Posted by Bob on August 12, 2004 at 15:31:40:
Are my allocations in error? The tax result in my example appears to match the intended economic result of the parties, which is what I thought the “substantial economic result” test requires.
allocating partnership revenue & expenses - Posted by Bob
Posted by Bob on August 11, 2004 at 20:07:03:
Consider the following partnership:
A) contributes $100. receives first $8 in annual profit
B) contributes $1, receives all residual profit. does management.
If the partnership receives $21 in revenue and has $10 in deductible expenses, is this the right way allocate revenue and expenses?
A) is allocated $8 in revenue, $0 in expenses == $8 taxable income
B) is allocated $13 in revenue, $10 in expense == $3 taxable income
Here’s a more complicated example:
first $6 to A, then
remaining profit split 50/50 until 80/20 A/B, then
split all remaining profit 80/20 A/B
This prevents the managing partner from receiving their full 20% until the capital partner is receiving at least 8% on invested capital.
Re: allocating partnership revenue & expenses - Posted by John K Haslach, CPA, MST
Posted by John K Haslach, CPA, MST on August 14, 2004 at 07:37:44:
Special allocations can be complicated. I am not soliciting business, but I cannot do more than tell you that the IRS will not just any allocations. I would suggest you seek the advice of a competent tax advisor in this matter.
Re: allocating partnership revenue & expenses - Posted by JOHN K HASLACH, CPA, MST
Posted by JOHN K HASLACH, CPA, MST on August 12, 2004 at 09:12:25:
Partnerships may not allocate income and expense anyway they please. Allocations must have what the IRS calls substantial economic effect.
allocating - Posted by John Merchant
Posted by John Merchant on August 11, 2004 at 23:18:03:
Partners, by specific agreement, may allocate revenue, expenses & deductions as they please.
e.g. in SDIRA participating partnership, where SDIRA puts up the cash and the other 2-3 partners get the loan, sign the note & make the payments, since the SDIRA has no use for the depreciation and the other guys are making the PITI payments, the “payment” partners normally get all tax deductibles.
And they can treat the P’ship income the same way, as normally the SDIRA partner doesn’t want any income, since that’s UBIT and undesired.