Our Strategy — Partnership Special Allocation | Elite Tax Partner
IRC §704(b) · Audit-Tested · IRS-Compliant

The Partnership Special Allocation — A Proven Tax Mitigation Strategy

A federally authorized structure that offsets your capital gains or ordinary income dollar-for-dollar, reducing your effective tax rate from as high as 50% down to approximately 11 – 12.5% depending on income type.

See If You Qualify
What Is the PSA

Tax Mitigation Authorized by the Internal Revenue Code

The Partnership Special Allocation (PSA) is a tax strategy authorized under Internal Revenue Code §704(b). It allows a qualifying client to partner with an active trading partnership and receive a specially allocated K-1 loss that offsets their taxable capital gain or ordinary income — dollar for dollar.

This is not a loophole. It is the tax code working exactly as designed — using established partnership law to disproportionately allocate losses to the partner with the tax liability.

The client keeps full control of their proceeds at all times. All sale proceeds remain in the client's account. The client funds into the PSA only after receiving their proceeds — and a portion (5%–7.5% of taxable amount) is returned to them as a self-directed investment account.

Legal Foundation

The PSA is governed by established federal tax law. All allocations must satisfy the IRS "substantial economic effect" standard under Treasury Regulations. The structure has been reviewed and validated by independent legal counsel from AmLaw 100-ranked firms.

IRC §704(b)
Treas. Reg. §1.704-1(b)
IRC §465 (At-Risk)
§1.469-1T(e)(6)
IRC §7701(o)

Non-Passive Classification

Under Treasury Regulation §1.469-1T(e)(6), losses from a trading partnership are explicitly classified as non-passive — even for limited partners who perform no work. Losses flow directly to offset income with no material participation requirement.

The Process

From Consultation to K-1 in Approximately 30 Days

01

Qualify & Engage

We review your taxable event — business sale, real estate gain, or ordinary income — and confirm the PSA is appropriate for your situation. Operating agreements are prepared before your close.

02

Receive Your Proceeds

Your sale closes. All proceeds go directly to you. You remain in full control of your liquidity. Nothing is moved without your direction.

03

Fund the PSA

Within one week of receiving proceeds, you fund the PSA at the agreed rate (16 – 20% of taxable gain). This triggers the special loss allocation in your favor — to the penny.

04

Receive Your K-1 & Investment Account

Within 30 days: your negative Schedule K-1 is issued, your self-directed investment account is established, and 5% of your gain is returned to you. You are positioned for the tax year.

11

Total Audits Since 2014

0

Disallowances Ruled

11–12.5%

Effective Net Cost

10+

Years in Active Use

Who Qualifies

The PSA Is Built for High-Stakes Taxable Events

Business Owners — Asset or Stock Sale

Sellers facing $500K+ in capital gains from a company liquidity event, buyout, or ownership transition. Asset and stock sale structures both qualify.

Real Estate Sellers

Property owners selling primary residences, investment properties, or commercial real estate with significant embedded equity and taxable gain.

High-Income Earners

Executives, professionals, and investors with $500K+ in ordinary taxable income facing combined federal and state rates exceeding 40–50%.

Shareholders in Liquidity Events

Founders, equity holders, and shareholders receiving proceeds from a merger, acquisition, or secondary offering generating significant taxable gain.

Events Already Closed in the Current Tax Year

If your taxable event has already occurred in the current tax year, the PSA can still be applied — as long as it is implemented before year-end.

Clients with $2M+ in Retirement Assets

High-net-worth individuals with complex retirement distribution strategies that create significant ordinary income in a single tax year.

Compliance Framework

The PSA Satisfies Every Layer of IRS Scrutiny

Substantial Economic Effect — IRC §704(b)

All allocations are documented in a partnership agreement maintaining capital accounts, liquidating distributions in accordance with capital accounts, and an unconditional deficit restoration obligation — meeting all three prongs of the economic effect test.

Economic Substance — IRC §7701(o)

The structure is designed to satisfy both the objective and subjective tests for economic substance, with a meaningful change in the taxpayer's economic position independent of tax benefits.

At-Risk Rules — IRC §465

The Majority Member is personally obligated for their allocable share of partnership liabilities under the operating agreement, satisfying the at-risk requirements for loss deductibility.

Non-Passive Trading Classification — §1.469-1T(e)(6)

The partnership trades actively in foreign currency, securities, and other instruments for the account of its partners. Under established IRS guidance, losses from trading partnerships belong in the non-passive column — even for limited partners performing no work.

Our Leadership

Built and Defended by Credentialed Tax Professionals

The PSA is overseen by a JD and LLM-credentialed tax strategist with over a decade of hands-on implementation and eleven government audits successfully defended.

Meet Our Team →

Your Tax Event Has a Deadline. Let's Talk Now.

The PSA must be implemented before year-end for the current tax year. If you have a taxable event in progress or already closed, time is your most limited resource.

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