Page 43 - The TEFRA Partnership Audit Rules Repeal:
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Special allocation of partnership’s tax expense
Is it possible?
• Is tax expense a deemed distribution?
− Bluebook: “Under the centralized system, the flowthrough nature of the partnership under subchapter K of the Code is unchanged, but the partnership is treated as a point of collection of underpayments that would otherwise be the responsibility of partners.”)
• Or is it a nondeductible partnership expense?
− Bluebook also states that 705(a)(2)(B) applies to the expense, i.e., it is an expenditure of the partnership not deductible in computing its taxable income and not properly chargeable to capital account.
• Could anything prevent its allocation to a partner?
− Other provisions in the agreement limiting allocations?
− Low or zero section 704(b) capital, e.g., guaranteed-payment only partner
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