Key Tax Provisions in LLC Operating Agreements: Interpreting Special Allocation, Safe Harbor, DRO, QIO Clauses

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 Tuesday, December 14, 2021

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Course Materials

This course will review LLC operating agreements from the perspective of a tax professional. Our partnership veteran will explain how to identify the common language in arrangements for safe harbor provisions, deficit restoration obligations (DROs), qualified income offsets (QIOs), loss limitation provisions, special allocations under Section 704©, as well as offer suggestions for handling provisions that may not match the partners' or IRS expectations.

Description

Partnership allocations must have a substantial economic effect to be recognized under Treasury Regulations. To meet this standard and avoid potential IRS reallocations, capital accounts must be maintained under the Treasury method or meet specific safe harbors, including DROs, QIOs, and loss limitation provisions. These particular requirements have led to the inclusion of common boilerplate language in operating agreements.

Practitioners familiar with Section 704(b) requirements may struggle to identify these critical provisions in operating agreements. Sometimes the operating agreement has not been written to comply with these complex regulations or with the partners' expectations. Finding and understanding often complicated allocation and distribution provisions in partnership and LLC agreements is critical for flow-through tax practitioners.

Listen as our partnership expert walks you through common tax clauses in partnership agreements that tax advisers need to readily recognize to apply allocations properly and avoid unintended tax consequences.

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Outline

  1. Operating agreements: an overview
  2. Special allocations
  3. Substantial economic effect
  4. Safe harbor agreements
  5. Noncompliant operating agreements
  6. Best practices

Benefits

Our panelist will cover these and other critical issues:

  • Identifying boilerplate language added for tax compliance to operating agreements
  • Differences between S corporation and partnership allocations
  • The types of safe harbor agreements
  • Meeting Treasury's substantial economic effect requirements
  • Handling language that does not match partners' expectations
  • When a qualified income offset is required

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

Perez-Trepichio, Brittany
Brittany Perez-Trepichio, CPA, MBA
Tax Manager
Withum Smith+Brown

Mrs. Perez-Trepichio is a Tax Manager in the partnership tax group of Withum Smith+Brown. Her public accounting...  |  Read More

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