June 2024 - The Tax Adviser

Allocations to a partner may follow the partnership agreement or, where they lack substantial economic effect, be in accordance with the partner’s interest in the partnership. Special considerations apply to the allocation of nonrecourse deductions, i.e., losses, deductions, or expenditures attributable to nonrecourse liabilities.

A recent Tax Court case sheds light on the uncertainty test for qualified research activities and its relation to the adaptation exclusion of expenditures eligible for the Sec. 41 research credit.