Page 262 - The TEFRA Partnership Audit Rules Repeal:

ALI CLE Live Video Webcast / “The TEFRA Partnership Audit Rules Repeal: Partnership and Partner Impacts” June 7, 2016, Jerald David August and Terence Floyd Cuff
interests in Real Estate Investors, LLC. The correct allocation pf the Loeb & Loeb professional activities loss for year x is the allocation that satisfies partners’ interests in the partnership. That should be the allocation determined in the consolidated audit of Real Estate Investors, LLC.
A strong case can be made that adjusted results as determined in the partnership audit of Real Estate Investors, LLC should control for reallocating Real Estate Investors, LLC items in year x. This suggests that the Real Estate Investors, LLC loss should be allocated in year x (not in the adjustment year [the year in which the audit concludes]):
Marion Kate Total
Loss Allocation
($203,923) ($203,923) ($407,846)
This reallocation should result in these capital accounts (as redetermined by the audit) in Real Estate Investors, LLC at the end of year x:
Capital Account at Beginning of Year x
Loss Allocation
Capital Account at End of Year x
Marion Kate Total
That perhaps is the easy part of the inquiry. Until Real Estate Investors, LLC failed to make the push out election, Marion had at least contingent liability for increased taxes due to the audit adjustment. Until then, Real Estate Investors, LLC might have made a push out election, and Marion’s taxes for the adjustment year [the year in which the audit concludes] would have been increased on account of the audit adjustments. We really do not know the amount of those increased taxes unless we have run a return for Marion including the adjustments.
Under the partnership audit rules, Real Estate Investors, LLC in effect is paying Marion’s taxes on the audit adjustment. We might consider this as a constructive cash distribution to Marion. The amount of the constructive cash distribution is uncertain, since it might be in the amount of the taxes that Marion should have paid for year x if Real Estate Investors, LLC return had been correct. The constructive cash distribution might have been in the
($1,426,923) ($203,923) ($1,630,846)
($1,426,923)
($2,853,846) ($407,846) ($3,261,692)
($203,923) ($1,630,846)
© Terence Floyd Cuff and Jerald David August, 2016
193