New Comp allocations for partners

[Guest TomB432]

For those of you who deal with Partnerships and LLCs (taxed as partnerships) do you advise that each partner must be in the same allocation group and receive the same allocation percentage? If they do not do you believe that a cash or deferred arrangement (CODA) now exists?

[ETA Consulting LLC]

For those of you who deal with Partnerships and LLCs (taxed as partnerships) do you advise that each partner must be in the same allocation group and receive the same allocation percentage? If they do not do you believe that a cash or deferred arrangement (CODA) now exists?

That is a subject of endless debate. The best you would get is that "there is a possibility" that those amounts 'could' be treated as CODA. Now, if you have a partner who is much older, you can clearly provide a maximum percentage and pass the rate group for that class. However, if you have a older partner and a much younger partner, then placing them in the same class would make it more difficult for the test to pass. Here is where you would clearly want to push the envelop and create separate classes.

The "POTENTIAL" would come into play if the older partner would receive a zero allocation when he could've maximized with no additional contributions to the NHCEs; and this happened to coincide in a year he had to pay for his daughter's wedding. You can see where, based on facts and circumstances, an argument can be made that the partner effectively made an election to not receive the allocation for the year.

In the end, it's an endless debate.

Good Luck!

[Kevin C]

If you have access to the DC Q&A's from the 2011 ASPPA annual conference, this type of arrangement is in question 4. The discussion from the podium is worth listening to, if you can get access to the recording.

My recollection is that the short answer was that the normal type of new comparability provisions in use are not a problem. The IRS speaker was concerned with a design they came across that allowed a participant election regarding bonuses that would affect the compensation and compensation amount for that participant. The speaker asked if anyone had ever had a deemed CODA issue raised by the IRS. I didn't see any hands.

[Guest TomB432]

Thank you!