When are partnership allocations binding on the partners?
Article Abstract:
The allocation of partnership items among the partners will have tax consequence only in instances when the items have considerable economic effect or when the item allotment was conducted based on the partners' interest in the partnership. In allocating partnership deductions, there are five IRC provisions that should be applied sequentially. The first of these is Section 704(a) which requires allotment based on the partnership agreement. This is followed by Section 704(b) which checks whether the allocations specified in the agreement between the partners will be complied with for Federal income tax purposes. The third provision is Section 704(c), applied solely when a discrepancy exists between the property value and the basis of the property. Section 704(d) checks for possible limitations in the deductibility of losses. Finally, Sections 465, 469, 1211 and other related sections give further guidance in determining deductibility limitations.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1993
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Receiving a partnership profits interest for services is not (always) taxable
Article Abstract:
The Eight Circuit's recent reversal of a decision by the Tax Court establishes that receiving a profits interest is not always subject to taxation. In the Campbell case, the circuit court held that the taxpayer who accepted special limited partnership profits interest as compensation for services rendered to his corporate employer has no tax liability because the interests received was only 'speculative.' The Eight Circuit's decision was based on the analysis of Reg. 1.721-1(b), the liquidation test, and the nonrealization rules covering transactions between partners and their partnerships. Unfortunately, the decision has caused confusion among practitioners because it is not founded on a principle that explicitly states the tax treatment of profits interests.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1991
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