SPECIAL ALLOCATIONS

[john bohn]

HOW DO I SPECIAL ALLOCATE CAPITAL GAINS TO ONE MEMBER OF AN LLC AND ORDINARY INCOME BY OWNERSHIP PERCENTAGES?

[Rick19744]

My understanding is that this is to be done in the partner ownership section.  I do not operate in a windows environment and TT Business is a windows only program.

Having said that, I provide the following thoughts:

• Does your operating agreement provide for special allocations
• Has your operating agreement been reviewed by a tax professional who understand partnership tax law
• Special allocations, such as the type you are discussing, are not common.
• Allocations that are not in accordance with a member's interest in the LLC MUST conform to the regulations substantial economic effect rules.  These are not for the faint of heart.
• Should you win the audit lottery, you had better be comfortable with bullet 4 and be able to support this upon audit.
• The only exception to the above, outside of the economic effect rules, would be if the member contributed property with built-in gain and the property was sold.  Here there may be a need for a special allocation to comply with Section 704(c) regulations.
• There is a real reason why this is the case as Treasury does not want members / partners shifting income, gain, losses because one member or partner may benefit from the shift.
• I recommend you consult with a tax professional who understands these complex rules before embarking down this path.

[tagteam]

You absolutely must heed @Rick19744's advice in its entirety. However, if you want to attempt to make special allocations using TurboTax Business, you need to change that in the Business Info section of the program, specifically under About Your Business (see screenshot - change the default "No" to "Yes").