Allocations under Regs. Sec. 1.1245-1(e)(2)(i) may result in profits-interest partners being allocated ordinary income even though they were not previously allocated any depreciation or amortization deductions.
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Allocations & Substantial Economic Effect
Economic substance doctrine and related-party partnership transactions
To avoid potentially onerous penalties, taxpayers in controlled groups and their advisers must consider whether the economic substance doctrine will disallow the results of basis-shifting transactions involving a related-party partnership.
Making sense of nonrecourse deductions in partnership taxation
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.
Complications in Sec. 743(b) substituted basis transactions
Rules for allocating resulting adjustments among partnership assets can be challenging, especially with respect to a transferee partner.
Current developments in partners and partnerships
This annual update reviews court rulings and guidance on issues including debt and income allocations, distributions, and basis adjustments.
Partnership extraordinary-item treatment for accounting method adjustments
The regulations under Secs. 481(a) and 706 set forth rules governing a partnership’s treatment of accounting method changes and partner allocations but do not provide clear guidance on how income from an unfavorable Sec. 481(a) adjustment should be allocated among partners with varying interests during the four-year recognition period.
Single-member LLCs
A single-member limited liability company can adopt a variety of tax classifications to fulfill desired business purposes, besides conferring limited liability protection on its owner.
Target capital account allocations in 11 easy steps
This item discusses the complexities encountered when working with partnership allocations under a target capital structured operating agreement.
Current developments in partners and partnerships
The discussion covers developments in the determination of partners and partnerships, gain on disposal of partnership interests, partnership audits, and basis adjustments.
The Sec. 1061 capital interest exception and its impact on hedge funds
A hedge fund manager may be required to maintain separate tracking of a single partnership interest into several buckets to avoid the negative tax consequences of the short-term capital gain treatment of assets held from one to three years under Sec. 1061 for certain partnerships on the economic return of their invested capital.
Final rules for interest expense deductions affecting hedge funds
The final regulations provide relief to hedge funds
and their passive investors, although the regulations may increase the administrative burden
and reporting requirements on hedge fund managers.
Current developments in partners and partnerships
This article reviews and analyzes recent law changes as well as rulings and decisions involving partnerships.
Ensuring that allocations of LLC tax items are respected
If LLC members’ tax allocations are not made in accordance with the members’ interests in the LLC, they must fit into the substantial-economic-effect safe harbor.
IRS memorandum illustrates application of Sec. 704(c) anti-abuse rule
In FAA 20204201F, the IRS concluded that the Sec. 704(c) allocation method adopted by a partnership between a U.S. corporation and its domestic and foreign affiliates was unreasonable under the Sec. 704(c) anti-abuse rule.
Commercially reasonable expectation of payment under final Sec. 752 regulations
This item discusses final regulations providing guidance on when partnership liabilities are recognized as recourse under Sec. 752.
Bottom-dollar payment obligations
In highly leveraged partnerships, bottom-dollar payment obligations have been used by partners to increase their at-risk basis in a partnership to use loss allocations or to receive nontaxable cash distributions.
Prop. regs. restore allocation of partnership liabilities in disguised sales
Disguised sale occurs when a partner(s) engages in a transaction that, when viewed together with a partnership, involve property and are characterized as the sale or exchange of property.
IRS withdraws partnership regs. on disguised sales
The IRS announced that it was withdrawing temporary regulations on the treatment of partnership liabilities for disguised-sale purposes and proposing to reinstate the old rules.
Allocating debt when a disregarded entity is a partner
The net value rule determines the extent to which a
partner who owns a partnership interest through a disregarded entity bears the economic risk of loss
for a partnership recourse liability.
Temporary disguised-sale regulations raise concerns
Should the IRS consider recognizing a contributing
partner’s economic risk of loss when the regulations are finalized?
employee benefits & pensions
Profits interests: The most tax-efficient equity grant to employees
By granting them a profits interest, entities taxed as partnerships can reward employees with equity. Mistakes, however, could cause challenges from taxing authorities.
