Who pays, partner? A Tax Court decision yesterday held that an executive of a partnership holding a non-vested capital interest should not be considered a “partner” for allocation of taxable income and loss before the interest vests.
The taxpayer was an executive of Crescent Holdings, LLC, a Georgia real estate partnership. According to the Tax Court, he received a 2% capital interest in the partnership that was subject to forfeiture if he failed to stay in the job for three years. He resigned before the interest vested, so he got nothing. The partnership had allocated income to him on a K-1 for the period up to his resignation — and gave him some cash to pay taxes on the income — but he argued that because he was non-vested, he shouldn’t receive any K-1 allocation.
Tax Court Judge Ruwe agreed:
Since petitioner forfeited his right to the 2% interest before it substantially vested, he never owned the interest. Petitioner never received any of the economic benefits from the undistributed partnership income allocations to the 2% interest. Requiring petitioner to recognize the partnership allocations in his income is inconsistent with the fact that he received no economic benefit from the allocations.
“His” 2% was allocable instead to other partners.
Non-vested stock or partnership interests subject to “a substantial risk of forfeiture” are not includible in income until the forfeiture risk lapses, unless the taxpayer makes a timely Section 83(b) election to include the value in income on receipt in spite of the risk.
This decision tells partnerships preparing 2012 returns that they shouldn’t allocate taxable income to partners with unvested interests. I suspect some partners and partnerships may file amended returns for open years as a result. It’s not entirely clear, but I read the opinion as saying that a timely Section 83(b) election would change this result.
Because he really, really wants the money. Branstad declines to issue gas-tax veto threat (Iowa Farmer Today):
“The goal would be over the next couple of months: Does a consensus develop around something or not? And, I guess time will tell whether that happens,” Branstad said. If an agreement emerges, he said he would include a recommendation on how to address a projected annual shortfall of $215 million for critical road and bridge repair needs during his Condition of the State address Jan. 14.
The “shortfall for critical road and bridge repair” has become a mantra at the statehouse, which means they really want to get into your wallets some more. The $215 million number comes from an Iowa Department of Transportation report. No politicians seem willing to challenge a self-serving number from the agency that would benefit from more transportation money. Compared to other states, Iowa isn’t doing so bad. For example from the most reason Reason Foundation survey of state highway conditions:
Many states are getting less gas revenue from gas taxes as cars become more efficient. There is a case that some adjustment of the tax makes sense. Still, Iowa is 17th nationally in per-mile spending, and it doesn’t seem like we are doing badly compared to the rest of the country. And no matter how much they jack up the gas tax, I suspect they’ll continue to tell us we have crumbling infrastructure anyway.
Seventh Circuit: Inherited IRA not exempt from creditor claims. That’s a different result that would apply to bankrupt’s own IRA. Cite: Clarke, CA-7, Nos. 1241 and 12-1255.
Paul Neiffer, Bonus Payments Are Ordinary Income – Not Capital Gains. A Tax Court case involving an upfront oil and gas lease bonus payment.
William McBride, Baucus Offers Ways to Pay for a Lower Corporate Tax Rate (Tax Policy Blog)
The shopping season that never ends. Shopping for Tax Extenders (Clint Stretch, Tax Analysts Blog) “Of the 55 tax provisions that will expire at the end of the year, all but a few have expired before. Taxpayers will have to be satisfied with retroactive reinstatement again.”
TaxProf, The IRS Scandal, Day 208
Robert D. Flach has your Tuesday Buzz!
Celebrate! Cyber Monday: It’s The Most Wonderful Tax Evasion Day Of The Year! (TaxGrrrl)
Going Concern: According To This Paper, It Takes Cojones To Commit Fraud