Simple Substantial Economic Effect Regulatory Compliance: an Overview

The Internal Revenue Service considers Section 704(b)’s substantial economic effect regulations among the most complex. This course teaches the Treasury Regulations enable simple compliance through (Per Capita: Balances: Ratios) capital account accounting method truncated transitivity, economic effect equivalence, and substantiality’s conclusive presumption. The partnership special allocations public policy mandate is made clear thereby: encourage going concern productivity while discouraging its abandonment.

This webcast involves Section 179 depreciation expense at the partnership level in a startup operation. Although not incorporated into this webcast, Dr. Jenkins wants to share his paper, "Why Section 179(b)(3)(A)'s Business Income Limitation Does Not Apply to Partnerships or S Corporations." The paper is currently in peer review at a university tax journal. Also, the ACPEN/BPN webcast based on this paper will be first aired during the week of September 25-29, 2017. Please be sure to look for that announcement and register for the webcast.

Syllabus

Lesson 1.

Partnership Special Allocation Substantial Economic Effect: History, Background, and Policy

Lesson 2.

Capital Account Accounting

Lesson 3.

Economic Effect’s Trinity

Lesson 4. 

Simplified Substantiality Compliance: the Treas. Reg. Section 1.704-1(b)(2)(iii)(c)(2) Conclusive Presumption

Lesson 5.

Partnership Agreement Special Allocation Substantial Economic Effect Provisions

Lesson 6. 

Crunching Some Numbers: Going Concern Capital Account Maintenance

Lesson 7. 

Crunching Some Numbers: Liquidation Capital Account Maintenance

Basic Course Information

*Recognize whether a transaction is correctly designed as consistent with Congress’s partnership special allocations productivity policies  

*Recognize when a partnership agreement’s provisions correctly rebut the presumptive Per Capita method for purposes of determining a partner’s interest in the partnership   

*Recognize the necessary partnership agreement provisions that correctly achieve (Per Capita: Balances: Ratios) capital account accounting method truncated transitivity  

*Recognize the necessary partnership agreement provisions that correctly provide economic effect trinity’s elements  

*Recognize the partnership agreement liquidation adjustment provisions necessary to correctly achieve economic effect equivalence

*Recognize substantiality’s conclusive presumption requires the partnership agreement correctly provide offsetting allocations that, in large part, occur more than five years after the originating allocation  

*Recognize when a substantial economic effect financial forecast correctly shows there is a reasonable possibility the special allocation will affect substantially the dollar amounts to be received by the partners of the partnership, independent of tax consequences

*The Interrelationship of Congress’s Special Allocations Productivity Policy and Accounting for Income Taxes Financial Accounting Policies  

*Rebutting the Treasury Regulation’s presumptive Per Capita capital account accounting method  

*Using (Per Capita: Balances: Ratios) Capital Account Accounting Method Truncated Transitivity to Moot the Insubstantiality Tests  

*Economic Effect’s Trinity  

*Economic Effect Equivalence Liquidation Adjustments  

*The Simplicity of Substantiality’s Conclusive Presumption  

*Sample Partnership Agreement Special Allocation Substantial Economic Effect Provisions  

*Creating a Substantiality Reasonable Possibility Showing Financial Forecast