The last time I looked at accountants’ compensation it was in the context of the annual bloodbath (sorry, I meant compensation meeting). See my blogpost “Over-compensation,” 3/31/11.

Today Judge David Gustafson discusses dissolution of an accounting partnership, and the divvying up of clients and money, in Clark Raymond & Company PLLC, D. Edson Clark, CPA, PLLC, Tax Matters Partner, T. C. Memo. 2022-105, filed 10/13/22.

Judge Gustafson finds clients have value, and clients who follow departing partners generate unrealized gain to the departed. The departed, who are buying out the retiring rainmaker, did get distributions from the partnership to the extent of the previous calendar year’s net revenue. But because the partnership failed to keep the capital accounts in compliance with Reg. Section 1.704-1(b)(2)(iv), the special allocation to them of the unrealized gain flunks all tests for economic effect.

So a Rule 155 beancount must determine how much income the departed have to be allocated to bring their negative capital accounts to zero.

There’s a lot more, and my accountant friends might want to revisit their partnership agreements in light of Judge Gustafson’s dissertation.