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Drafting Partnership and LLC Agreements: Tax Boilerplate, Allocation, & Liquidation Provisions

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ISBN: 9781422476994
Published: March 10, 2010
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Everything You Need to Know about Tax Provisions in Partnership and LLC Agreements.

This short treatise discusses and explains in great detail the "boilerplate" tax provisions that are found in almost all partnership and LLC agreements. The treatise, authored by attorneys Ivan Mitev and Matt Kaden, is intended to serve as a practice tool to be used by practitioners who draft or review such agreements. The treatise explains what each provision does, whether it is required, and whether the drafter should implement it. Additionally, the treatise discusses how each provision impacts the capital accounts and tax returns, and provides clarifying comments regarding the language and its interplay with the famous (or infamous) Section 704(b) Regulations. The treatise also identifies and discusses a number of issues and traps for the unwary that the practitioner should be aware of when drafting the all-important allocation and liquidation provisions of the agreement. Finally, the treatise provides a sample layout that practitioners may use to run calculations in testing their allocations, as well as sample tax language that serves as a more concise alternative to the currently prevalent tax boilerplate.

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Table of Contents


§ 1.00  Introduction  

[1] Overview of the 704(b) Regulations and Boilerplate
  

§ 1.01  Boilerplate Analysis  

[1] Definitions  

[a] Adjusted Capital Account Deficit  

[b] Allocation Year  

[c] Capital Accounts  

[d] Capital Contributions  

[e] Company Minimum Gain  

[f] Depreciation  

[g] Fiscal Year  

[h] Gross Asset Value  

[i] Member Nonrecourse Debt  

[j] Member Nonrecourse Debt Minimum Gain  

[k] Member Nonrecourse Deductions  

[l] Nonrecourse Deductions  

[m] Profit and Loss  

[2] Allocations  

[a] Simple Pro Rata Allocation  

[b] Layer Cake Allocation with a Savings Subparagraph  

[c] Forced/Target Capital Account Allocation  

[3] Special Allocations  

[4] Curative Allocations  

[5] Loss Limitation  

[6] Tax Allocations  

[7] Tax Elections  

[8] Dissolution and Winding Up
  

§ 1.02  Allocations and Liquidations  

[1] The Issue  

[2] Whether to Liquidate in Accordance with Capital Accounts  

[a] Liquidating in Accordance with Capital Accounts  

[b] Not Liquidating in Accordance with Capital Accounts  

[3] Layer-Cake or Target Allocations?   

[a] Liquidating in Accordance with Capital Accounts Plus Layer-Cake Allocations

[b] Liquidating in Accordance with Capital Accounts Plus Target Allocations  

[c] Not Liquidating in Accordance with Capital Accounts Plus Layer-Cake Allocations  

[d] Not Liquidating in Accordance with Capital Accounts and Target
Allocations  

[e] Target Allocations and Not Liquidating in Accordance with Capital Accounts – What to Watch for  

[4] Conclusion about Allocation and Liquidation Provisions
  

§ 1.03  Conclusion