What is a substantial economic effect?

The general rule regarding substantiality is that “the economic effect of an allocation (or allocations) is substantial if there is a reasonable possibility that the allocation (or allocations) will affect substantially the dollar amounts to be received by the partners from the partnership, independent of tax …

What is the substantial economic effect test?

Economic effect is satisfied based on a three-part test: (1) the partnership must maintain capital accounts in accordance with Regs. Sec. 1.704(b)(2)(iv); (2) liquidating distributions must be from positive Sec. 704(b) capital accounts; and (3) the partnership must contain a deficit restoration obligation (DRO).

What is the purpose of section 704 B?

Section 704(b) of the Internal Revenue Code provides that a partner’s distributive share of income, gain, loss, deduction, or credit is determined in accordance with the partner’s interest in the partnership if the partnership agreement does not provide as to the partner’s distributive shares of these items, or the …

What is a remedial allocation?

Remedial allocations are tax allocations of income or gain that are created by the partnership, and that are offset by similarly created tax allocations of loss or deduction by the partnership. These notional tax allocations have no effect on book income or capital accounts.

What is Section 704 B book?

Section 704(b) accounts reflect a partner’s economic interest in the entity, GAAP balances report balances that comply with accounting board requirements, and tax basis balances reflect a partner’s capital balance under federal income tax principles.

What does Qualified income Offset mean?

A qualified income offset provision provides that a partner who unexpectedly receives any of the adjustments, allocations, or distributions described above that result in a deficit (or increased deficit) book capital account must be allocated items of gross income and gain in an amount and manner sufficient to …

What is minimum gain chargeback?

Minimum Gain Chargeback is an allocation of gain, for tax purposes only, to partners or members who have received the benefit of prior non-recourse deductions or who have received distributions of partnership proceeds attributable to non-recourse borrowing.

What is a qualified income offset?

What is the difference between 704 b and tax basis?

What is a 754 election?

An IRC Section 754 election allows a partnership to adjust the basis of the property within a partnership under IRC Sections 734(b) and 743(b) when one of two triggering events occur: 1) a distribution of partnership property or 2) certain transfers of a partnership interest.

What is a 743 B adjustment?

743(b) adjustment by a partnership generally hinges on the partnership’s receiving written notice of a sale or exchange or of a transfer upon the death of the partner. Thus, transferees have a duty to report transfers promptly to their partnership.