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Capital Account Challenges for Partnerships: Tackling Calculations, Complex Operating Agreements, Tax-Basis Reporting

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Thursday, September 21, 2023

Recorded event now available

or call 1-800-926-7926

This course will give tax professionals preparing Form 1065 tax returns a detailed review of the requirements for capital account maintenance for partnerships and LLCs, including a general outline of tax allocations, mathematical examples, explanations of operating agreements, and approaches to compliance. Our panel will discuss the nuances of negative basis capital accounts, reporting partners' share of net unrecognized Sec. 704(c) gain or loss, and handling other common but complicated reporting scenarios.

Description

Tax advisers and practitioners preparing Form 1065 Partnership Income Tax Returns are frequently required to interpret a host of provisions in operating agreements and tax regulations that mandate the maintenance of detailed capital accounts.

If tax professionals fail to review and apply operating agreement provisions properly, they risk incorrectly using critical partnership tax rules and creating results that are inconsistent with the business deal intended by the partners or LLC members. This, coupled with the required tax-basis capital reporting requirements, adds even more complexity to this cumbersome calculation.

Traditionally, most operating agreements required a layering approach to capital account maintenance. In recent years, the "targeted capital account" method appears in more and more operating agreements. This method, based on cash-driven distributions, often is less prone to error.

Listen as our experienced panel provides detailed guidance on interpreting and reporting the capital account provisions in operating agreements and methods available to comply with complex tax regulations.

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Outline

  1. A general overview of tax allocation principles and substantial economic effect
  2. The traditional layered approach to allocating income
  3. Targeted capital account approach to allocating income
  4. Allocations for hedge funds and commodity funds
  5. Tax-basis capital and 704(c) gain-loss reporting requirements
  6. IRS and other taxing authorities' views on targeted allocations

Benefits

The panel will review these and other key issues:

  • What are the critical tax allocation principles for capital accounts?
  • What is the impact of "substantial economic effect" requirements in making capital account allocations?
  • How should tax pros handle liquidating distributions and deficit capital account restoration?
  • What is the best approach for determining and maintaining tax-basis capital accounts for partners?
  • What are the various approaches and challenges to special allocations taken by the IRS and other taxing authorities?

Faculty

Lovett, Brian
Brian T. Lovett, CPA, JD
Partner
Withum Smith+Brown

Mr. Lovett has extensive experience serving the tax needs of both public companies and closely-held businesses,...  |  Read More

Tannenbaum, Faye
Faye Tannenbaum, CPA
Partner
Mazars USA

Ms. Tannenbaum has over 28 years of experience providing tax compliance and consulting services to some of the largest...  |  Read More

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