taxes or penalties reasonably anticipated to result from the distribution). 18. If an allocation fails to meet either the primary or alternative tests for economic effect, the regulation offer relief if the allocation has “economic effect equivalence”. If the partnership agreement, interpreted by reference to applicable state law ensure that a liquidation of the partnership as of the end of each partnership taxable year will produce the same economic results as if The Big Three were satisfied. 19. The economic effect of an allocation is considered to be substantially the dollar amount to be received by the partners from the partnership independent of tax consequences. 20. The effect of offsetting allocation is “shifting” if they occur within the same taxable year; it is “transitory” if the allocation span two or more taxable years. 21. Do partnership allocation lack substantiality under reg 1.704-1 of the income tax regulation when the partners amend the partnership agreement to create offsetting special allocation of particular items after the events giving rise to the items have occurred? 22. If there is no partnership allocation and it lacks economic effect, the distributions are either distributed 50-50 or 20- 80 and anywhere in between that have economic effect. 23. Allocation of Depreciation recapture cannot have substantial economic effect because classifying a portion of the gain as recapture merely changes its tax character. 24. Allocation of Tax Credits are generally not reflected in the partner’s capital account and , therefore they cannot have economic effect. 25. The regulation properly acknowledge that no allocation of deduction attributable to nonrecourse debt can have substantial economic effect because if the property declines in value, the partnership could default on the loan and lender. 26. Partnership minimum gain is the amount of gain that a partnership would realize if it disposed of each of its properties that is subject to a nonrecourse liability for no consideration other than satisfaction of the debt. 27. Partnership minimum gain is created in 2 situations 28. As the adjusted basis of the encumbered property is reduced below the amount of the nonrecourse liability. As the amount of the nonrecourse liability is increased in excess of the adjusted basis of the property 29. Nonrecourse deduction are deduction that relate to a net increase in partnership minimum gain. 30. One way nonrecourse deduction is formed though cost recovery deduction that reduce the adjusted basis of depreciable property below the amount of nonrecourse debt secured by the property. It can also arise on a refinancing where the proceeds of a nonrecourse liability that increase partnership minimum gain.
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- Fall '15
- Corporation, Taxation in the United States, partner, partnership agreement