d Alternate test QIO e allocation can have partial economic effect i economic

D alternate test qio e allocation can have partial

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(d) Alternate test (QIO) (e) allocation can have partial economic effect . . . . . . (i) economic effect equivalence (iii) Substantiality (a) General rule ( iv) Capital Account Accounting Rules
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Special allocations: reg construct -1(b)(2) (ct’d) Substantiality: general rule Regs: “An economic effect is substantial if there is a reasonable possibility that the allocation … will affect substantially the dollar amounts received by the partners from the partnership aside from tax consequences . . .” Nonetheless, allocation is not substantial if at time allocation is agreed to, present value of one partner's after-tax consequences are enhanced compared to consequences in absence of allocation and there is a strong likelihood that no partner’s after-tax economic consequences, in present value terms, will be substantially diminished compared to consequences in absence of allocation Take into account tax consequences resulting from interaction of allocations with partner's tax attributes unrelated to the partnership Note pragmatic anomaly (and de minimis rule)
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Special allocations: reg construct -1(b)(2) (ct’d) (i) 2-prong definition (ii) Economic effect (a) Concept (b) 3-prong mechanical test: (1) capital accounts properly maintained (2) liquidations set to follow capital accounts (3) obligation to restore deficits in capital accounts . . . . . . (d) Alternate test (QIO) (e) allocation can have partial economic effect . . . . . . (i) economic effect equivalence (iii) Substantiality (a) General rule (b) Shifting allocations ( iv) Capital Account Accounting Rules
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Special allocations: reg construct -1(b)(2) (ct’d) Substantiality: shifting consequences Economic effect is not substantial if at time allocation is agreed to, there is a strong likelihood that: net increases and decreases to capital accounts will not differ substantially from the net increases and decreases that would have been made in absence of the allocation, and the total tax liabilities of the partners are less than they would have been in absence of the allocation If at end of year, this does occur, then it is rebuttably presumed that a strong likelihood of its occurrence existed at the time the allocation was agreed to
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Special allocations: reg construct -1(b)(2) (ct’d) Substantiality: shifting consequences E.G. AB P’SHIP Agreement 1. Meets 3-prong test 2. Allocate all tax-exempt interest to A 3. Allocate all taxable interest to B Information from partners: A in high marginal bracket B in low marginal bracket At time they enter into agreement, strong likelihood each type of interest will be $5,000
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  • Spring '14
  • JamesE.Maule
  • Economic system, partner, Call-sign allocation plan, Capital accounts

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