Partners A, B, C and D are LLC members in an entity treated as a partnership (where capital is not a material income producing factor). A will sell his entire interest to B for cash in, say, October 2021. All of the partners have agreed orally (subject to further guidance) that A will be allocated no taxable income for 2021.
What facts and authorities, if any, would support an allocation of no taxable income to A for 2021?
Am I on the right track:
1. Does the varying interests rule in 1.706-4 override 761(c) where a partner's interest completely terminates during the year?
2. If 1.706-4 does not override 761(c), could the partners amend the LLC operating agreement to provide for a zero allocation in the year of exit and adjust capital accounts accordingly?
3. If on the other hand 1.706-4 does override 761(c) in this case, is the only argument for allocating no income to A, the argument that such an allocation results form applying a "reasonable method to account for the varying interests of the partners in the partnership during the taxable year" under the 1.706-4(b)(2) safe harbor?
4. If 1.706-4(b)(2) is a viable route, might it be reasonable to argue (if supported by the facts) that A provided no services during 2021 and therefore should be allocated no income in the current year?
Many thanks!