Pass-Through Entities Beware: There’s a New IRS Compliance Campaign in Town

S Corporation shareholders should be aware, the IRS Large Business and International division (LB&I) has announced a new IRS Compliance Campaign.

The campaign focuses on various issues, including S Corporation Losses Claimed in Excess of Basis. It has come about as a response to the IRS’s concern that S Corporation shareholders are claiming losses and deductions in instances where they do not have sufficient stock, or debt basis, in the S Corporation.

To carry out the campaign, LB&I has established criteria and provided assistance to revenue agents as part of their issue-based examinations. They are also sending letters to encourage taxpayers to correct their situations, are conducting outreach to stakeholders, and are creating a new form for S Corporation shareholders to calculate their correct basis.

If you are the owner of a pass-through entity (S Corporation, Partnership & Trust), now is the time to prepare and review basis calculations to make sure you are taking the appropriate losses. This will be a focus area during the IRS’s examinations.

Clark Nuber will be monitoring changes to the Compliance Campaign and will post updates as they become available. Please contact Rene Schaefer at rschaefer@clarknuber.com or 425-454-4919 with questions.

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Rene Schaefer is a principal in Clark Nuber’s tax practice. She has more than 30 years of experience developing creative tax strategies for many types of businesses; especially Manufacturers, Distributors, and Professional Service companies.

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