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dc.contributor.authorFreudenberg, Brett
dc.contributor.authorBorden, Bradley
dc.date.accessioned2020-07-16T23:11:38Z
dc.date.available2020-07-16T23:11:38Z
dc.date.issued2019
dc.identifier.issn1066-3487
dc.identifier.doi10.5744/ftr.2020.1006
dc.identifier.urihttp://hdl.handle.net/10072/395380
dc.description.abstractThe way jurisdictions design their tax systems for business operations can be a contentious issue, as they try to balance the competing goals of raising sufficient tax revenue without unduly inhibiting commercial investment and activities. Such tax design can be of particular importance for small and medium enterprises, which due to their size, inherent characteristics, and resources can struggle with tax compliance. Those attributes can also make business tax regressive. A number of countries around the world have adopted business entities that utilise corporate characteristics, such as liability protection for members and separate legal entity status, but have the characteristic of tax pass-through, with members assessed directly on the income and losses of the entity. Examples include limited liability partnerships (LLPs) in the United Kingdom, look-through companies in New Zealand, and limited liability companies (LLCs) in the United States. In some jurisdictions, these tax pass-through entities have been extremely popular, which in part has been attributed to flexibility for the members in terms of governance and the facilitation of contributions and subsequent distributions. This flexibility is arguably a desired commercial feature of business entities. However, such flexibility with contributions and distributions is seen as a potential risk to tax revenue as there is concern with artificial engineering in order to lower the overall tax burden. This has led to tax integrity measures, which by their very nature can potentially restrict flexibility. For example, LLCs and their members are subject to greater (and potentially more complex rules) when it comes to measuring the cost basis of their membership interests; this then influences members’ ability to utilise allocated losses and the tax treatment of distributions. The flexibility of contributions and distributions for LLPs in the United Kingdom has also raised concerns with the introduction of tax integrity measures. By comparison, the United States’ older tax pass-through entity, the S Corporation, with only one class of membership interest, has fewer integrity rules governing allocations. This Article will critically assess how the flexibility of contributions and distributions by these tax pass-throug entities affects the tax rules that apply to their members. We argue that the flexibility of contributions and distributions appears to be a key characteristic demanded by business entities both for commercial and tax reasons. However, investors need to be cognitive of the inherent complexity and costs that this flexibility may entail. Additionally, it is important for governments and revenue authorities not to unduly restrict flexibility with complex tax integrity rules as it is a fine balance between commercial and revenue needs.
dc.description.peerreviewedYes
dc.publisherUniversity of Florida Press
dc.relation.ispartofpagefrom349
dc.relation.ispartofpageto431
dc.relation.ispartofissue1
dc.relation.ispartofjournalFlorida Tax Review
dc.relation.ispartofvolume23
dc.subject.fieldofresearchCommerce, management, tourism and services
dc.subject.fieldofresearchLaw and legal studies
dc.subject.fieldofresearchcode35
dc.subject.fieldofresearchcode48
dc.titleContribution and Distribution Flexibility and Tax Pass-Through Entities
dc.typeJournal article
dc.type.descriptionC1 - Articles
dcterms.bibliographicCitationFreudenberg, B; Borden, B, Contribution and Distribution Flexibility and Tax Pass-Through Entities, Florida Tax Review, 2020, 23 (1), pp. 349-431
dc.date.updated2020-07-14T03:09:39Z
dc.description.versionVersion of Record (VoR)
gro.rights.copyright© 2020 University of Florida Press. The attached file is reproduced here in accordance with the copyright policy of the publisher. Please refer to the journal's website for access to the definitive, published version.
gro.hasfulltextFull Text
gro.griffith.authorFreudenberg, Brett D.


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