Partnership Allocations of Rehabilitation, New Market, and Other Tax Credits: Navigating Complex 704(b) Rules

A significant challenge for tax counsel in drafting partnership agreements is ensuring that allocations of tax credits will be respected in an IRS examination. As even the Service notes, determining whether or not a tax credit is allocated correctly depends on several issues, such as the specific credit, the nature of any debt used to finance the property giving rise to the credit, and the complex rules of IRC Section 704(b).

The Code has numerous provisions for tax credits, and not all credits are treated equally. For example, while most credits do not impact a partner's capital account, the rehabilitation tax credit requires the partner to reduce the depreciable basis of the building by the amount of the rehabilitation credit and the partner must reduce his capital account by his ratable share of that credit. The IRS has also issued safe harbor provisions for rehabilitation tax credits that do not apply to other tax credits.

With low-income housing tax credits and new market tax credits both demanding tax advisers' attention, tax counsel must know the particular treatment of specific tax credits to ensure that partnership agreements properly allocate the credits in a way that will withstand IRS scrutiny. Failure to meet the complex rules can risk disallowance of the credit allocations, which can lead to serious adverse tax consequences.

Listen as our experienced panel of tax practitioners provides a comprehensive guide to provisions allocating tax credits within a partnership agreement.

1. General allocation principles
2. Allocation of new market tax credits
3. Allocation of investment tax credits
4. Allocation of state tax credits
5. Other credit allocation issues
6. Case study

The panel will discuss these and other vital issues:

• Allocation principles applied to tax credits within a partnership
• How to navigate the allocation of nonrecourse deductions in allocating tax credits
• Specific rules governing allocations of rehabilitation credit
• Allocation of state tax credits
• Avoiding disguised sales rule

Learning Objectives

After completing this course, you will be able to:

• Identify allocation principles applied to tax credits within a partnership
• Ascertain specific rules governing allocations of rehabilitation credit
• Discern proper allocation of new market tax credits
• Determine actions that will avoid disguised sales rule

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Prerequisites: Three years+ business, public or law firm experience at mid-level within the organization, preparing complex tax forms and schedules for partnerships and individual partners; supervisory responsibility over other attorneys/preparers/accountants. Specific knowledge and understanding of IRC 704(b) and partnership structure; familiarity with new market tax credits, rehabilitation tax credits and relevant IRS safe harbor provisions.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).