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The event that triggers a "minimum gain chargeback" is a
decrease in partnership minimum gain. That can occur, for example,
when a partnership disposes of property in respect of which the
partnership's nonrecourse indebtedness exceeds the partnership's
basis. It is this type of event that, under Tufts, triggers the
realization of gain by the partnership, at least to the extent the
amount of the partnership's acquisition indebtedness exceeds the
partnership's basis in that property. For example, assume that a
partnership owed $1 million in nonrecourse debt that it used to
acquire depreciable property. If the partnership then claimed a
$200,000 depreciation deduction, which would lower its $1 million
basis in the property to $800,000, the $200,000 (the amount by
which the debt exceeds the partnership's basis) would be the
"minimum gain". This $200,000 is the potential gain that the
partnership would realize as a "minimum gain" when the partnership
disposes of that property. Thus, if the lender foreclosed upon the
property, the partnership would realize at least a "minimum gain"
of $200,000, even though the partnership received no gain in an
economic sense.
The $200,000 "minimum gain chargeback" is the minimum gain as
allocated to the partners in proportion to the amount of their
distributive share of the nonrecourse deductions, thereby
increasing their partnership capital accounts.4 Allocation of such
4 Specifically, sec. 1.704-1T(b)(4)(iv)(e), Temporary
(continued...)
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