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Tax Planning and Reporting for Partnership Equity Compensation Grants

Basis Adjustments, Avoiding Gain Recognition, Section 83 Elections and Deferred Compensation Impact

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

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Conducted on Wednesday, May 30, 2018

Recorded event now available

This course will provide tax advisers to partnerships and LLCs with guidance on tax planning opportunities and reporting requirements involved in granting equity compensation as payment for services. The panel will detail the tax consequences of equity grants, available elections and required reporting under the new partnership audit regime. The panel will also discuss how recent changes to carried interest rules will affect equity grants.

Description

Partnerships and LLCs often provide equity compensation to employees and other service providers. Partnership and LLC equity compensation arrangements present complex structuring and tax compliance challenges. Advisers must have a thorough understanding of the tax impact of various equity compensation schemes to avoid unexpected tax consequences.

Partnership and LLC equity compensation can take several forms, including granting profits interests, capital interests and options to acquire such interests. Each of these arrangements has specific implications economic and tax implications, including whether the grantee should be treated as an employee or a partner for tax purposes. The IRS position is that a partner may not be an employee of the partnership for tax purposes.

Advisers face additional challenges including a lack of definitive IRS guidance on how and when Section 409A may apply to a partnership equity compensation grant. There is uncertainty on the treatment of carried interest and fee waivers going forward. These and other issues present planning and compliance challenges for advisers.

Listen as our experienced panel offers a thorough and practical guide to planning considerations and reporting requirements in partnership and LLC grants of equity compensation.

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Outline

  1. Equity compensation alternatives available to partnerships and LLCs
    1. Profits interests
    2. Capital interests
    3. Options to acquire capital or profits interests
    4. Phantom arrangements
  2. Planning and implementation considerations
    1. Section 409A applicability
    2. Impact of fee waiver proposed regulations
    3. Carried interest treatment
  3. Income tax reporting and compliance challenges
    1. Capital account book-ups and valuation elections
    2. Reporting profits interest vs. capital interest
    3. Reporting challenges for grants of equity interests to employees when partnership has unrealized appreciation in assets
  4. Impact of partner/member status on employee benefits

Benefits

The panel will review these and other key issues:

  • How does a capital interest differ from a profit interest and how do tax reporting requirements and planning opportunities differ depending on the type of equity interest granted?
  • How does Section 409A apply to compensatory grants of equity interests in partnerships and LLCs?
  • Should a Section 83(b) election be made for unvested interests?
  • Tax reporting and employee benefit plan issues when an equity interest is granted to a current employee of a partnership business
  • Tax treatment of carried interest and fee waivers arising from compensatory grants of equity interests

Faculty

Mendelowitz, Adam
Adam S. Mendelowitz
Partner
Finn Dixon & Herling

Mr. Mendelowitz practices in the areas of executive compensation, employee benefits and ERISA. He has been part of...  |  Read More

Spiro, Michael P.
Michael P. Spiro
Partner
Finn Dixon & Herling

Mr. Spiro chairs the firm's Tax group, where his practice focuses on providing federal and state tax...  |  Read More

Torrenti, John
John Torrenti
Finn Dixon & Herling