What requirements must be met in order for an allocation...

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Practical Guide to Partnerships and LLCs—Instructor’s Guide Problems 1 Chapter 6 – Allocation of Partnership Income Among the Partners: The Substantial Economic Effect Requirement Reading: Paragraphs 601-605. 1. What requirements must be met in order for an allocation of income or loss to have economic effect? (David Lee)
b. Alternative test for economic effect
c. Economic effect equivalence
2. A, B, and C form the equal ABC partnership. Capital accounts are properly maintained. Depreciation is allocated completely to C, but any distributions in liquidation will be made equally to each partner, although partners are required to restore deficit capital accounts upon liquidation. Does the allocation of depreciation have economic effect? (ShanShan Zhang) No, because liquidating distributions must be made in accordance with those capital account. Very good! 3. A, B, and C form the equal ABC partnership. Capital accounts are properly maintained. Depreciation is allocated completely to C, and any distributions in liquidation will be made according to the capital accounts of each partner. However, under local law any excess of liabilities over assets at the time of liquidation must be made up equally by each partner. Does the allocation of depreciation have economic effect? (Sining Ji)
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Practical Guide to Partnerships and LLCs—Instructor’s Guide Problems 2 Very good!

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