1. Main events in the reform history of US partnership taxation.
(History of loosening the criteria of compensation for investments)
year
event
contents
1935
Economic substance doctrine
“Tax sheltering” generally means a conduct to get a big deduction with utilizing partnership taxation. The Supreme Court, Gregory v. Helvering, has made a common law: tax sheltering which has “economic substance” is lawful.
1954
IRC Subchapter K
“Simplicity, Flexibility, and Equity as between the partners” is the principle.
1976
At risk law
When accommodation, namely borrowed capital, becomes expense, the tax authority will recognize it as deductible if it is backed bond with recourse asset.
1977
The first LLC Act in US. (Wyoming)
Recourse-asset-backed companies, which obtain a kind of limited liability, can enjoy merits pertained to partnership taxation such as tax sheltering.
1986
Passive Activity Loss rule
In PAL rules, incomes are categorized into three types; portfolio Income, passive activity income, and active activity income. If there is no passive income, then no passive loss can be deducted.
ditto
“Economic Justice for all” published
Catholic bishops have recommended careful experimentation with several possibilities that hold considerable hope for increasing partnership and strengthening mutual responsibility for economic justice.
Clinton administration
Clinton, a partnership pro, has accelerated to arrange the institution. IRS-SOI stats put that the number of LLC increased to 0.8M from zero during his term.
1996
Check the box rule
For tax purpose, any business entity can be eligible for either partnership tax or corporate tax. Also, a discussion: “what is per se corporation” has started.
2010
Obama administration codified economic substance doctrine
Economic substance could be satisfied only if: the transaction changes in a meaningful way (apart from federal income tax consequences) the taxpayer’s economic position, and; the taxpayer has a substantial non-federal tax purpose for entering into such transaction. The aim is to facilitate people’s economic activity with using partnership scheme and provide the revenue for the Health Care and Education Affordability Reconciliation Act of 2010.