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appeal of our decision, the Court of Appeals for the Ninth Circuit
stated:
The Internal Revenue Service concedes that it erred
in convincing the Tax Court to refrain from including a
minimum gain chargeback in the court’s calculations for
purposes of the comparative liquidation test. Because of
this concession, we VACATE the Tax Court’s decision and
REMAND for further proceedings, findings, and
conclusions.
Discussion
Section 704(a) provides the framework for the determination of
a partner’s distributive share of partnership income, gain, loss,
deductions, or credits of the partnership. In general, the
partnership agreement determines a partner’s distributive share of
these items. See sec. 704(a). However, the partners’ ability to
allocate partnership items on a basis other than in accordance with
the partners’ interest in the partnership (i.e., non-pro rata
basis) is not unrestricted. The allocation of partnership items on
a non-pro rata basis (hereinafter referred to as a “special
allocation”) either (1) must have substantial economic effect (as
opposed to the mere avoidance of tax), or if the allocation does
not have substantial economic effect, then (2) the partner’s
distributive share of partnership items “shall be determined in
accordance with the partner’s interest in the partnership
(determined by taking into account all facts and circumstances)”.
Sec. 704(b). The regulations under section 704(b) describe in
detail not only the circumstances in which a special allocation
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