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acquired properties with nonrecourse debt, the partnership's
deduction of expenses associated with these properties--such as
expenses for depreciation--may lead to a situation where the amount
of nonrecourse debt exceeds the partnership's basis in the
properties securing that debt. Such deductions--called
"nonrecourse deductions"--per se do not have economic effect. The
lack of economic effect arises from the fact that the lender, and
not the partnership or its partners, bears the economic risk of
loss with respect to the nonrecourse deductions.
2. Minimum Gain Chargeback
As applicable to the taxable year at issue, there are
temporary regulations governing the allocation of deductions
attributable to nonrecourse debt. These regulation provisions are
set forth as sections 1.704-1T(b)(4) and (5), Temporary Income Tax
Regs., 53 Fed. Reg. 53162-53173 (Dec. 30, 1988). The regulatory
provisions involve the concepts of "minimum gain" and "minimum gain
chargebacks". These provisions represent the application of the
principle of Commissioner v. Tufts, supra, in a partnership
context.
"Minimum gain" is created when a partnership claims
deductions, such as deductions for depreciation, that decrease the
partnership's basis in a given property to an amount less than the
balance of the nonrecourse debt incurred in the acquisition of that
property.
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