Partnership Distributions: Minimizing Tax Liability, Leveraging Debt Allocations, and Navigating Liquidating Events

Robert Barnett | Capell Barnett Matalon & Schoenfeld LLP

Robert S. Barnett, JD, Masters (Taxation), CPA., is a founding partner of Capell Barnett Matalon & Schoenfeld LLP, Attorneys at Law. His practice is highly concentrated in the areas of taxation, trusts, estates, corporate and partnership law, and charitable planning. Mr. Barnett frequently assists clients in structuring financial transactions, charitable gifts and applies creative and practical solutions to tax, estate, and business planning.

Mr. Barnett serves on many professional committees and is a frequent lecturer and writer on numerous aspects of tax and business law. His articles and lectures encompass a wide variety of topics, including business and personal taxation, business succession, estate planning, real estate professional status, charitable planning, inter-generational planning, utilization of the marital deduction, and partnership elections.

Mr. Barnett received his juris doctor in 1986 from Fordham University, where he graduated cum laude and was a member of the Fordham Law Review. He graduated magna cum laude from Hofstra University, where he received his Bachelor’s degree in accounting and is presently an adjunct professor in their graduate tax program. Mr. Barnett holds a Master’s degree in taxation as the recipient of the highest dean’s award. Mr. Barnett is admitted to practice law in New York, Virginia and Washington, D.C.

I. Understanding the basics of partnership taxation | 2:00pm – 2:10pm

II. Partnership Taxation | 2:10pm – 2:20pm

• Structure of partnerships under the IRS rules
• Taxation framework for partnerships (Pass-through taxation)
• Key concepts: partners, partnership interests, and capital accounts

III. Partnership distributions vs. allocations | 2:20pm – 2:30pm

• Definition of partnership distributions
• Differences between distributions and allocations of income
• Common partnership distribution scenarios

IV. Tax Implications of partnership distributions | 2:30pm – 2:40pm

• Tax treatment of cash vs. property distributions
• Basis in partnership interest: Calculation and adjustments
• When distributions result in taxable events (e.g., gain recognition)
• Distributions vs. guaranteed payments

V. Minimizing tax liability through strategic distribution planning | 2:40pm – 2:50pm

VI. Impact of partner basis on distribution | 2:50pm – 3:00pm

• Partner’s outside and inside basis and how it affects taxable income

Break | 3:00pm – 3:10pm

VII. Tax planning strategies | 3:10pm – 3:20pm

• Recognizing “disguised sales”
• Structuring distributions to avoid recognition of gain
• Mixing bowl transactions

VIII. Impact of debt allocations on partnership distributions | 3:20pm – 3:30pm

• Allocation of partnership liabilities
• How debt affects basis and distributions

IX. Advanced Issues and case studies | 3:30pm – 3:45pm

• New final regulations and disclosure requirements

X. Tax treatment of liquidating distributions | 3:45pm – 4:00pm

• Liquidating distributions and their tax treatment
• Determining the sale of partnership interest vs. liquidation
• Key planning considerations to minimize taxes in liquidation
• Planning for professional partnerships

XI. Case study: Structuring tax efficient partnership distributions | 4:00pm – 4:10pm

• Real-world examples of structuring distributions to minimize tax liability
• Common traps and pitfalls to avoid in structuring distributions