Partnership allocation with capital gains

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  • #43898
    Mark Witecki
    Participant

    There are two partners A and B
    For income and expense the ratios are 60/40 for both income and loss
    For capital , each partner has a 50 percent allocation.
    Partnership wants to sell property in partnership
    Are the capital gains 50/50 or 60//40

    #43916
    Jarter Gao
    Participant

    The income and loss allocations should match their capital accounts allocation. All income and loss, including capital gains, should be 50/50.

    The IRS will argue to split the capital gains to 50-50 under the substantial economic effect test under IRC Sec. 704 and Treas. Reg. Sec. 1.704-1(b)(2)(ii).

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