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Simple Substantial Economic Effect Regulatory Compliance Webinar  

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Seminar Summary:

Learn the simplicity of substantial economic effect regulatory compliance through economic effect equivalence and substantiality’s conclusive presumption. (see full course description)

 

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Training Course Syllabus:


Simple Substantial Economic Effect Regulatory Compliance Webinar

Time: 11:30 AM PDT | 02:30 PM EDT

Duration: 120 Minutes

Instructor: David Randall Jenkins

Description:

The Internal Revenue Service and many commentators consider Section 704(b)´s substantial economic effect regulations among the most complex. This webinar overviews how partnership special allocations Treasury Regulations enable simple compliance through economic effect equivalence and substantiality´s conclusive presumption

Why Should you Attend:

This webinar is designed for practitioners as an overview to the simplicity of substantial economic effect regulatory compliance through economic effect equivalence and substantiality´s conclusive presumption. Attorneys, CPAs, enrolled agents, and other tax practitioners will be able to add important transaction-structuring special allocations to their arsenal of tools designed to improve client welfare. The webinar enables a download of suggested generic partnership (or LLC) agreement substantial economic effect provisions and a reasonable possibility substantial economic effect financial forecast that should be attached to the agreement at the time originating and offsetting allocations become a part thereof. With these two important and practical tools, you will be able to immediately apply what you learnt in this webinar to fill your clients´ transaction structuring needs.

The areas covered in this webinar include:


  • Congress´s 1954 intent when it initially enacted Section 704(b)´s substantial economic effect provision was to promote going concern contributions to productivity while forestalling tax avoidance abuses.

  • The Internal Revenue Service partnership special allocation policy goals include allowing special allocations improving venture risk-return combinations while foreclosing tax avoidance schemes.

  • Commonalities between accounting for income taxes policies and standards and substantial economic effect public policy helped shape the Treasury Regulations.

  • APB Opinion No. 11´s timing differences, FASB Statement No. 109´s temporary differences, and Treasury Regulation Section 1.704-1(b)(2)(iii)(c)´s transitory offsets all address the same notion.

  • Section 704(b) regulatory compliance complexities may be simplified when timing differences, temporary differences, or transitory offsets are involved and going concern productivity contributions are not threatened.

  • Treasury Regulations impose a two-part test to determine whether partnership special allocations have substantial economic effect.

  • Demonstrating economic effect´s trinity is a necessary antecedent to demonstrating economic effect substantiality.

  • Economic effect´s trinity includes capital account maintenance, liquidation in accordance with positive capital balances, and capital account deficit restoration.

  • Some pre-liquidation adjustments are determined by law while others are left to the invention of the drafter.

  • Special allocations involving originating and offsetting allocations necessarily invoke economic effect equivalence relief.

  • Disparate capital contributions engendering the use of capital account sharing ratios will also invoke the need for economic effect equivalence relief.

  • Ex Ante Liquidation Capital Account Deficit Restoration is an economic effect equivalence necessary, but not sufficient, adjustment not mandated by law or regulations.

  • The Capital Account Ratio Adjustment is a necessary and sufficient adjustment undertaken in conjunction with Ex Ante Liquidation Capital Account Deficit Restoration for achieving economic effect equivalence.

  • Ex Post Liquidation Capital Account Deficit Restoration is the economic effect trinity´s third prong.

  • Beginning and ending non-special allocations by capital account ratios.

  • Sustaining the economic effect trinity only satisfies the first prong of the substantial economic effect two-part analysis.

  • The second prong of the substantial economic effect two-part analysis requires such economic effect be substantial.

  • Substantiality is tied to a reasonable possibility the allocations will affect substantially the dollar amounts to be received by the partners independent of tax consequences.

  • Dollar amounts affected in the reasonable possibility analysis includes both going concern and liquidation dollar amounts.

  • The special allocation substantial economic effect Treasury Regulations further the public policy interest underpinning the encouragement and retention of incremental going concern value productivity contributions.

