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Section 704, Targeted Allocations and the Distribution Waterfall: Overcoming Challenges Absent IRS Guidance

Understanding the Economic Effect Test and How to Allocate Income or Loss Using Targeted Allocations

Note: CLE credit is not offered on this program

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

This program is included with the Strafford CPE Pass. Click for more information.
This program is included with the Strafford CPE+ Pass. Click for more information.
This program is included with the Strafford All-Access Pass. Click for more information.

Conducted on Thursday, July 16, 2020

Recorded event now available

This course will provide tax professionals with a review of the critical concepts of targeted allocations and the role they play in making valid allocations to partners by partnerships and certain LLCs under Sect. 704(b).

Description

Targeted allocations are not a new concept but are utilized with greater frequency than traditional allocations. The targeted allocations approach may achieve the same outcome as the conventional approach, but it arrives at the allocations differently.

Using targeted allocations, a partnership liquidates under a negotiated distribution waterfall that reflects precisely the partners' economic deal. Traditionally, the allocation provisions of partnership agreements relied on IRC 704(b) safe-harbor economic effect regs and provided that income or loss would first be allocated to the partners' capital accounts. After such allocations, cash or other property would be distributed in proportion to partner capital accounts.

Accounting professionals must understand the potential ramifications of using targeted allocations within the requirements of the Section 704(b) economic effect test. Associated rules rely on an allocation that has economic effect when making other allocations that cannot have economic impact by their nature (e.g., nonrecourse deductions).

Listen as our panel of tax practitioners who are experienced with targeted allocations and Sect. 704(b) gives you a thorough briefing on this complex area and helps you anticipate partner allocation issues.

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Outline

  1. Review of partnership allocation rules
  2. Targeted capital accounts vs. liquidating with capital accounts
    1. Layer cake and targeted allocations
  3. Other considerations
    1. Regulatory allocations
    2. Preferred returns
    3. Other

Benefits

The panel will analyze and tackle these and other relevant topics:

  • "Economic effect" test safe harbor agreements vs. cash-driven agreements
  • Allocating income under either type of agreement
  • Relevant regulatory safe harbors

Faculty

Fowler, Lynn
Lynn E. Fowler
Partner
Kilpatrick Townsend & Stockton

Mr. Fowler focuses his practice on corporate and business tax law. He specializes in helping clients develop and...  |  Read More

Wilson, Amanda
Amanda Wilson
Shareholder
Lowndes

Ms. Wilson concentrates her practice on federal tax planning and structuring and represents clients in a wide variety...  |  Read More