Interhotel Company, LTD., Torrey Hotel Enterprises, Inc., Tax Matters Partner - Page 7

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               IHCL maintained capital accounts for each of its partners in           
          accordance with section 4.4 of the IHCL Restated Agreement.  That           
          provision states, in part:                                                  
                    4.4.  Capital accounts of Partners.  An individual                
               capital account shall be maintained for each Partner to                
               which shall be credited the contributions of such partner              
               to capital of the Partnership. * * * In the event a                    
               Partner transfers all or any portion of its Partnership                
               Interest as permitted by this Agreement, the transferee                
               shall succeed to the individual capital account and                    
               capital account balance of the transferor to the extent                
               that such individual capital account and capital account               
               balance relate to the transferred Partnership interest.                
               In connection with Dondi's entry into IHCL, the limited                
          partnership agreements of PGL and PLH were amended to allocate              
          90.91 percent of their losses to IHCL.  At the same time, an                
          additional provision, section 6.5, "minimum gain chargeback", was           
          inserted into each of the IHCL, PLH, and PGL partnership                    
          agreements.  That provision stated, in part:                                
                    (b)  To the extent that the deficit Capital Account               
               balances of one or more Partners attributable to                       
               Nonrecourse Deductions and determined after applying                   
               subparagraph (a) exceeds [sic] Minimum Gain, such                      
               Partners shall be allocated Net Income (or items thereof)              
               in accordance with proposed or final Treasury regulations              
               promulgated under Section 704 of the Code to the extent                
               of and in proportion to the amounts of such differences.               
               The partnership agreements of IHCL, PLH, and PGL all required          
          that, upon liquidation, distributions to their partners were to be          
          made in accordance with the partners' positive capital account              
          balances.  For example, the IHCL Restated Agreement provided that           
          liquidation proceeds were to be used first to pay debts and                 






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Last modified: May 25, 2011