Drafting Tax Distribution Provisions in Partnership Agreements: Protecting Against Tax on "Phantom" Income

Recording of a 90-minute premium CLE/CPE webinar with Q&A

Conducted on Thursday, September 24, 2015

Recorded event now available

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Program Materials

This webinar will provide a focused and practical guide to tax counsel in drafting partnership tax distribution provisions. The panel will define the issue of “phantom income,” and detail the negotiating process and strategies on whether to include tax distributions. The panel will also provide sample language and concrete examples to address various tax distribution scenarios and issues.


A consideration often overlooked by counsel and advisers to investors in tax partnerships is the concept of “phantom income.” This refers to the income amounts that taxpayers owning interests in a partnership are taxed upon, even though the partnership does not provide cash to pay the tax arising from the amount reported on a Schedule K-1. Unless the partnership agreement contains specific provisions requiring the partnership to make distributions to cover the tax burden caused by phantom income, partners can be left with a cash flow problem at tax time.

General partners or managing members may have more discretion on distribution decisions, thus having more control to avoid phantom income. However, other partners often must rely on negotiating tax distribution provisions to protect against phantom income.

Listen as our panel provides tax counsel with a detailed examination of best practices for negotiating and drafting tax distribution provisions in partnership agreements. The panel will analyze a variety of tax distribution provisions, detail what works well and what doesn’t, and provide examples and menu options for tax counsel drafting tax distribution provisions to avoid phantom income.



  1. Define “phantom income”
  2. Arguments for and against tax distributions
  3. Negotiating for tax distributions
  4. Baseline tax distribution provision
  5. Going beyond the baseline


The panel will discuss these and other critical issues:

  • Negotiating for tax distribution provisions
  • Carried interest scenarios and phantom income
  • Detailed tax distribution considerations and how to draft for them
  • Clawbacks


O'Connor, Brian
Brian J. O'Connor


Mr. O'Connor co-chairs the firm's Tax and Wealth Planning Group and provides tax advice to partnerships...  |  Read More

Steven R. Schneider
Steven R. Schneider

Goulston & Storrs

Mr. Schneider provides tax counsel for many national companies including real estate and private equity funds, REITs,...  |  Read More

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