Surgent's Four Tiers of Loss Limitations: A Guide to the Rules for Pass-Through Entities

Overview

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.

Highlights

The Inflation Reduction Act of 2022
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 excess business loss limitation of the Tax Cuts and Jobs Act of 2017 (new §461(l)), American Rescue Plan Act, and Inflation Reduction Act

Prerequisites

Basic familiarity with loss allowance rules of pass-through entities

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.

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 §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
Use case studies to reinforce the learning objectives