Partnership tax allocations may be made by agreement provided those allocations have substantial economic effect. The common thread in IRS-developed safe harbors for economic effect is the Section 704(b) capital account provisions. Section 704(b) capital is also the basis for determining Section 704(c) allocations of built-in gains and losses of contributed property. This course provides an in-depth analysis of how the capital account provisions apply to different transactions and illustrates how the capital accounts can be used to track allocations.
Upon successful completion of this course, participants will be able to:
- Identify the types of agreements that provide for Section 704(b) capital maintenance
- Determine how to make adjustments to Section 704(b) capital in common transactions
- Distinguish allocations subject to the economic effect test from built-in gain or loss allocations
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