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Rul. 92-15 (REG-144468-05). Those Provisions of the American Jobs Creation filed by an S corporation shareholder to
proposed regulations address tiered Act of 2004 (May 7, 2015)). report shareholder basis.
partnership situations where there is An example is that the basic question The form is based upon the 2020
a mandatory basis adjustment at the of who is the transferee to be named by instructions for Schedule K-1 (Form
UTP. They would require that, if an an LTP that falls under Rev. Rul. 87-115 1120-S), Shareholder’s Share of Income,
event with respect to a UTP causes a needs clarification. Is the “transferee” the Deductions, Credits, etc., that includes an
mandatory adjustment under either person who is the ultimate transferee at example format for reporting a share-
Sec. 734(a) or Sec. 743(a), each LTP the UTP? Is it the UTP? holder’s basis computation for prior
must also be treated as though it had years. A shareholder needs to know the
made a Sec. 754 election (but only Review the regulations basis, including when the S corporation
with respect to that specific event) In conclusion, in reporting Sec. 743(b) allocates a net loss to the shareholder,
(Prop. Regs. Secs. 1.734-1(f)(1) and adjustments, reviewing the current regu- makes a nondividend distribution, makes
1.743-1(l)(1)). The reporting provisions lations is a good start. However, parts a loan repayment to the shareholder,
in those proposed regulations make of those rules may not be sufficiently or if the shareholder disposes of stock,
LTPs that are required to make basis detailed to address common transac- among other situations. Despite the
adjustments under Secs. 743 and 734 tions, particularly in tiered partnership requirement to report shareholder basis,
under the substantial built-in loss and situations. Additional guidance would shareholders do not always maintain
substantial basis reduction provisions, be welcome. In the meantime, until the a stock and debt basis computation
respectively, subject to reporting such government issues additional guidance, and thus fail to properly limit loss and
basis adjustments. partnerships and their partners need to deduction items to stock and debt basis
One commenter has noted that the work closely to maintain strong com- under Sec. 1366(d)(1). Failing to prop-
proposed regulations do not include a munications to overcome challenges to erly track basis may require a recompu-
clear mechanism for a UTP to provide information sharing and, ultimately, to tation of the shareholder’s basis.
the necessary information to provide computational matters and informa-
notice of an event at the UTP and tion reporting. Computing shareholder basis
information to enable an LTP to com- From Grace Kim, J.D., LL.M., Wash- Under the normal computation rules,
pute basis adjustments in its properties. ington, D.C. basis is computed by taking beginning
The commenter explains that often, basis and adding the items of income,
in tiered partnership situations, it is reducing that by nondividend distribu-
difficult for an LTP to know about the S Corporations tions; by nondeductible, noncapital
events that occur at the UTP. Thus, expenses; and, finally, by any other loss
under the proposed regulations, it S corporation shareholder and deduction items. Basis cannot be
would be difficult for LTPs to make the recomputation of basis reduced below zero by nondividend
necessary computations and to comply The IRS recently released draft Form distributions; nondeductible, noncapital
with reporting any basis adjustment 7203, S Corporation Shareholder Stock and expenses; and any other loss and deduc-
under the tiered partnership provi- Debt Basis Limitations, to complement tion items.
sions relating to substantial built-in Form 6198, At-Risk Limitations; Form Distributions in excess of stock
losses and substantial basis reductions. 8582, Passive Activity Loss Limitations; basis are treated as a gain from the sale
The commenter recommends that, if and Form 461, Limitation on Business or exchange of property and reported
final regulations require basis adjust- Losses. The new form is required to be as a capital gain. The capital gain is
ments for properties held by an LTP,
as a result of an event at a UTP, the
final regulations should include clear
mechanisms for the UTP to provide
information to the LTP, furnish notice
IMAGE BY LUKBAR/ISTOCK putational information that the LTP
of UTP triggering events, and of com-

would need to make its computations
(see American Bar Association Sec-
tion of Taxation, Comments on Proposed
Regulations on Certain Partnership

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