However, limited partners were restricted by having to meet one of three tests in order to be considered materially participating. A limited partner was defined as a partner that was designated as such in the partnership agreement or the partner was limited with respect to the liabilities of the partnership under state law. While states continued to change their laws with the advent of Limited Liability Companies (LLC), the IRS had not continued to evolve their tests. In addition, the IRS had litigated and lost a number of cases under these antiquated requirements.

Therefore the IRS has issued new proposed regulations to address the issue of what is considered a limited partner. The new regulations provide that an interest in an entity will be treated as an interest in a limited partnership, if:

• The entity is classified as a partnership, and
• The holder of the interest does not have rights to manage the entity at all times during the entity's taxable year. Rights to manage include the power to bind the entity.

The new regulations have the effect of allowing limited partners or LLC members to meet one of the more expansive material participation tests.

For more information or questions on this topic, please contact your professional at UHY LLP in Farmington Hills (248) 355-1040 or Sterling Heights (586) 254-1040 or visit us on the Web at uhy-us.com.    

Each year the Internal Revenue Service sends millions of letters and notices to taxpayers for a variety of reasons. In case you receive one, here are tips on how to handle them.

1. Don't panic. Many of these letters can be dealt with simply and painlessly. 

2. There are a number of reasons why the IRS might send you a notice. Notices may:

a. request payment of taxes 

b. notify you of changes to your account,

c. request additional information.  

The notice you receive normally covers a very specific issue about your account or tax return.

3. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.

4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return. DO NOT FILE an amended return.

5. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.

6. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 to 60 days for a response.

7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help with your inquiry.

8. It is important that you keep copies of any correspondence with your records.

9. It is also important to know that NO taxing authority will ever contact you by email. All notices are by mail or occasionally a revenue officer may actually ring your doorbell. So, if you receive what looks like a tax notice by email, it is very likely spam.

10. Most important, if you do not understand the notice, notify your UHY representative.