Allocating Partnership/LLC Income, Losses and Debt to Partners
The course focuses on three major issues that involve allocations by partnerships to partners: (1) assuring that allocations to partners have substantial economic effect under section 704(b); (2) the proper treatment of forward and reverse built-in gains or losses under section 704(c); and (3) the proper characterization of debt and the appropriate allocation of such debt to the partner/LLC members pursuant to section 752.
Attendees will review case studies illustrating the inherent interrelationship of these three subjects and review sample partnership/LLC agreement language.
Note: Course materials include an e-book and PowerPoint slides that reinforce concepts and will be available to attendees.
- Allocating income, gain, deductions and losses under section 704(b).
- Understanding the Target Capital Account Method and comparing it to the Treasury Method.
- Allocations of built-in gain or loss pursuant to section 704(c).
- Properly characterizing debt as recourse, nonrecourse, or qualified nonrecourse financing.
- Allocating debt to the partners pursuant to section 752.
- Understand when allocations to partners have "substantial economic effect".
- Recognize the difference between book and tax basis capital accounts.
- Distinguish the Treasury Method from the Target Method of allocating profits and losses to partners and understand the pros and cons of the two methods.
- Understand when and why a partners have a negative capital account.
- Recognize terminology in partnership agreements such as “partnership minimum gain," “partner minimum gain," “partnership nonrecourse deductions” and “partner nonrecourse deductions."
- Recognize and understand the importance of a “minimum gain chargeback” and a “qualified income offset” in a partnership agreement.
- Determine when capital accounts can be optionally revalued and the impotance of such revaluation.
- Identify the “ceiling rule” and understand the three regulatory methods of making section 704(c) allocations.
- Distinguish recourse debt from nonrecourse debt, and qualified nonrecourse financing.
- Determine how to properly report each partner’s debt share on IRS Schedule K-1.
Attorneys and CPAs.
Applicable if you are a HSCPA member in good standing.
Applicable if you are not a HSCPA member.