Tax Planning and Reporting for Partnership Equity Compensation Grants

Partnerships and LLCs often provide equity compensation to employees and other service providers. Partnership and LLC equity compensation arrangements present complex structuring and tax compliance challenges. Advisers must have a thorough understanding of the tax impact of various equity compensation schemes to avoid unexpected tax consequences.

Partnership and LLC equity compensation can take several forms, including granting profits interests, capital interests and options to acquire such interests. Each of these arrangements has specific implications economic and tax implications, including whether the grantee should be treated as an employee or a partner for tax purposes. The IRS position is that a partner may not be an employee of the partnership for tax purposes.

Advisers face additional challenges including a lack of definitive IRS guidance on how and when Section 409A may apply to a partnership equity compensation grant. There is uncertainty on the treatment of carried interest and fee waivers going forward. These and other issues present planning and compliance challenges for advisers.

Listen as our experienced panel offers a thorough and practical guide to planning considerations and reporting requirements in partnership and LLC grants of equity compensation.

1. Equity compensation alternatives available to partnerships and LLCs
   1. Profits interests
   2. Capital interests
   3. Options to acquire capital or profits interests
   4. Phantom arrangements
2. Planning and implementation considerations
   1. Section 409A applicability
   2. Impact of fee waiver proposed regulations
   3. Carried interest treatment
3. Income tax reporting and compliance challenges
   1. Capital account book-ups and valuation elections
   2. Reporting profits interest vs. capital interest
   3. Reporting challenges for grants of equity interests to employees when partnership has unrealized appreciation in assets
4. Impact of partner/member status on employee benefits

The panel will review these and other key issues:

• How does a capital interest differ from a profit interest and how do tax reporting requirements and planning opportunities differ depending on the type of equity interest granted?
• How does Section 409A apply to compensatory grants of equity interests in partnerships and LLCs?
• Should a Section 83(b) election be made for unvested interests?
• Tax reporting and employee benefit plan issues when an equity interest is granted to a current employee of a partnership business
• Tax treatment of carried interest and fee waivers arising from compensatory grants of equity interests

Learning Objectives

After completing this course, you will be able to:

• Recognize the tax reporting requirements for compensation grants of partnership or LLC equity
• Discern the tax planning challenges of offering equity as compensation to current partnership or LLC employees
• Differentiate between capital interest, profits interest, and “phantom” interests in partnerships for purposes of tax treatment
• Identify basis impact and available adjustments and elections arising from grants of equity interests as compensation

• 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, legal or public firm experience at mid-level within the organization, providing tax planning and preparing complex tax forms and schedules for partnerships and LLCs; supervisory authority over other preparers/accountants. Knowledge and understanding of partnership and LLC structure, equity compensation in these entities; familiarity with equity compensation alternatives and equity interest for pass-through entity employees, members and partners.

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).