Withdrawing Partner Allocations: Stuffing and Targeting

I recently read an interesting article by Andrew Needham of Cravath’s New York office on “stuffing allocations,” a common practice to use withdrawing partners to “soak up” income from other partners.  

I’ve been playing with allocations to withdrawing partners recently because the various “typical” target allocation provisions out there seem to fall apart around partner withdrawal.  In short, if target allocations do a year-end (or period-end in some more savvy versions) allocations based on aiming for the economics of a hypothetical liquidation, how do you handle a partner that withdrew?  He’s not entitled to the hypothetical “liquidating distributions,” so seems to get missed by many target allocations provisions.  

I’ve been playing with various ways to solve the problem (and whether there really is a problem in the first place).  None of those options have involved “stuffing allocations” technique, which has been an oversight on my part.  This is something I’m trying to address for the next version of my paper on drafting partnership distribution and allocation provisions.


Download Thomason and Cunningham, Drafting of Cash Distribution and Tax Allocation Provisions, UT Law CLE LLCs, LPs and Partnerships, July 11, 2013 here: [paper] [presentation]

Download Needham, The Problem With Stuffing Allocations, , 141 Tax Notes 737 (Nov. 18, 2013) from SSRN here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2356461