Allocating Partnership/LLC Income, Losses and Debt to Partners

Description

Understand the impact of the Tax Cuts and Jobs Act on partnership reporting to partners and related strategies. Focus on three main partnership tax subjects in this comprehensive course.

First, the allocation of income, gain, deductions, and losses among the partners (including LLC members treated as partners for tax purposes) in accordance sections 704(b). Second, allocations of built-in gains or losses under section 704(c). Finally, cover the characterization of debt as recourse, nonrecourse, or qualified nonrecourse financing and the allocation of such debt to the partners/LLC members pursuant to section 752.

Also, review the new K-1 reporting obligations and allocations mandated by the Tax Cuts and Jobs Act, such as:

• K-1 reporting and allocations of qualified business income, W-2 wages, and unadjusted basis per section 199A
• Guaranteed payment strategies in light of new section 199A and subsection (j) of section 163.
• The new partnership level limitation on interest expenses and the associated K-1 reporting of excess business interest and excess taxable income
• The impact of new partner-level nonbusiness loss limits on partnership level decisions
• Special reporting requirements for service partners owning profits-only interests (“carried interests”)
• New law reporting by fiscal year partnerships.

Attendees will review related case studies illustrating the inherent interrelationship of these three subjects and review sample partnership/LLC agreement language that helps to identify and distinguish the Treasury Capital Account Method from the Target Capital Account Method of determining income or loss allocations and distributions. Plus, consider the competing interests of the partners in all areas: e.g., the tax benefit of the traditional method of section 704(c) allocation to the contributing partner compared to the other partners.

Note: Course materials include an e-book and PowerPoint slides that reinforce concepts and will be available to attendees.

Highlights

• Allocating income, gain, deductions and losses under section 704(b).
• Distinguishing the Treasury Capital Account Method from the Target Capital Account 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.

Objectives

• Understand the impact of the Tax Cuts and Jobs Act on partnership reporting to partners and related strategies.
• Recognize the difference between book and tax basis capital accounts.
• Recognize the Treasury Capital Account Method of allocating income, gains, losses, and deductions under section 704(b).
• Determine when the partnership agreement enables a partner to meet the safe harbor for economic effect.
• Identify the strengths and weaknesses of the Target Capital Account Method.
• Determine when an LLC member or Limited Partner can 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 why it matters.
• Identify the “ceiling rule” and the three regulatory methods of making section 704(c) allocations.
• Distinguish recourse debt from nonrecourse debt, and qualified nonrecourse financing.
• Recognize the definition of a “bottom-dollar payment obligation” and why it matters.
• Determine how to properly report each partner’s debt share on IRS Schedule K-1.
• Recognize the competing strategies that arise when partners contribute cash, appreciated property or services to a partnership.

Designed For

Attorneys and CPAs.