The New Year Means It's Time To Update Your Partnership Agreements
|
Mergers & Acquisitions
Well, 2019 is finally here, which means the time has come to update your partnership agreements to address the new partnership tax audit rules that were passed as part of the Bipartisan Budget Act of 2015. These new rules will replace the Tax Equity and Fiscal Responsibility Act of 1982 (TEFFA) and are effective for tax years beginning after December 31, 2017.
In general, the new audit rules require adjustments of items of income, gain, loss, deduction or credit to be made at the partnership level and impose any imputed underpayment of tax on the partnership at the higher of the highest marginal individual or corporation tax rate.
Because it is the partnership that bears the financial responsibility of paying the underpayment, it may be necessary for the partnership to make a capital call in a very limited amount of time in order to timely satisfy the lability. As a result, partnership agreements should address how capital calls will be made in such instances. In some cases, the partnership may find that it is appropriate for one particular partner to ultimately bear the financial responsibility of an underpayment as the underpayment relates to an item unique to the partner such as a guaranteed payment.
Therefore, the partnership may want the discretion to impose the cost of the audit and the imputed underpayment on an individual partner. In such cases, the partnership may also want the ability to net a partner's share of the imputed underpayment against distributions that are otherwise owed to the partner. Accordingly, partnerships need to evaluate whether their partnership agreements are sufficient to address the economic issues presented by the new rules.
As a default, the new partnership rules apply to all partnerships. However, eligible partnerships may elect out of the application of the rules.
|
An eligible partnership is a partnership that issued 100 or fewer Form K-1s for the taxable year with each of its partners being a C corporation, an S corporation, or an estate of a deceased partner.
|
Thus, if the partnership has as a partner another partnership, a trust (including a grantor trust), or a disregarded entity, it may not elect out. The election must be made on the partnership's timely filed tax return for each year the partnership decides to make the election. In addition, the partnership must notify each of the partners that the election has been made and supply the IRS with the names, tax identification numbers, and tax classification of each partner and, in the case of a partnership with an S corporation partner, each S corporation shareholder. If the partnership elects out, the partnership will be subject to the pre-TEFFA audit procedures under which the IRS must separately asses tax with respect to each partner.
Consequently, partnership agreements should address whether or not the partnership will elect out of the rules.
|
|
Mergers & Acquisitions
Attorneys
|
|
Opportunity Zone Guidance: Real Impacts for Real Estate
By:
Matthew D. Mitchell
Mergers & Acquisitions
Published in the Northwest Arkansas Business Journal
|
|
The QOZ Program is a tax incentive program to encourage investment in certain designated, low-income census tracts around the U.S. Locally, census tracts were designated in Fayetteville, Springdale, Rogers, Siloam Springs and Fort Smith.
The QOZ Program provides gain deferral, and potentially partial gain elimination, to a taxpayer that (1) incurs capital gain and (2) invests that capital gain in a “Qualified Opportunity Fund” (QOF) within 180 days of incurring the gain. After the investor’s cash is contributed to the QOF, the QOF deploys the cash in “qualified opportunity zone property” (QOZ Property) located in the designated tracts. Ninety percent of the QOF’s assets must qualify as QOZ Property, which is tested semi-annually. Easy enough, right?
Despite the QOZ Program’s appeal to investors, developers, and asset managers, the QOZ Program was slow to ramp up because of uncertainties surrounding its scope and application. Many of these uncertainties were addressed in the October IRS guidance, and deal flow related to the QOZ Program appears to be on the rise.
|
|
About the Firm
Friday, Eldredge & Clark, LLP serves business, non-profit, governmental and individual clients in Arkansas and across the United States. It is one of the oldest law firms in the state and has been the largest Arkansas-based law firm for more than 50 years. The firm has practice areas focusing on General Litigation; Class Action and Business Litigation; Railroad; Labor and Employment; Medical Malpractice; Public Finance; Healthcare; Estate Planning and Probate; Employee Benefits; Real Estate and Commercial Transactions; and Merger and Acquisitions. Friday, Eldredge & Clark has offices in Little Rock, Fayetteville and Rogers, Arkansas. For more information, visit
www.fridayfirm.com.
Mergers & Acquisitions
Friday, Eldredge & Clark represents buyers and sellers in a variety of mergers, acquisitions and divestitures. We are committed to providing you with exemplary service and common sense advice. We bring a practical approach to each transaction, one that understands your sensitivity to cost and flexibility.
Our goal is to add value to each transaction as we identify potential problems and develop innovative solutions to tackle the toughest issues up front. Whether your organization is a multinational corporation, a publicly or privately-owned business entity, a not-for-profit organization or an investment firm, our firm has the knowledge, experience and resources to facilitate a successful transaction.
|
|
|
|
|
|
|
|