Article On Tax Allocation Provisions In Partnership Agreements

Philip R. Hirschfeld (Ruchelman, P.L.L.C.) recently published an article entitled, Deciphering Tax Allocation Provisions in a Partnership Agreement, 30 Prob. & Prop. 36-39 (2016). Provided below is an excerpt from the article:

A typical real estate limited partnership agreement or limited liability company (LLC) operating agreement includes provisions dealing with allocations of taxable income, gain, loss, and deductions that can be difficult to decipher. This article provides a brief explanation of the reasons for these tax allocation rules and the content of the basic tax allocation provisions, enabling a real estate lawyer to better understand and explain to his clients what many investors consider a tax morass. A targeted tax allocation provision also is discussed, which may better reflect the partners’ intentions for sharing cash flow from the partnership and reduce the length of these tax provisions. In this discussion, any references to partnerships also include LLCs, which are usually treated as partnerships for tax purposes.