sharing are often necessary for many LLCs, because having co-guarantors to loans for these businesses is a common practice. In the latest issue of the Journal of Passthrough Entities, authors James A. Fellows, Thomas J. Dickerson and Michael A. Yuhas discuss recent developments in liability sharing calculations along with some general tips on making the right decisions on how liability should be applied to tax computations, particularly the allocation of losses among LLC members. Family members or related companies sometimes guarantee loans for LLCs. How do those factors affect the determination of who has economic risk? The authors look at the result of the IPO II case and its web of related parties and novel legal arguments with regard to allocation of losses. They note the decision offers little comfort to practitioners as they try to sort out exactly what the IRS has argued in recent cases involving allocation of losses and liability sharing in partnerships and LLCs.

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This story is from the CCH’s monthly Focus on Tax newsletter, which provides advise and guidance on federal and state tax issues for tax and accounting professionals.

Read this article from CCH’s Journal of Taxation of Financial Products.


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