  • Part of the goal of the Treasury Regulations is to discourage going concern productivity abandonment.

  • Three tests may affect a substantiality determination: the After-Tax Economic Consequences Test, the Shifting Tax Consequences Test, and the Transitory Allocations Test.

  • The Treasury Regulation Section 1.704-1(b)(2)(iii)(c)(2) substantiality conclusive presumption is an exception to the Transitory Allocations Test.

  • The Transitory Allocations Test exception, when proven in fact, conclusively presumes Treasury Regulation Section 1.704-1(b)(2)(iii)(a) substantiality as a matter of law.

  • There must be an objective reference underpinning the offsetting allocations period determination to forestall an adverse equitable adjudication.

  • Special allocations embracing both economic effect equivalence and the Treasury Regulation Section 1.704-1(b)(2)(iii)(c)(2) substantiality conclusive presumption will be respected.

  • The partnership agreement transforms the Treasury Regulation´s economic trinity into Going Concern Capital Account Maintenance and Liquidation Capital Account Maintenance provisions.

  • Going Concern Capital Account Maintenance provisions begin by transforming accounting for capital accounts from accounting by capital account balances to accounting by capital account ratios.

  • The partnership agreement´s Going Concern Capital Account Maintenance provisions include both originating and offsetting special allocations.

  • Section 707(c) use of capital guaranteed payments and priority distributions may be used to reconcile disparate partner contributions in relation to capital account ratios.

  • The partnership agreement´s Liquidation Capital Account Maintenance provisions include both the second and third prongs of the Treasury Regulations´ economic effect trinity.

  • The partnership agreement´s Liquidation Capital Account Maintenance provisions cover both liquidation by positive capital account balances and final deficit restoration.

  • The partnership agreement´s Liquidation Capital Account Maintenance provisions include adjustments required by law and adjustments necessary to revert capital account accounting from accounting by capital account ratios back to accounting by capital account balances to enable Treasury Regulation compliant liquidation by positive capital account balances.

  • The reverting adjustments include Ex Ante Liquidation Capital Account Deficit Restoration and Capital Account Ratio Adjustments and such adjustments fulfill economic effect trinity´s last two prongs as required by the Section 704(b) Treasury Regulations as well as establish economic effect equivalence.

  • Going concern capital account maintenance analyses demonstrate both the Treasury Regulation 1.704-1(b)(2)(ii)(b) economic effect trinity´s first prong and the Treasury Regulation Section 1.704-1(b)(2)(iii)(c)(2) substantiality conclusive presumption.

  • Liquidation capital account maintenance analyses demonstrates both the Treasury Regulation Section 1.704-1(b)(2)(ii)(b) economic effect trinity´s second and third prongs.

  • Liquidation capital account maintenance analyses demonstrates there is a reasonable possibility the originating and offsetting allocations will affect substantially the dollar amounts the partners will receive independent of tax consequences.

Objectives of the Presentation:


  • Understanding the history and background of the special allocations´ substantial economic effect requirement since it was first introduced in the Internal Revenue Code of 1954.
  • Understanding the necessary elements of the economic effect trinity: capital account maintenance, liquidation in accordance with capital account balances, and required capital account deficit restoration.

  • Understanding Treas. Reg. Section 1.704-1(b)(2)(ii)(i) Economic Effect Equivalence.

  • Understanding the simplicity of Treas. Reg. Section 1.704-1(b)(2)(iii)(c)(2)´s substantiality conclusive presumption.

  • Understanding necessary partnership agreement special allocation substantial economic effect provisions.

  • Understanding a substantial economic effect financial forecast should be created at the time originating and offsetting allocations are included in the partnership agreement to show there is a reasonable possibility the allocation will affect substantially the dollar amounts to be received by the partners of the partnership, independent of tax consequences.

Seminar Summary:

Learn the simplicity of substantial economic effect regulatory compliance through economic effect equivalence and substantiality’s conclusive presumption. (see full course description)

print this agenda print agenda for the Simple Substantial Economic Effect Regulatory Compliance Webinar training seminar

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