Is it true that a special allocation may distribute partnership items differently than the profit-loss sharing ratios?

The statement is indeed true, which means that the correct understanding does not align with the chosen answer. In a partnership, special allocations refer to the ability to distribute income, gain, loss, deduction, or credit in a manner that differs from the standard profit-loss sharing ratios agreed upon by the partners.

Partnership agreements can allow for these special allocations as long as they meet certain legal and tax requirements. The Internal Revenue Service (IRS) requires that allocations must have substantial economic effect, meaning they must reflect the economic realities of the partnership’s operations. This provides the flexibility for partnerships to allocate items of income or loss based on contributions or other factors rather than strictly correlating them to ownership percentages.

Thus, it's indeed permissible for a partnership to distribute items differently than the profit-loss sharing ratios under a special allocation, emphasizing the importance of the partnership agreement in defining these distributions.