A focus on three major issues involving allocations by partnerships to partners: (1) assuring that allocations to partners will be respected under section 704(b); (2) the override provision of section 704(c) relating tothe proper treatment of forward and reverse built-in gains and losses; and (3) the characterization of debt as recourse or nonrecourse and the appropriate allocation of such debt to the partner/LLC members pursuant to section 752.
Understand the importance of the partners’ interest in the partnership test for determining whether allocations in a partnership agreement will be respected.
Determine whether allocations will be respected under the substantial economic effect test
Recognize the difference between inside basis, outside basis and capital accounts.
Understand the events which may result in a negative capital account and identify those partners who are allowed such a negative accout.
Recognize the meaning and operation of of “qualified income offset,” “partnership minimum gain,” “partnership nonrecourse deductions,” “partner nonrecourse deductions” and “minimum gain chargeback.”
Determine the situations where a partnership may elect to restate the book value of its assets to current fair market value and the benefits and detriments of doing so.
Identify the three regulatory methods for making 704(c) allocations and the operation of the ceiling rule in each.
Understand how partnership debt affects the outside basis of partners.
Distinguish between recourse debt, nonrecourse debt and qualified nonrecourse debt.
Determine a partner’s share of partnership debt.
Understand the consequences of the contribution of property subject to debt and the receipt of a distribution of property subject to debt on a partner’s outside basis.
Allocating income, gain, deductions and losses under section 704(b).
Understanding the Target Capital Account Method and comparing it to the TreasuryMethod.
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.
CPAs, attorneys, tax practitioners and financial professionals.
Three years of relevant experience or an understanding partnership and LLC taxation.