Discussion Archives:Can someone explain why a partnership allocation % would change based on a hypothetical sale calculation?

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Discussion Forum Index --> Advanced Tax Questions --> Can someone explain why a partnership allocation % would change based on a hypothetical sale calculation?


Discussion Forum Index --> Tax Questions --> Can someone explain why a partnership allocation % would change based on a hypothetical sale calculation?

Sillymania (talk|edits) said:

25 October 2010

Kevinh5 (talk|edits) said:

25 October 2010
which is hypothetical, the calculation or the sale?

obviously, a real (not hypothetical) sale of a partnership interest would change the ownership percentage from that point forward

Sillymania (talk|edits) said:

25 October 2010
Year 1 - LLC - 2 partners Partner A - 75%, Partner B - 25%

Year 2 - LLC - 2 partners Partner A - 32%, Partner B - 68%

Looking at Partner B (which is us) - our allocation % changed from 25% to 68%

Asked what caused the change in allocation % - was provided with a quirky calculation - called hypothetical sale - deemed liquidation proceeds, which take the flux between prior year and current year scenario amounts + current year distributions received to determine the allocation %.

Note - Partner A has preferred contributions, which yielded preferred distributions

Kevinh5 (talk|edits) said:

25 October 2010
at the deemed sale date, the partnership had a technical termination. Transactions after this date should not have been reflected on the 1065.

Your tax professional should be able to explain this to you.

Harry Boscoe (talk|edits) said:

25 October 2010
I would suspect there's a provision in the partnership agreement that provides for a hypothetical sale under certain circumstances. Whether that provision has been interpreted correctly, we're obviously not in a position to know, we'll have to wait to find out. I don't know about the technical termination. See IRC Section 708(b) for partnership termination rules.

MWPXYZ (talk|edits) said:

26 October 2010
You may have to read reg 1.752-2, I think.

If you get this, getting a Masters won't be so hard.

MWPXYZ (talk|edits) said:

26 October 2010
Or maybe 704(b). Try typing "deficit restoration" in the yellow box, maybe.

Dennis (talk|edits) said:

26 October 2010
I dunno. I see no termination. §751 demands hypothetical sale, no? Could be anything. §743 does one too.

Sillymania (talk|edits) said:

27 October 2010
There are no actual sale or liquidation. The calc. is done to allocate the taxable income for each Partner.

LH2004 (talk|edits) said:

October 27, 2010
It's being done because the partnership agreement says it is to be done. We could guess about why the partnership agreement says that, but it would be a lot more accurate if you just looked at what it says.
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