A partnership may elect to apply the provisions of this section to the first taxable year of the partnership ending on or after December 28, An election under this paragraph l 4 is made by attaching a written statement to the partnership return for the first taxable year of the partnership ending on or after December 28, The written statement must include the name , address, and taxpayer identification number of the partnership making the statement and must declare that an election is made under this paragraph l 4.
The principles of this section are illustrated by the following examples:. Although there has been a net decrease in partnership minimum gain, pursuant to paragraph f 3 of this section LP and GP are not subject to a minimum gain chargeback. Under paragraph c of this section, if the partnership had distributed the proceeds of that loan to its partners at the end of its fourth year , the partnership 's nonrecourse deductions for that year would have been reduced by the amount of that distribution because the proceeds of that loan are allocable to an increase in partnership minimum gain under paragraph h 1 of this section.
No minimum gain chargeback is required for the taxable year , even though the partnership disposed of one of the properties subject to the nonrecourse liability during the year , because there is no net decrease in partnership minimum gain for the year. See paragraph f 1 of this section. C is admitted to the partnership at the beginning of the partnership 's third taxable year.
This is so even though there would be an increase in partnership minimum gain in the partnership 's third taxable year if minimum gain were computed with reference to the adjusted tax basis of the machinery. The allocation of these items, other than the nonrecourse deductions , has substantial economic effect.
That allocation of all items, other than the nonrecourse deductions , has substantial economic effect. See paragraph c of this section. The amount of nonrecourse deductions consisting of depreciation deductions is determined as follows.
With respect to the nonrecourse liability secured by Property Z, for which there is no depreciation deduction, the amount of depreciation deductions that constitutes nonrecourse deductions is zero.
Similarly, with respect to the nonrecourse liability secured by Property Y, for which there is no increase in minimum gain, the amount of depreciation deductions that constitutes nonrecourse deductions is zero. With respect to each of the nonrecourse liabilities secured by Properties W and X, which are secured by property for which there are depreciation deductions and for which there is an increase in minimum gain, the amount of depreciation deductions that constitutes nonrecourse deductions is determined by the following formula:.
Please help us improve our site! No thank you. CFR prev next. See paragraph m , Example 3 iii of this section. If the partners' capital accounts are decreased to reflect a revaluation, the net increases or decreases in partnership minimum gain are determined in the same manner as in the year before the revaluation, but by using book values rather than adjusted tax bases.
Partnership AB consists of two partners, limited partner A and general partner B. The partnership agreement has a minimum gain chargeback provision and provides that, except as otherwise required by section c , all losses will be allocated 90 percent to A and 10 percent to B; and that all income will be allocated first to restore previous losses and thereafter 50 percent to A and 50 percent to B. Distributions are made first to return initial capital to the partners and then 50 percent to A and 50 percent to B.
Final distributions are made in accordance with capital account balances. The allocation of income in year 4 in effect anticipated the minimum gain chargeback that did not occur until year 5. Assuming the partnership would not have sufficient other income to correct the distortion that would otherwise result, the partnership may request that the Commissioner exercise his or her discretion to waive the minimum gain chargeback requirement and recognize allocations that would allow A and B to share equally the gain on the sale of the property.
The Commissioner may, in his or her discretion, permit this allocation pursuant to paragraph f 4 of this section because the minimum gain chargeback would distort the partners' economic arrangement over the term of the partnership as reflected in the partnership agreement and as evidenced by the partners' contributions and the partnership's allocations and distributions. Neither partner has an unconditional deficit restoration obligation and all the requirements in paragraph e of this section are met.
The nonrecourse loan is secured by the partnership's depreciable property. These deductions are properly treated as nonrecourse deductions and the allocation of these deductions 50 percent to A and 50 percent to B is deemed to be in accordance with the partners' interests in the partnership. In the beginning of year six, at the lender's request , A guarantees the entire nonrecourse liability.
