Per the IRS Education Provider Standards this course must be COMPLETED by 12/31/2025 to receive credits. NOTE: Go to My Professional Profile in your CCH CPELink account settings to ensure your name, and PTIN number; matches your PTIN card
Partnerships allow partners to reach an agreement with respect to the allocation of items of income, gain, deduction, and loss — provided the agreement has substantial economic effect. Regulations finalized in 1985, at the height of the tax shelter days, provide several “safe harbors” to the structure of allocations that comply with the economic effect test. These regulations require that the partnership liquidate based on capital accounts and have largely driven the form of most partnership agreements.
After the passive loss rules eliminated the classic tax shelter arrangement, many advisors looked for alternative structures that focused on how partners would distribute money and property, and then use the distribution arrangement to determine allocations of partnership items. These arrangements are often called “targeted” allocations as they use allocations to hit a target capital account. The agreement itself does not prescribe a particular allocation scheme, but instead forces the tax return preparer to make allocations that tie capital to the agreed-to distribution scheme.
Partnership tax experts believe one of three things about targeted allocations. They work. They do not work. They may work. This presentation will discuss the reasoning behind each position. The presenter believes they may work if properly structured.
Join nationally recognized tax practitioner, instructor and commentator James Hamill, CPA, Ph.D., for this two-hour CPE that provides a practical review of how to make partnership allocations based on a targeted allocation agreement. This program makes liberal use of specific examples to illustrate the “how to” of targeted allocations.
Publication Date: August 2022
Designed For
CPAs, EAs, tax preparers and other tax professionals with responsibility for partnership tax return compliance.
Topics Covered
- "Old" Approach — Rely on the safe harbor approach of the Section 704 regulations
- Required language
- "Layer cake" allocations when final return is filed
- "New" Approach Targeted allocations
- Difference in language
- Attorney covers distributions, preparer covers allocations
Learning Objectives
- Recognize and apply essential aspects partnership targeted allocations
- Identify characteristics of the old approach to partnership tax allocations
- Identify how to properly make partnership allocations based on a targeted allocation agreement
- Recognize how to help clients understand how targeted allocations will affect their tax returns
- Identify which type of effect contemplates matching income with economic benefit and losses with economic detriments
- Identify the number of requirements with respect to the economic effect safe harbor
- Describe when to distribute cash under the targeted allocation approach
Level
Intermediate
Instructional Method
Self-Study
NASBA Field of Study
Taxes (2 hours)
Program Prerequisites
Experience with partnership tax returns.
Advance Preparation
None
Instructor
James R. Hamill
Dr. Hamill is the Director of Tax Practice at Reynolds, Hix & Co., P.A., in Albuquerque, New Mexico. He is the author of more than 36 CPE courses and more than 100 articles in professional tax journals and writes a weekly column on tax issues for the Albuquerque Journal. He has lectured on structuring tax transactions throughout the country for international CPA firms, State CPA Societies, and numerous other organizations. He has developed and instructed webinars on a variety of tax topics over the past 10 years. He is a CPA in New Mexico, a past Chair of the New Mexico Society of CPAs, and has 40 years of experience in tax practice.