Complex Tax Provisions in LLC Operating Agreements: Minimum Gain Chargeback, Waterfall Allocations, QIOs

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Monday, October 24, 2022

Recorded event now available

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Course Materials

This course will examine complex tax clauses in operating agreements to assist tax practitioners in identifying and implementing these key provisions in accordance with partners' expectations and existing regulations.

Description

Provisions allocating minimum gain chargebacks to members are often included in LLC agreements. Allocating minimum gain is complex but required under regulations Section 1.704-2 when a member receives allocations of nonrecourse deductions that lack economic effect. These chargebacks are triggered when a property's basis drops below the loan amount on the property. Tax practitioners must recognize these clauses and know when they come into play to make these offsetting allocations.

Many operating agreements include targeted capital account balances to affect preferential distributions to partners. Partners can receive preferential returns, then the return of capital contributions, and finally distributions relative to their partnership interests. These tiered or waterfall distributions are rife with complexities that must be grasped by advisers working with partnerships and LLCs.

Listen as Jeffrey Clayman, CPA, JD, LLM, Tax Senior Manager at Withum Smith+Brown, walks you through examples of difficult provisions in operating agreements, including waterfall allocations, minimum gain chargebacks, qualified income offsets, and liquidating distributions. Tax practitioners must identify, interpret, and apply the most complex provisions in LLC agreements to properly allocate income, deductions, and gains and losses from dispositions of partnership interests.

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Outline

  1. Complex provisions in LLC agreements: an introduction
  2. Meeting the regulatory safe harbors
  3. Complex special allocations
  4. Minimum gain chargeback
  5. Qualified income offsets
  6. Liquidation
  7. Other complexities

Benefits

The panelist will review these and other key issues:

  • Identifying waterfall allocation clauses in LLC agreements
  • Determining proper distribution amounts under tiered arrangements
  • Ensuring partnerships meet regulatory safe harbors for allocations
  • Calculating minimum gain chargebacks

Faculty

Clayman, Jeffrey
Jeffrey Clayman, CPA, JD, LLM

Tax Senior Manager
Withum Smith+Brown

Mr. Clayman has over 18 years of public accounting experience with a focus on for-profit businesses in many different...  |  Read More

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