Partnership Allocations of Rehabilitation, New Market and Other Tax Credits: Navigating Complex 704(b) Rules

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


Conducted on Thursday, January 5, 2017

Recorded event now available

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Program Materials

This CLE/CPE webinar will provide tax counsel with a comprehensive guide to provisions allocating tax credits within a partnership agreement. The panel will discuss what criteria to evaluate in determining whether any tax credit allocation will be respected, and will go into detail on provisions for allocating specific tax credits, including the rehabilitation, low-income housing, and new market tax credits. The event will feature specific examples of tax credit allocation in a number of scenarios.

Description

A significant challenge for tax counsel in drafting partnership agreements is ensuring that allocations of tax credits will be respected in an IRS examination. As even the Service notes, determining whether or not a tax credit is properly allocated depends on a number of issues, such as the specific credit, the nature of any debt used to finance the property giving rise to the credit, and the complex rules of IRC Section 704(b).

The Code has numerous provisions for tax credits, and not all credits are treated equally. For example, while most credits do not impact a partner’s capital account, the rehabilitation tax credit requires the partner to reduce the depreciable basis of the building by the amount of the rehabilitation credit, and the partner must reduce his capital account by his ratable share of that credit. The IRS has also issued safe harbor provisions for rehabilitation tax credits that do not apply to other tax credits.

With low-income housing tax credits and new market tax credits both demanding tax advisers’ attention, tax counsel must know the particular treatment of specific tax credits to ensure that partnership agreements properly allocate the credits in a way that will withstand IRS scrutiny. Failure to meet the complex rules can risk disallowance of the credit allocations, which can lead to serious negative tax consequences.

Listen as our experienced panel of tax practitioners provides a comprehensive guide to provisions allocating tax credits within a partnership agreement.

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Outline

  1. General allocation principles
  2. Allocation of new market tax credits (NMTCs)
  3. Allocation of investment tax credits (ITCs)
  4. Allocation of state tax credits
  5. Other credit allocation issues
  6. Case study

Benefits

The panel will discuss these and other important issues:

  • Allocation principles applied to tax credits within a partnership
  • How to navigate the allocation of non-recourse deductions in allocating tax credits
  • Specific rules governing allocations of rehabilitation credit
  • Allocation of state tax credits
  • Avoiding disguised sales rule after Tax Court holding in Virginia Historic Tax Credit Fund

Faculty

Mandarino, Joseph
Joseph C. Mandarino

Partner
Smith Gambrell & Russell

Mr. Mandarino's practice focuses on corporate, tax and finance law. He is involved with a wide variety of...  |  Read More

Wilson, Amanda
Amanda Wilson

Partner
Lowndes Drosdick Doster Kantor & Reed

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

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