Interhotel Company, LTD., Torrey Hotel Enterprises, Inc., Tax Matters Partner - Page 21

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          partner would have received in a liquidation at the end of the              
          prior year.  This is referred to as the comparative liquidation             
          test.  Specifically:                                                        
               the partner's interests in the partnership with respect                
               to the portion of the allocation that lacks economic                   
               effect will be determined by comparing the manner in                   
               which distributions (and contributions) would be made if               
               all partnership property were sold at book value and the               
               partnership were liquidated immediately following the end              
               of the taxable year to which the allocation relates with               
               the manner in which distributions (and contributions)                  
               would be made if all partnership property were sold at                 
               book value and the partnership were liquidated                         
               immediately following the end of the prior taxable year,               
               and adjusting the result for the items described in (4),               
               (5), and (6) of paragraph (b)(2)(ii)(d) of this section.               
               A determination made under this paragraph (b)(3)(iii)                  
               will have no force if the economic effect of valid                     
               allocations made in the same manner is insubstantial                   
               under paragraph (b)(2)(iii) of this section. * * *                     
          Sec. 1.704-1(b)(3)(iii), Income Tax Regs.                                   
               Under the comparative liquidation test, if allocation of an            
          item of partnership loss or deduction is at issue, the regulation           
          requires that the loss or deduction be attributed to the partner            
          who would be required to make up a deficit in partnership assets            
          upon liquidation.                                                           
               Both parties maintain that this comparative liquidation test           
          applies to show that their allocation schemes are in accordance             
          with the partners' interests.  The manner in which each applies the         
          test,  however,  differs.    Respondent's  application  of  the             
          comparative liquidation test is somewhat less complex than                  
          petitioner's.  Accordingly, we consider respondent's contentions            
          first.                                                                      




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