This course provides an introduction to the U.S. federal income taxation of pass-through business entities, including Subchapter S corporations, partnerships, and limited liability companies. The course focuses on the relevant provisions of Subchapters S and K of the Internal Revenue Code, as well as related Treasury Regulations and judicial opinions, governing the formation, operation, and termination of pass-through entities. Practical in-class study problems facilitate self-discovery of technical tax knowledge along with the development of a variety of professional skills and attitudes.
Taxation of Business Entities II: Pass-Through Entities
University of Illinois at Urbana-Champaign via Coursera
Overview
Syllabus
- Introduction to Course
- In this module, you will become familiar with the course, your instructor, your classmates, and our learning environment. This orientation will also help you obtain the technical skills required to navigate and be successful in this course.
- Module 1: Partnership Formation
- In this module, we begin an examination of the U.S. federal tax treatment of partnerships. The first lesson will examine the background and basic concepts of partnerships, including the conceptual framework that governs nearly all tax rules for partnerships, and special basis concepts that allow for a single layer of taxation. The next lessons shift to the partnership life cycle with a focus on partnership formation. We will analyze the non-recognition provision for property contributions in exchange for a partnership interest, as well as basis and holding period rules, and some of the most common exceptions to the non-recognition provision.
- Module 2: Partnership Operations
- In this module, you will learn about partnership operations. We will first examine partnership income measurement and reporting. The next two lessons will examine a partner’s distributive share of partnership income, and adjustments to a partner’s outside basis in the partnership. From there we will consider the deduction for qualified business income on a partner’s tax return, limitations on the deductibility of partnership losses by the partner, and transactions between the partnership and partner.
- Module 3: Partnership Distributions
- In this module, you will be introduced to the tax treatments of partnership distributions. We will first determine what is a distribution and how it is different from a partner’s share of partnership earnings. Partnership distributions will be further classified into proportionate operating, proportionate liquidating, and disproportionate distributions. We will then discuss the nonrecognition principle of partnership distributions, loss limitations, and exceptions to these general rules.
- Module 4: Partnership Sales and Terminations
- This module examines the tax implications of partnership sales and terminations. The first lesson will focus on the sale of a partnership interest. The next lesson considers a special basis adjustment used to adjust for discrepancies between inside and outside basis that may arise after a sale of a partnership interest. The third lesson examines the tax effects of many non-sale dispositions of a partnership interest, such as transfers to a corporation, like-kind exchanges, gifts, and death of a partner. The fourth lesson examines technical tax termination of a partnership, which can occur through sale, liquidation, or operation of law.
- Module 5: Other Pass-Through Entities
- This module examines several other types of pass-through entities including limited liability companies (LLC), limited liability partnerships (LLP), family partnerships, and Subchapter S corporations. The first lesson examines LLCs, which combine partnership taxation with the limited liability of corporations. The next lesson considers limited liability partnerships, which operate similar to general partnerships but with significant liability exposure differences. Family partnerships are considered in the third lesson. The last lesson examines the basic attributes of Subchapter S corporations, which are entities incorporated under state law but taxed as a pass-through entity for federal income tax purposes.
- Module 6: S Corporation Operations
- In this module, we will further examine S corporations. We will explore income measurement and allocation methods for passing through earnings to the shareholders, including the differentiation between ordinary income items and separately stated items. Next, we will discuss shareholder basis. We will also explore loss limitations with respect to shareholder tax basis and at-risk basis. We will then consider the tax effects of distributions to shareholders. Finally, we will discuss exceptions that subject S corporations to entity level taxes.
- Module 7: Professional Tax Practice and Ethics
- In this module, you will examine the ethical guidelines that encompass the professional tax practice. The module will begin with a discussion of the mission and authority of the Internal Revenue Service (IRS), the enforcement agency overseeing the professional tax industry. Next, we will highlight the various penalties that can be assessed at the taxpayer level, both civil and criminal. Finally, you will be introduced to the ethical standards imposed upon tax advisors by Circular 230 and the AICPA.
- Module 8: Strategic Organizational Form Choice
- This module directly applies the concepts of corporate and pass-through entity taxation to a comprehensive organizational form dilemma. In the first lesson, you will learn about the organizational form dilemma facing the owner of an entity. The next lessons will analyze four organizational form options: corporation, partnership, limited liability company, and Subchapter S corporation. The final lesson summarizes the analysis and recommends the best organizational form for this dilemma.
Taught by
Michael P Donohoe, PhD, CPA
