Tax Treatment of Partnership Profits Interests: Recent U.S. Tax Court Cases, IRS Safe Harbor, Tax Planning

There are several issues faced by partnerships and LLCs when handling profits interest and compensation matters. These issues are unique to partnership and LLC compensation structures due to the differences in the tax regime applied to entities taxed as partnerships compared to those taxed as corporations. Tax counsel and advisers must have a thorough knowledge of the potential legal and tax implications of issuing profits interest to avoid any unintended tax consequences.

Recent U.S. Tax Court cases have taken the position that the taxpayer's indirect receipt of a profits interest in a lower-tier partnership qualified as a non-taxable event under the safe harbor provided in Rev. Proc. 93-27. However, this may not apply to all instances and the partnership structure is a pivotal component in the application of the profits interest safe harbor.

Profits interest arrangements have specific economic and tax implications and tax counsel must carefully consider these issues to effectively navigate any planning and compliance challenges that may arise.

Listen as our experienced panel offers a thorough and practical guide to planning considerations in partnership and LLC grants of profits interest as well as tactics for structuring compensation plans with profits interest and other incentives under current tax law.

1. Profits interest as compensation and alternatives for partnerships and LLCs
2. Recent U.S. Tax Court cases and Rev. Proc. 93-27
3. Planning considerations under current tax law
4. Reporting and compliance challenges
5. Best practices in structuring equity compensation arrangements to avoid unfavorable tax treatment

The panel will review these and other key issues:

• Profits interest as equity compensation in partnerships and LLCs
• Available planning methods based on profits interest as compensation
• Tax treatment of profits interest and recent U.S. Tax Court decisions
• Best practices and critical considerations for profits interest grants in partnerships and LLCs

Learning Objectives

After completing this course, you will be able to:

• Recognize the tax implications of profits interest as compensation in partnerships and LLCs
• Identify key issues in the application of Rev. Proc. 93-27 safe harbor for profits interest
• Acquire planning methods for different forms of equity compensation
• Understand the application of Section 83 and Section 409A to grants of equity compensation
• Recognize the tax treatment of profits interest arising from compensatory grants of profits interest

• 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: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and sole proprietorships, qualified business income, net operating losses and loss limitations; familiarity with net operating loss carry-backs, carry-forwards and carried interests.

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).