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admitted Mr. Manchester as a substitute limited partner. Dondi's
positive capital account was also transferred to FDIC and then to
Mr. Manchester. As a result, THEI held a 1-percent interest as
general partner and an 84-percent interest as a limited partner.
Mr. Manchester held the remaining 15 percent in limited partnership
interests.
The following day, the parties executed a second amendment to
the IHCL Restated Agreement. The second amendment provided that
IHCL's income would be allocated first to the partners who had
negative capital account balances and, thereafter, to the partners
pro rata. The second amendment, however, made no pertinent changes
to the preexisting allocation of gain, allocation of loss,
distribution of cash-flow from operations, distribution of cash
from sale or refinancing, or liquidating distributions.
IHCL's 1991 Return
Following execution of the second amendment, 100 percent of
IHCL's income was allocated to THEI, in view of its negative
capital account. IHCL accordingly filed a 1991 information return,
reporting the allocation of 99 percent of net income to Dondi
through June 20, 1991, the date Dondi's interest was transferred to
Mr. Manchester. The 1991 return reflected that, after June 20,
1991, IHCL had allocated 100 percent of its income to THEI.
The FPAA
Respondent did not accept the allocation of the second
amendment to the IHCL Restated Agreement to the extent that 100
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