IRC Sect. 704(b): Allocations to Partners - straffordpub.com

1 Presenting a live 110 minute teleconference with interactive Q&A. irc sect . 704(b): Allocations to Partners Navigating Complex Rules on Determining Validity of Partnership Allocations WEDNESDAY, MARCH 2, 2011. 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today's faculty features: Amanda Wilson, Wilson Lowndes Drosdick Doster Kantor & Reed, Reed Orlando, Orlando Fla Fla. Jeremy Naylor, partner , White & Case, New York Jorge Otoya, Senior Manager, KPMG, Washington, For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information.

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3 Continuing Education Credits FOR LIVE EVENT ONLY. Attendees must listen to the audio over the telephone. Attendees can still view the presentation slides online but there is no online audio for this program. Please refer to the instructions emailed to the registrant for additional information. If you have any questions, please contact Customer Service at 1. 1-800-926-7926. 800 926 7926 ext. 10. Tips for Optimal Quality S. Sound d Quality Q lit For this program, you must listen via the telephone by dialing 1-866-871-8924. and entering your PIN when prompted.

4 There will be no sound over the web co ect o . connection. If you dialed in and have any difficulties during the call, press *0 for assistance. You may also send us a chat or e-mail immediately so we can address the problem. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again. again irc sect . 704(b): Allocations to Partners IRC S t (b) All ti t P t Webinar March 2, 2011. Amanda Wilson, Lowndes Drosdick Doster Jeremy Naylor, White & Case Kantor & Reed d il @l d l Jorge Otoya, KPMG. j y p g Today's Program Material Aspects Of 704(b) Rules Slide 7 Slide 35.

5 [Amanda Wilson and Jeremy Naylor]. Associated Regulatory Sections Slide 36 Slide 69. [Jeremy Naylor and Jorge Otoya]. Relevant And Recent IRS Administrative Guidance Slide 70 Slide 72. [Jorge Otoya]. Amanda Wilson, Lowndes Drosdick Doster Kantor & Reed A d Wil L d D di k D K & R d Jeremy Naylor, White & Case MATERIAL ASPECTS OF 704(b) RULES. Orlando, Florida | Allocations One of the key benefits of a partnership is the flexibility in allocating partnership items among the Partners . Allocations of a partner 's distributive share of partnership income, gain, loss, deductions or credit will be respected if they: (1) Are either in accordance with the Partners Partners ' interests in the partnership, or (2) Have substantial economic effect.

6 Allocations are not the same as distributions. irc sect . 704(b): Allocations to Partners Webinar 8. Orlando, Florida | Partners ' Interest In The Partnershipp Allocations are generally in accordance with the Partners ' interests in the partnership if all Allocations are being made in accordance with the respective contributions of the Partners . For example, if A and B each contributed $100, Allocations would be in accordance with the Partners Partners ' interests in the partnership if all partnership items are shared 50-50. Liquidating distributions can be made in accordance with the Partners '.

7 Respective interests in the partnership. irc sect . 704(b): Allocations to Partners Webinar 9. Orlando, Florida | Substantial Economic Effect AB is a partnership that owns 3 properties. All income allocated 50% to A, except 60% of income from property 1 is allocated to A. This is a special allocation . Special Allocations will be respected if they have substantial economic effect. Substantial economic effect is a safe harbor. Under a two-part analysis, Allocations must : (1) Have economic effect, and (2) The economic effect must be substantial. irc sect . 704(b): Allocations to Partners Webinar 10.

8 Orlando, Florida | Economic Effect General p principle: p If there is an economic benefit or burden that corresponds to an allocation , then the partner to whom the allocation is made must receive the economic benefit or burden. More simply, simply if a partner gets the benefit of an allocation of $100 of tax loss, the partner must suffer the $100 economic loss. If a partner suffers the burden of $100 of tax gain, the partner must get the $100. of cash. cash This is accomplished by maintaining capital accounts and liquidating in accordance with those accounts.

9 irc sect . 704(b): Allocations to Partners Webinar 11. Orlando, Florida | Basic Test For Economic Effect (1) Capital account requirement: The partnership must maintain its capital accounts in accordance with the rules of Reg. 1(b)(2)(iv). (2) Liquidation requirement: Upon liquidation of the partnership agreement, the liquidating distributions must be made in accordance d with ith the th positive iti b l balances off the th partner 's t ' capital it l account. (3) Deficit make make-up up requirement: If a partner has a deficit in his capital account upon liquidation of the partnership, the partner must have an unconditional obligation to restore the deficit.

10 irc sect . 704(b): Allocations to Partners Webinar 12. Orlando, Florida | Capital Account Maintenance Rules A partner 's capital account reflects the partner 's equity investment. It must be adjusted as follows: Increased by (1) FMV of contributions and (2) allocable share of partnership income D. Decreased db by (1) FMV off di distributions t ib ti and d (2) allocable ll bl share of partnership loss For economic effect effect, liquidating distributions to the Partners must be made based on capital accounts adjusted according to these rules. irc sect . 704(b): Allocations to Partners Webinar 13.