Michigan Tax Law Articles, Blog & Documents | Foster Swift

Can Limited Partners Avoid Self-Employment Tax? What Fifth Circuit’s Decision Means for Business Owners

Michael C. Zahrt, Zachary W. Miller (Summer Associate) — Mon, 20 Jul 2026 09:00:01 -0400

Business owners who operate through partnerships or LLCs taxed as partnerships should take note: a recent Fifth Circuit Court of Appeals decision could significantly reduce the amount of self-employment tax certain partners owe.

Under long-standing tax law, partners generally pay self-employment (SECA) tax—currently 15.3%—on their share of business income. However, there is an important exception: the distributive share of income earned by a “limited partner” is typically not subject to SECA tax (although payments for services, called “guaranteed ...

How Much is “Too Much”? Understanding Reasonable Compensation for Business Owners

Michael C. Zahrt, Zachary W. Miller (Summer Associate) — Tue, 07 Jul 2026 09:00:02 -0400

For owners of closely held businesses, compensation planning is more than just a business decision—it’s a tax strategy that can invite IRS scrutiny and the recharacterization of compensation if not handled carefully.

Why Compensation Matters

The tax rules allow businesses to deduct “reasonable” compensation paid to employees, including owner-employees. But when compensation is considered too high, the IRS can reclassify the excess as a dividend. This creates a mixed result: the individual may benefit from lower dividend tax rates, but the company loses a valuable ...

Energy Credits Under Scrutiny: What Strieby Means for Investors and Partnerships

Nicholas J. Stock II, Michael C. Zahrt — Thu, 05 Feb 2026 09:00:03 -0500

IRS has made a habit of challenging whether a member of a limited liability company that is treated as a partnership for tax purposes is materially participating in the activities of the partnership.

A recent Tax Court case (Strieby v. Commissioner) considers whether the passive activity credit limitation rules of Code Section 469 may prevent taxpayers from claiming energy credits allocated to them by virtue of their membership interests in a partnership.[1]

Facts Presented.

In Strieby, taxpayers invested in a solar farm but their only involvement consisted merely of completing ...

Navigating IRS Scrutiny: Ensuring Compliance for Tax-Exempt Entities

Jennifer B. Van Regenmorter, Michael C. Zahrt — Mon, 05 May 2025 09:00:04 -0400

Healthcare executives are advised to consider the significance of a ruling issued in 2024 by the Internal Revenue Service (IRS) which revoked the tax-exempt status of a non-profit organization. In Private Letter Ruling* 202437007, the IRS determined that a non-profit organization had failed the “operational test” and revoked its tax-exempt status.

The entity in question had indicated no charitable activities or related expenses, leading the IRS to conclude that the organization was not operating exclusively for tax-exempt purposes.

See the full article here.

Business Owners: How to Avoid Additional Estate Taxes after Connelly v. Commissioner

Michael C. Zahrt, Olivia K. Reid (Summer Associate) — Fri, 19 Jul 2024 09:00:05 -0400

In early June, the Supreme Court issued an opinion that clarifies how company-owned life insurance impacts the value of the company for estate tax purposes. As a business owner, you may need to re-evaluate the use of those policies and whether they will subject you to increased estate tax exposure. Here’s what happened in Connelly and how it may affect you.

Strategies and Resources for Year End Tax Planning

Michael C. Zahrt — Thu, 10 Dec 2020 09:00:06 -0500

In a year that has forced many to be reactionary, tax planning offers an opportunity for business owners to be proactive about the health of their business as the end of 2020 draws near.

Attorney Michael Zahrt provides tax planning strategies for year end along with updates to the CARES Act and PPP Loans in the following short video:

https://youtu.be/8L01vzCzhmQ?si=f7NCvWUjwy2ewZDY

The CARES Act created a number of new tax benefits that are available for one year only, and these benefits have largely been lost in the sea of various stimulus programs (and compliance with those programs).

For a more in depth look at tips for year end tax planning, visit the following article which summarizes a few tax opportunities available to your business before the end of 2020:

2020 Year End Tax Planning Tips

IRS Finalizes 199A Safe Harbor for Rental Property

Michael C. Zahrt — Wed, 16 Oct 2019 09:00:07 -0400

The IRS recently issued Revenue Procedure 2019-38, which finalizes the safe harbor for rental property under Code Section 199A that was originally provided in IRS Notice 2019-07. The safe harbor treats a rental real estate enterprise as being eligible for the qualified business income deduction under Section 199A, even if it does not meet the definition of a “trade or business” as provided in Treas. Reg. 1.199-1(b)(14).

S Elections for ESOP Companies

Michael C. Zahrt — Mon, 21 Jan 2019 09:00:08 -0500

Many mature, Employee Stock Ownership Plan (ESOP)-owned companies consider making an S-election, and for good reason. An S Corporation owned 100% by an ESOP generally pays no federal income taxes. An S Election instantly boosts cash flow, which the company can use to fund growth opportunities or fund its annual ESOP repurchase obligations.