A. Tax Years
Both S Corps and partnerships have rules on permissible tax years, and cannot just use whatever tax year they like. What are the rules for each? Compare and contrast them, since they are not exactly the same. Why does the government worry about this? What is the government worried about?
B. Loss Pass-Through Limitations
S corps and partnerships are both pass through entities, but the pass through rules are NOT identical. What are the differences in terms of limitations due to basis?
There are THREE hurdles that must be cleared with both S corps and partnerships to pass through losses. First, having enough basis (see above, and the differences between the rules for the two of these). Second, the at-risk rules under Sec. 465. Third, the passive activity loss rules under Section 469. Please discuss:
1. The three sets of rules and what are they all about.
2. The differences in basis limitation rules for partnerships vs. S corps, ESPECIALLY in terms of LIABILITIES and how these affect the amount of losses that can be passed through under the basis limitation rules. (A change in the liabilities of a partnership or S corp can affect the basis of the partners, but does it affect S corp stock basis? How do liabilities affect partners vs. S corp shareholders?)
3. Does it matter if the liability is recourse or nonrecourse, and if a general partner versus a limited partner?
C. AAA Account
The creation of S corporation as an alternative available for business organization created a variety of complications in the tax code and regs. One of these is the need for the accumulated adjustments account. What purpose does the accumulated adjustments account serve? What if the S corporation has always been an S corporation?