How do you do income allocation in 704c method?

Question

Accepted Answer

Income allocation in 704c method involves assigning income or deductions to partners based on their share of partnership profits.

Income allocation in 704c method is used to allocate income or deductions to partners in a partnership based on their share of partnership profits.
This method is typically used when there is a substantial disparity between the book value and tax basis of partnership assets.
The allocation is made in a manner that prevents the shifting of tax liability from one partner to another.
Partners' capital accounts are adjusted to reflect the tax consequences of the partnership's operations.
Example: Partner A has a higher share of partnership profits, so they may be allocated a larger portion of income under the 704c method.

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