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NewsNotes Lesli S. Laffie, J.D., LL.M. Checkbox Designation * Passthrough Sales and Exchanges * FirstGov Website * State & Local Tax Burdens (chart)
Checkbox Designation The Service has issued questions and answers on the new "checkbox designation" (see NewsNotes, "Practitioner Authorization," TTA, June 2000, p. 376). Q: Who can a taxpayer select as a designee? A: Beginning with the 2001 filing season, a taxpayer can identify, through a checkbox on any Form 1040 return, an individual paid preparer (not a company) to serve as a designee. Q: How will taxpayers designate the paid preparer to discuss their return? A: The following recommended language would be on Form 1040: May the IRS discuss this return with the preparer shown below? (See Form 1040 instructions.) The taxpayer will check either a Yes or a No box. Q: Which forms will have the checkbox? A: All 2000 Forms 1040 will have the checkbox, including Form 1040, 1040A, 1040EZ, 1040NR, 1040NR- EZ, 1040 (e-file), 1040A (e-file), 1040EZ (e-file), 1040PR, 1040SS. The checkbox designation is not available for telefiled returns. Q: What level of authorization would the checkbox give a designee? A: The checkbox designee would have the ability to:
The checkbox designee would not be able to speak or correspond in response to an Underreporter issue, Examination inquiry, Appeals proceeding or collection notice unless Form 2848, Power of Attorney and Declaration of Representative, was also filed. Q: Would a designee receive duplicate copies of math error notices? A: No. Q: How long does a designation remain in effect? A: The purpose of the checkbox designation is to facilitate return processing. After the missing schedule/attachment is received or math error notice is resolved, the designation would no longer be in effect. Q: Would a subsequent Form 2848 supersede a designation? A: Yes. Q: Will the checkbox be added to any business returns? A: A study is underway to include the checkbox on such returns in the future.
Passthrough Sales and Exchanges Final regulations address sales or exchanges of interests in partnerships, S corporations and trusts (TD 8902, 9/21/00). The final rules interpret the Sec. 1(h) lookthrough provisions, which were added by the Taxpayer Relief Act of 1997, Section 311(a), and amended by the IRS Restructuring and Reform Act of 1998, Section 5001(a)(1). They explain the rules relating to the division of the holding period of a partnership interest. The final rules do not apply to any transaction treated as a redemption of a partnership interest for income tax purposes. The regulations were effective Sept. 21, 2000. Generally, capital gain attributable to the sale or exchange of an interest in a passthrough entity held for more than one year is taxed at 20%. However, the final rules provide that, when a taxpayer sells or exchanges an interest in a partnership, S corporation or trust that holds collectibles (as defined in Sec. 408(m)), rules similar to those in Sec. 751(a) apply to determine the capital gain attributable to certain unrealized gain in the collectibles. Thus, a taxpayer should recognize, as collectibles gain, the net gain (but not net loss) that would be allocated to the taxpayer if the partnership, S corporation or trust transferred all of its collectibles for cash equal to the fair market value of the assets in a fully taxable transaction immediately before the transfer of the interest. The final rules also provide that, when a partner sells an interest in a partnership, he must take into account the entire allocable share of Sec. 1250 capital gain in determining the unrecaptured Sec. 1250 gain, without regard to the Sec. 1(h)(7)(B) limits. As to lookthrough capital gain when a passthrough entity has a short-term holding period in collectibles, the final regulations provide that the passthrough entity's holding period in the collectibles is irrelevant in determining whether long-term capital gain recognized on the sale of an interest in the entity is collectibles gain. Rather, the transferor's long-term capital gain recognized on the sale of the interest is characterized by reference to the entity's underlying assets that give rise to the gain. The regulations provide rules on allocating a divided holding period for a partnership interest. Generally, a holding period is divided if a partner acquires portions of an interest at different times or if an interest is acquired in a single transaction that gives rise to different holding periods. An exception is provided when a cash contribution will not create a new holding period if the partner makes cash contributions and receives cash distributions during the one-year period before the sale of all or a portion of the partnership interest. In such case, the partner may reduce the cash contributions made during the year by the cash distributions received on a LIFO basis, treating all cash distributions as if they were received immediately before the sale or exchange. The final rules also address the treatment of deemed cash contributions under Sec. 752(a), the effect of the contribution by a partner of Sec. 751 assets when the partnership interest is sold within 12 months of the contribution, the treatment of assets that are not capital assets of all properties and potential gain treated as unrealized receivables.
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