The Problem of Abusive Related-Partner Allocations

40 Pages Posted: 19 Nov 2014

See all articles by Emily Cauble

Emily Cauble

DePaul University - College of Law

Gregg D. Polsky

University of Georgia School of Law

Date Written: November 17, 2014


This Article highlights a flaw in the existing rules regarding partnership tax allocations that has not yet received sufficient attention by existing literature. Namely, the partnership tax allocation rules are implicitly premised on the assumption that partners are unrelated and, thus, transact with each other at arm’s length. As a result, related partners can and do devise tax allocation schemes that exploit the gap in the current partnership tax allocation rules to achieve unwarranted tax savings.

This Article proposes to end this abuse by disallowing special allocations among related partners. Under the proposal, allocations among related partners would be required to be made on a strictly pro rata basis, in accordance with the value of each related partner’s interest in the partnership. While this proposal would rationalize the existing partnership tax allocation rules and prevent abusive related partnership allocations, it would not have any detrimental effect on real economic transactions.

Keywords: partnership tax, related partners, allocations, substantial economic effect, anti-abuse rule, blockers

Suggested Citation

Cauble, Emily and Polsky, Gregg D., The Problem of Abusive Related-Partner Allocations (November 17, 2014). Florida Tax Review, Vol. 16, No. 479, 2014; UNC Legal Studies Research Paper No. 2526464. Available at SSRN:

Emily Cauble

DePaul University - College of Law ( email )

25 E. Jackson Blvd.
Chicago, IL Cook County 60604-2287
United States

Gregg D. Polsky (Contact Author)

University of Georgia School of Law ( email )

225 Herty Drive
Athens, GA 30602
United States

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