Pursuant to 26 CFR 1.709-2 (b) [Title 26 Internal Revenue; Chapter I Internal Revenue Service, Department of the Treasury; Subchapter A Income Tax; Part 1 Income Taxes; Normal Taxes and Surtaxes; Partners and Partnerships; Determination of Tax Liability], the term Syndication Expenses “are expenses connected with the issuing and marketing of interests in the partnership. Examples of syndication expenses are brokerage fees; registration fees; legal fees of the underwriter or placement agent and the issuer (the general partner or the partnership) for securities advice and for advice pertaining to the adequacy of tax disclosures in the prospectus or placement memorandum for securities law purposes; accounting fees for preparation of representations to be included in the offering materials; and printing costs of the prospectus, placement memorandum, and other selling and promotional material. These expenses are not subject to the election under section 709(b) [26 USCS § 709(b)] and must be capitalized.”
Syndication is the process of selling ownership rights to a particular product or group of products. In the world of business, syndication is the issuing of interests in a partnership that owns rights to certain investment products such as oil, gas and real estate. Partnerships are identified under IRS code section 761(a) as being “any organization through or by means of which any business, financial operation, or venture is carried on which is not a corporation, trust or estate.” Partnerships occur where an agreement exists between two or more people or entities to carry on some type of business venture.
Syndicating helps spread the risk of investment, reduce liability, provide tax breaks and offer the opportunity to raise more money within the group of partners. To entice partners into the fold, syndication opportunities are packaged and promoted. Costs of syndication include expenses incurred to market the syndication opportunity such as printing and design fees and the cost of advertising. Syndication fees might also include brokerage, registration and legal fees and the cost of training brokers or dealers who will be selling the purchase of the packaged syndication.