REG planning coverage for S corporation and partnership timing, basis, asset-disposition, and financing strategies.
This chapter applies entity-tax rules to practical planning choices for S corporations and partnerships. The central skill is recognizing which elections, timing decisions, and financing structures improve tax results without losing sight of basis and character consequences.
Pass-through planning questions should be solved from both the entity and owner perspectives. A planning move can improve current-year income, but still create a basis limitation, character problem, built-in gain issue, or debt-allocation consequence.
| Planning area | First question | Exam risk |
|---|---|---|
| Built-in gains | Does prior C corporation history or appreciated property affect the current transaction? | Treating an S corporation as if entity history never matters after election. |
| Income timing and elections | Can timing be accelerated, deferred, or elected without violating method or eligibility rules? | Choosing a tax-saving move without checking whether the election is available. |
| Income shifting and basis recovery | Does the owner have enough basis and proper character support for the benefit? | Focusing on entity income while missing owner-level limitations. |
| Partner and shareholder loans | Does the financing structure create basis, at-risk support, or repayment consequences? | Assuming all debt affects S corporation shareholders and partners the same way. |
| Step | What to do | Why it matters on REG |
|---|---|---|
| 1. Identify the entity regime | Determine whether the planning issue belongs to S corporation rules, partnership rules, or both. | The two pass-through forms handle ownership, debt, allocations, and distributions differently. |
| 2. Protect eligibility and elections | Check S status, partnership allocations, accounting methods, timing elections, and filing requirements. | A tax-saving plan is weak if the election or entity treatment is invalid. |
| 3. Model owner-level basis | Track shareholder stock and debt basis, partner outside basis, liabilities, and suspended losses. | Pass-through planning usually fails at the owner level before it fails at the entity level. |
| 4. Evaluate character and timing | Consider ordinary income, capital gain, built-in gain, passive activity, and distribution character. | Planning choices can change both when income is taxed and what type of income it is. |
| 5. Document support for the strategy | Tie the planning move to agreements, loan terms, business purpose, elections, and reporting positions. | REG planning answers should be legally supportable, not merely tax efficient. |