Which of the following does NOT need to occur for a partnership allocation to have substantial economic effect?
A)An adjustment must be made in the partner's capital account
B)Liquidation proceeds must be distributed in accordance with capital accounts
C)Profits and losses must be allocated to different partners in proportion to their equity contribution
D)Following the distribution of sale proceeds,partners must be liable to the partnership to restore any deficit in their capital account

Question

Quizplus · Accepted Answer

Allocations of profits and losses in proportion to equity contribution do not necessarily ensure substantial economic effect, as the partners may not have any meaningful economic risk or benefit based solely on the allocation of profits and losses. For substantial economic effect, the allocation must have a reasonable possibility of affecting the partners' pre-tax economic income or loss in accordance with their partnership interests. Options A, B, and D all relate to requirements for substantial economic effect.

Which of the Following Does NOT Need to Occur for a Partnership