The U.S. tax court has ruled in Surk LLC vs. IRS that a partnership had to adjust its basis in a flow-through entity for losses taken previously, even though they shouldn’t have been deducted in those prior years.
The Tax Court agreed with the IRS that the taxpayer (Surk, LLC) had to decrease their basis in a lower-tier partnership (Outerknown, LLC) for losses claimed by Surk and allowed by the IRS, even though the losses were improper. The court looked to the plain wording of section 705(a) which requires a partner’s basis to be decreased for its share of a partnership loss “for the taxable year and prior taxable years.”
If you have questions about this, please contact your ShindelRock tax professional.
Written by: Maria Montie