See paragraph m , Examples 1 i and 3 i of this section. Depreciation or cost recovery deductions with respect to property that is subject to a partnership nonrecourse liability is first treated as a partnership nonrecourse deduction and any excess is treated as a partner nonrecourse deduction under this paragraph j 1 i.
Depreciation or cost recovery deductions with respect to property that is subject to partner nonrecourse debt is first treated as a partner nonrecourse deduction and any excess is treated as a partnership nonrecourse deduction under this paragraph j 1 ii. Any other item that is treated as a partner nonrecourse deduction will in no event be treated as a partnership nonrecourse deduction.
Gain from the disposition of property subject to partner nonrecourse debt is allocated to satisfy a minimum gain chargeback requirement for partnership nonrecourse debt only to the extent not allocated under paragraph j 2 ii of this section. Gain from the disposition of property subject to a partnership nonrecourse liability is allocated to satisfy a partner nonrecourse debt minimum gain chargeback only to the extent not allocated under paragraph j 2 i of this section.
An item of partnership income and gain that is allocated to satisfy a minimum gain chargeback under paragraph f of this section is not allocated to satisfy a minimum gain chargeback under paragraph i 4. For purposes of the preceding sentence, if a related person undertakes an obligation or acquires an interest as a creditor on or after January 30, , pursuant to a written binding contract in effect prior to January 30, , and at all times thereafter, the obligation or interest as a creditor is treated as if it were undertaken or acquired prior to January 30, Example 1.
Nonrecourse deductions and partnerships minimum gain. For Example 1, unless otherwise provided, the following facts are assumed. LP, the limited partner, and GP, the general partner, form a limited partnership to acquire and operate a commercial office building.
The nonrecourse loan is secured only by the building, and no principal payments are due for 5 years. The partnership agreement provides that, except as otherwise required by its qualified income offset and minimum gain chargeback provisions, all partnership items will be allocated 90 percent to LP and 10 percent to GP until the first time when the partnership has recognized items of income and gain that exceed the items of loss and deduction it has recognized over its life, and all further partnership items will be allocated equally between LP and GP.
The allocations of these losses 90 per percent to LP and 10 percent to GP have substantial economic effect. The partnership makes no distributions.
The allocation of these items, other than the nonrecourse deductions, has substantial economic effect. Because the remaining requirements of paragraph e of this section are satisfied, the allocation of nonrecourse deductions is deemed to be in accordance with the partners' interests in the partnership.
Assume instead that the partnership agreement provides that all nonrecourse deductions of the partnership will be allocated equally between LP and GP. Furthermore, at the time the partnership agreement is entered into, there is a reasonable likelihood that over the partnership's life it will realize amounts of income and gain significantly in excess of amounts of loss and deduction other than nonrecourse deductions.
The equal allocation of excess income and gain has substantial economic effect. Assume instead that the partnership agreement provides that LP will be allocated 99 percent, and GP 1 percent, of all nonrecourse deductions of the partnership. Allocating nonrecourse deductions this way does not satisfy requirement 2 of paragraph e of this section because the allocations are not reasonably consistent with allocations, having substantial economic effect, of any other significant partnership item attributable to the building.
Therefore, there is no minimum gain or increase in minimum gain at the end of the partnership's third taxable year. See paragraph i 4 of this section. Any net increase or decrease in minimum gain for a tax year is determined by comparing the minimum gain on the last day of the preceding tax year with the minimum gain of the last day of the current tax year.
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Partnership Minimum Gain Defined. Partnership Minimum Gain Chargeback. Partner Minimum Gain shall be " partner nonrecourse debt minimum gain ," as defined in Regulations Section 1. Partner Minimum Gain means partner nonrecourse debt minimum gain within the meaning of Treas. Section 1. Partner Minimum Gain has the meaning set forth in the definition of " partner nonrecourse debt minimum gain " in Regulations Section 1. Partner Minimum Gain shall have the meaning set forth in Regulation Section 1.
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