Source: http://www.jdsupra.com/post/documentViewer.aspx?fid=807dcd1e-e41b-4fac-aaac-05b884fa7525
Timestamp: 2017-04-28 19:15:04
Document Index: 538225303

Matched Legal Cases: ['§108', '§108', '§118', '§118', '§118', '§118']

IRS Will Not Extend Section 118 Capital Contribution Concepts To Noncorporate Entities | Charles (Chuck) Rubin - JDSupra
IRS Will Not Extend Section 118 Capital Contribution Concepts To Noncorporate Entities
Gross income generally includes all income from whatever source derived. At times, entities may receive amounts from nonowners that enhance its capital. For example, local government or groups may make contributions to encourage an entity to set up or expand business in a locality. Are such transfers gross income to the entity?
Code §108 provides that in “the case of a corporation, gross income does not include any contribution to the capital of the taxpayer.” Thus, such capital contributions are not gross income to a corporation.
Please see full article below for more information. Download PDF RUBIN ON TAX | WWW.RUBINONTAX.BLOGSPOT.COM IRS WILL NOT EXTEND SECTION 118 CAPITAL CONTRIBUTION CONCEPTS TO NONCORPORATE ENTITIES SATURDAY, MARCH 12, 2011 Gross income generally includes all income from whatever source derived. At times, entities may receive amounts from nonowners that enhance its capital. For example, local government or groups may make contributions to encourage an entity to set up or expand business in a locality. Are such transfers gross income to the entity? Code §108 provides that in “the case of a corporation, gross income does not include any contribution to the capital of the taxpayer.” Thus, such capital contributions are not gross income to a corporation. Contributions to noncorporate entities, like partnerships or LLC’s, are not expressly covered by Code §118. Outside of the statute, there are common law cases that provide situations when a capital contribution is not taxable. For example, in Edwards v. Cuba RailroadThis would lead one to believe that in the appropriate circumstances, similar contributions to capital by nonowners in noncorporate entities should not be taxable. However, IRS Appeals, in an Appeals Technical Guidance Program Settlement guidelines manual effective on March 2, 2011, has indicated that Code §118 exclusion concepts should not be applied to noncorporate entities. , 5 AFTR 5398 (S.Ct. 1925), third party contributions to capital of a corporation were not considered income. There are several justifications given for this position. First, it is asserted that the common law rules were replaced by Code §118, and thus the exclusion applies only so far as Code §118 goes. Second, expanded definitions of gross income have effectively voided prior case law precedent of exclusion, such as in Cuba Railroad. Third, the IRS indicated that it is a taxpayer choice as to what form of entity to operate under, and they should be bound by the particular tax provisions that relate to the chosen entity. RUBIN ON TAX | WWW.RUBINONTAX.BLOGSPOT.COM Such positions are not law but are only the IRS’ opinion in regard to analyzing its litigation strategy. Given the prior precedent, one can expect some taxpayers to challenge these positions in court even the the manual indicates that the chances of taxpayer success are “remote” and the government’s hazards of litigation are de minimis. Appeals Technical Guidance Program Settlement, March 2, 2011 Authored by Charles Rubin, Esq. Mr. Rubin is a Florida Bar Board Certified tax attorney with the firm of Gutter Chaves Josepher Rubin Forman Fleisher P.A. (www.floridatax.com) His practice focuses on protecting & enhancing individual, family & business wealth through: Planning to Minimize Taxes (U.S. & International) • Estate Planning, Charitable, Marital & Succession Planning • Business Structuring & Transactions • Trusts & Estates (Administration-Disputes-Drafting) • Creditor Protection. He can be reached at 561-998-7847 or at crubin@floridatax.com. This article was previously published at http://www.rubinontax.blogspot.com.
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