IRC Sect. 704(b): Partnership Allocations

Navigating Complex Rules to Determine Valid Allocation of Income, Gain, Loss, Deductions or Credits

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

Conducted on Wednesday, October 8, 2014

Recorded event now available

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Course Materials

This course will provide tax advisors, corporate tax professionals and counsel with a review of the key tax concepts for making valid allocations to partners by partnerships and certain LLCs under Sect. 704(b) of the Internal Revenue Code.

Description

While a partnership agreement ultimately determines a partner's distributive share of income, gain, loss, deduction or credit, Sect. 704(b) is the starting point to determine validity of allocations by a partnership or LLC treated as a partnership.

Navigating Sect. 704(b) presents a number of complexities. For an allocation to be valid, it must meet three separate prongs of the regulations, and one of those prongs calls for passing both “economic effect” and “substantiality” tests at the end of the tax year.

Tax professionals and attorneys must work within detailed requirements of 704(b) tests and IRS administrative guidance and associated rules on non-recourse debt (and associated developments such as revised Sect. 108(e)(8) debt-for-equity regs and a proposed elimination of a de minimis rule in REG-109564-10).

Listen as our panel of tax practitioners highly experienced with Sect. 704(b) gives you a thorough briefing on this constantly changing area of tax policy and helps you anticipate partner allocation issues when crafting partnership agreements.

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Outline

  1. Review of partnership allocation rules
    1. Sect. 704(a) and Sect. 704(b)
    2. Sect. 704(c) and Sect. 704(d)
    3. Economic effects tests
  2. Rules for allocations related to non-recourse debt
    1. Sect. 1.704-2
    2. Examples of non-resource and partner non-recourse debt
    3. Partnership minimum gain
  3. Targeted capital accounts vs. liquidating with capital accounts
    1. Layer cake and targeted allocations

Benefits

The panel will provide you a briefing and analysis on these and other relevant topics:

  • Terms of the three provisions under Sect. 704(b) to validate an allocation.
  • Material details of the leading allocation provision, the two part substantial economic effect test.
  • Additional rules to allocate deductions, losses and gains attributable to non-recourse debt.
  • Relevant administrative guidance and court rulings.
  • Sect. 704(b) considerations for crafting partnership agreements.

Faculty

David Forst
David Forst
Tax Group Practice Leader
Fenwick & West

Mr. Forst's individual practice specializes in international corporate and partnership taxation. He is a lecturer...  |  Read More

Wilson, Amanda
Amanda Wilson
Shareholder
Lowndes

Ms. Wilson concentrates her practice on federal tax planning and structuring and represents clients in a wide variety...  |  Read More

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