Ownership by Contributed Capital vs by Tax Capital Accounts in small syndications

[Gary Fox]

Found this site looking for a JD or CPA (or JD/CPA) to answer one question.  Sole manager for these (small, < 2.5M in investor funds max) syndications has been convinced by his CPA that the only IRS-compliant method for determining ownership is by conversion to tax K-1 capital accounts.  (Some properties have negative cap accounts at this point.)  Structure:  Manager receives syndication *ownership* shares via sweat equity and all the investors obtain shares by purchase.  I need independent verification that the manager is correct and, if not correct (and I believe he is wrong) then an e-letter to the manager telling him that.  (My current real estate attny is not sufficiently versed in newer tax law to make this determination without input.)  The OA is silent on the method of ownership.  The sole manager can amend the OA, and could simply state that Contributed Capital ownership represents the true economics of the partnership.  Of course, willing to pay a reasonable fees for advice and generation of letter.  Anyone have knowledge that can be helpful, any JD/CPAs on the site, or can point me in the right direction?  Thanks.  

[Bruce D. Kowal]

I wonder if that would merit a Change of Accounting Method filing. By the way, I had something similar back in 2009, well almost similar. A Client was a Member in an LLC. He was not the Managing Member, just an Ole Member, like you and the other investors. Well, the Managing Member, the SOB, upon a receiving a large capital gain from sale of property [a §1231 gain] took the unusual and selfish step of grabbing most of the proceeds [damn the OA], and for good measure allocating a lot of gain to Members [again, damn OA].

What to do?  Good question, right?  April 15 approaching, who the Heck wants to start hiring lawyers.  Right?

Well, the best tool in my toolkit is Form 8082  Notice of Inconsistent Treatment.  https://www.irs.gov/forms-pubs/about-form-8082

You file this, and let IRS deal with it, if they even want to.  In other words, you enter the K-1 information the way you think it should be.  And. . . . just to be really clever.   Paper file the return, with the Form 8082 as the last page.  And make sure your CPA hits the button for every possible sub schedule.   Enough said. Can't give away all my tricks for free.