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Manchester, as successor to Dondi’s interest in IHCL, because Mr.
Manchester was the only partner with a positive capital account at
the end of 1991. Respondent points out that the amount available
for distribution is approximately $5 million less than the positive
balance in Mr. Manchester’s capital account.
Respondent concludes that the application of the comparative
liquidation test supports the determination made in the FPAA--i.e.,
that because at the end of 1991 Mr. Manchester was the only partner
having a positive capital account in IHCL, he would be the only
partner eligible to receive IHCL’s liquidation proceeds;
accordingly, all the post-June 20, 1991, income of IHCL must be
allocated to him.
Nonrecourse Debt Deductions
Petitioner disagrees with respondent’s conclusion. Petitioner
contends that respondent erroneously failed to include in the
deemed liquidation proceeds approximately $7 million (relating to
deductions that were based upon nonrecourse debt) for both 1990 and
1991. A brief discussion relating to tax principles involving the
calculation of the basis of property acquired through nonrecourse
debt financing and the calculation of gain required to be realized
from the disposition of such property is deemed beneficial in
understanding petitioner’s position.
In a nonrecourse debt financing situation, the lender agrees
that it will not maintain a collection action directly against the
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