A CPA reads every tax provision in your agreement. You get written findings, suggested fixes your attorney can draft from, and a second review once the agreement is revised.
4.2 Preferred Return. Each Class A Member shall accrue a preferred return of eight percent (8%) per annum on its Unreturned Capital, payable whether or not the Company has net profits for such year.
4.3 Available Cash. Available Cash shall be distributed at such times as the Manager determines, first to the Class A Members until each has received its accrued and unpaid Preferred Return, then
Fix the tax structure while the agreement is still a draft and changes cost little.
Know what the agreement does to your K-1 before your money is in the deal.
Get a tax read on your draft from someone who prepares the returns it produces.
Find out what a client’s agreement actually requires before you allocate a dollar.
Five findings from a sample agreement. The names and terms are made up. The problems are the ones that show up most often.
“Whether or not the Company has net profits” can make the preferred return a guaranteed payment. That turns it into ordinary income for investors and changes how every K-1 is prepared.
Every distribution is at the manager’s discretion, and there is no tax distribution clause. In a year with taxable income and no cash, members pay the tax out of pocket.
Target allocations are common and they can work well. This draft has no fallback for when capital accounts run to zero, so losses can land on the class that never expected them.
Loan basis is shared the same way losses are. Members get the basis they need to use their losses. A good audit tells you what is fine, too.
This is an unlimited obligation to restore a negative capital account. An investor could have to write a check when the deal winds down. Most never notice they agreed to it.
The same checklist on every agreement, so nothing depends on what someone happened to notice.
Which method the agreement uses, and whether the language supports it.
Whether the allocations will hold up if the IRS looks.
Whether a target allocation has what it needs in a loss year.
Whether the pref is a distribution or ordinary income.
Whether the cash waterfall and the tax allocations tell the same story.
Who gets basis from the loans, and whether it matches the losses.
Whether the sponsor’s interest avoids a tax bill on day one.
Whether members get cash to pay tax on the income they’re allocated.
How acquisition, asset management and other fees will be taxed.
Who speaks for the partnership in an IRS exam, and with what limits.
Which elections the agreement requires, allows or leaves out.
What happens to capital accounts when someone sells or the deal ends.
Enter your name and email and pay the flat fee. Roger emails you within one business day to collect the agreement. Drafts are fine.
Within 10 business days: each tax provision rated, what it does to the K-1s, and a suggested fix for each flag.
Your attorney drafts the changes from the suggested fixes. Roger is happy to answer their questions.
Send the revised agreement. Roger confirms each fix landed and nothing new broke.
Roger is a partnership and real estate tax CPA in Houston. He has reviewed thousands of operating agreements across real estate syndications, joint ventures and operating companies.
Roger reads every agreement himself. He also prepares and reviews the returns these agreements produce, so the findings are about what will actually happen on the K-1s.
No. It is a tax review of the agreement’s language. You get findings and suggested fixes. It does not include an audit opinion or any other form of assurance.
Probably. About 90% of the agreements Roger reviews come back with at least one proposed change. Most are small wording fixes that are easy to make before signing and harder to make after.
No. Roger is a CPA, not an attorney. The audit explains what to change and why, and your attorney drafts it.
No. Many problems can be fixed with an amendment, and some can be handled on the tax return. The audit tells you which is which.
Yes. You only need a copy of the agreement. The findings are yours to share with the sponsor or keep.
Yes, if it has an operating agreement or shareholder agreement. The risk is different. Language borrowed from partnership agreements, such as a preferred return or payouts based on capital accounts, can create a second class of stock and end the S election. The audit checks for it.
Findings arrive within 10 business days of receiving the documents. The re-review takes about 5 business days after you send the revised draft.
They are used only for your audit and are not shared. Please remove bank account and Social Security numbers before sending.
Enter your name and email and pay the flat fee. Roger emails you within one business day to collect the agreement and any offering memo or waterfall model.
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