S-Corporation Tax Court Case on Basis and Losses

In the tax court case Rodney Jordan v. Commissioner, shareholder loans were bona fide, as reported on the S-corporation tax return, but some repayments were taxable income because S-corporation tax losses had reduced the shareholder’s cost basis in the debt. It was also determined that the debt was open-account debt and that some S-corporation tax losses were disallowed for lack of basis.

LLC Member Not Limited Partner – Deductions Allowed

The Tax Court again rejected IRS's position that an LLC member must be treated as a “limited partner” under passive activity loss rules. In the Hegarty case, taxpayers were allowed to deduct losses from their limited liability company tax return under a rule generally not applicable to limited partners. This follows similar decisions against the IRS on this issue by both the full tax court, in Garnett (2009), and the Court of Federal Claims, in Thompson (7/20/2009).