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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