Partnership taxation is a complex area of tax law. We’ll be walking through some of the issues you should be aware of.
The first is to ensure you are getting the deal you thought you were. Partners (or LLC members where the LLC has multiple members and does not “check the box“) can agree on how to allocate the profit and losses of the business as they see fit in the agreement. The allocations can be done in any manner the partners/members choose, provided that the allocations have “substantial economic effect.” See IRC 704(b); Treas. Reg. 1.704-1(b). Read more