Flow Through Entities
Flow-through entities (FTE) are operating structures required to pass income, deductions, gains, losses, and credits through to the owners of the entity. Types of FTEs are partnerships including limited partnerships (LP) and limited liability partnership (LLP), S Corporations, income trusts and limited liability companies (LLC).
Technically, for tax purposes, flow-through entities are considered “non-entities” because they are not taxed; rather, tax “flows-through” to another tax return, i.e.; a 1040 tax return.
In the United States, the owners of an FTE annually file the form known as K-1 (or Schedule K-1) to the IRS for the purpose of reporting their share of income in the flow-through entity.
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MTAAS provides tax services to flow-through entities in the following areas:
Real Estate
In most cases, the real estate industry has adopted the LLC as the primary entity of choice for structuring real estate deals. In the real estate world, proper application of the tax code is critical to ensuring that income/deduction and gain/loss allocations are sustainable under audit. MTAAS’s Real Estate Industry Group includes tax professionals with knowledge and experience in the unique requirements of Internal Revenue Code Section 704(b) involving distributive shares of income, gain, loss, deduction, or credit. Also, our expertise is required for calculations of basis, amounts at risk, passive activity limitations, and debt allocations. Finally, we prepare numerous flow-through entity tax returns for our real estate clients, many of whom require that their returns be prepared so that Schedule K-1s may be delivered in a timely manner.
Professional Services Firms
Professional service firms, particularly those of law, architecture, engineering, and financial services, often use a partnership, LLC, or LLP as their preferred ownership structure. MTAAS professionals understand the intricacies of the tax code relating to partner allocations, capital accounts, basis, at-risk rules, debt allocations, and substantial economic effect. We apply this knowledge to our understanding of the professional service firm’s business to provide guidance in the areas of partner compensation, transfers of ownership interests, and redemption of retiring partner interests. And, of course, we prepare the flow-through entity tax returns and Schedule K-1s.