Four Tiers of Loss Limitations: A Guide to the New Rules for Pass-through Entities (FTL4)

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Archive : Four Tiers of Loss Limitations: A Guide to the New Rules for Pass-through Entities (FTL4)

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Owners of S corporations and partnerships are subject to numerous limitations on pass-through losses, each with unique rules, applications, and complexities. With the increase in popularity of pass-through business entities, it is essential for CPAs to understand the complexities and interactions of these pass-through loss limitations.

Major Topics

• Tier 1: Basis limitations for S corporation shareholders and partners
• Tier 2: Section 465 at-risk limitations for S corporation shareholders and partners, including the impact of debt, indemnities, guarantees, and shareholder/partner agreements
• Tier 3: Section 469 passive loss limitations and exceptions to the limitations
• Tier 4: The new excess business loss limitation of the Tax Cuts and Jobs Act of 2017 (new section 461(l))

Learning Objectives

• Analyze how basis in an ownership interest in a pass-through entity is established
• Discuss how activity of the entity, distributions, and optional adjustments increase or decrease basis
• Discuss when basis is “at-risk” under section 465, and the resulting loss disallowance and carryforward related to basis that is not at-risk
• Define passive activities under section 469 and exceptions to the passive loss rules
• Discuss when and how aggregation of activities should be used to avoid the passive loss rules
• Analyze new §461(l) created by the Tax Cuts and Jobs Act of 2017 and understand the limitation calculation and resulting carryforward
• Analyze the hierarchy of the loss limitations with examples of the application of the four tiers of losses and how they interact

Designed for

Experienced practitioners who desire a refresher on loss limitations and an analysis of the new rules. Inexperienced practitioners who desire to learn the basics of all four pass-through loss limitations and their interactions in one course.

Level of Knowledge

Intermediate

Prerequisite

Basic familiarity with loss allowance rules of pass-through entities

Advanced Preparation

None

Credits

4

Field of Study:

Taxes (Technical) (4)

CFP Credits:

No

IRS Approved:

Yes

Yellow Book:

No

Four Tiers of Loss Limitations: A Guide to the New Rules for Pass-through Entities (FTL4)