Net Investment Income Tax Proposed Rules on Pass-Through Entities

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Beginning in 2013, taxpayers need to comply with the new net investment income (NII) tax, enacted as part the Health Care and Education Reconciliation Act of 2010. The new 3.8% tax applies to a taxpayer’s net investment income, but the tax base is limited to the excess of the taxpayer’s modified gross income over certain threshold amounts ($200,000 for single taxpayers and $250,000 for joint taxpayers). NII generally includes gross income from interest, and dividends, annuities, royalties and rents, other gross income from passive activities, and net gains from the disposition of passive activity property. A key exercise in computing NII is carving up net gains between passive and non-passive activities of pass-through entities. The IRS has just released proposed regulations outlining the parameters for NII pass-through entity net gains. Certain key issues raised by these rules will be the focus of this webinar.

During this recorded webinar, Calhoun, Kugler and Starr will cover:
• Advising Clients on re-grouping the passive activities under IRC Section 469 in light of the NII tax.
• Reviewing the NII tax treatment of guaranteed payments and liquidating payments to retiring and withdrawing partners.
• Treatment of multiple payment transactions and the timing of determining passive character of NII net gain.
• The complicated patchwork for investors who are active in some activities of a pass-through entity but passive in others.
• The proposed calculation of NII net gain on the disposition of an interest in a pass-through entity with non-passive activities—specifically the proposed primary and optional simplified approaches.
• The possible treatment of tiered entities under the NII rules in the absence of guidance in the proposed regulations. 
• The new information reporting burden on pass-through entities with passive investors who dispose of their interests.
• The proposed treatment of qualified subchapter S trusts disposing of S corporation stock.

Educational Objectives:
• Identify the newly proposed net investment income tax rules on pass-through entities;
• Apply the proposed NII tax treatment of pass-through entities;
• Identify what taxpayers need to consider when filing their 2013 income tax returns if they are passive investors in pass-through entities; and
• Outline the new proposed information reporting requirements imposed on pass-through entities.



Both a lawyer and a CPA, Michael offers clients more than 30 years of experience practicing tax law. Counsel with Whiteford Taylor & Preston, LLP, Michael has represented clients in a broad range of tax transactional, planning and controversy matters. Along the way, Michael has attained a national reputation for his leading experience in the taxation of partnerships, limited liability companies, S corporations, other pass-through entities, and their owners. During the development of what became the Tax Reform Act of 1986, Michael served in the IRS Office of Chief Counsel drafting the regulations and guidance implementing the limitations on passive activity losses and credits (IRC §469). Michael testified before the IRS on the 2012 proposed regulations interpreting the 3.8% net investment income tax. 


Paul Kugler, KPMG.  Mr. Kugler joined KPMG in 2002 after 28 years with the Chief Counsel’s office of the IRS, his last position being Associate Chief Counsel (Passthroughs and Special Industries).  He began his career in the Interpretative Division (source of General Counsel Memoranda or GCMs) and was its director until the Chief Counsel’s office was reorganized in 1988.  At that time, he took charge of the Office of Passthroughs and Special Industries where he supervised more than 100 attorneys and had jurisdiction over  all of the IRS guidance provided in a number of substantive tax areas, including partnerships, subchapter S corporations, entity classification, depreciation and low income housing.  Since 2002, he has been a Director in the Passthroughs Group of the Washington National Tax practice.  He is active in the ABA Tax Section and is a frequent speaker at technical tax programs around the country.  During his tenure with KPMG, he is advising clients on a daily basis on S corporation qualification issues.  He also serves on the S Corporation Committee of the Tax Section of the ABA. Paul earned his BA from Fordham University and JD from Harvard Law School.


Sam Starr, Bloomberg BNA, J.D., LL.M., CPA, is a tax specialist consultant to Bloomberg BNA.  Before joining Bloomberg BNA, Sam served as a tax partner at PricewaterhouseCoopers LLP (USA).  During his tenure at PwC, Sam served as co-leader of the firm’s national tax Pass-Through Entities practice, focusing on partnerships, limited liability companies, and S corporations.  Sam is the co-author of two current BBNA tax portfolios on S corporations.  In addition, Sam co-authors a BBNA portfolio on the taxation of limited liability companies.  Sam is an adjunct professor of law at Georgetown University Law Center, where he teaches taxation of limited liability companies and S corporations.  Among other professional activities, Sam chaired the AICPA’s S Corporation Committee, and Sam is a member of the Bloomberg BNA Income Tax Advisory Board.  Sam received his B.S. in Accounting, with honors, from Pennsylvania State University, J.D. from the University of Virginia, and LL.M. in Taxation from the Georgetown University Law Center.