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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. These deductions–-called “nonrecourse
deductions”--per se do not have economic effect because the lender
(and not the partnership or its partners) bears the economic risk
of loss with respect to the nonrecourse deductions.
As applicable to 1991 (the taxable year at issue), temporary
regulations exist that govern the allocation of deductions
attributable to nonrecourse debt. These provisions are set forth
in section 1.704-1T(b)(4) and (5), Temporary Income Tax Regs., 53
Fed. Reg. 53161-53173 (Dec. 30, 1988), and involve the concepts of
“minimum gain” and “minimum gain chargebacks”. These provisions
represent the application of the Tufts principle in a partnership
context.
“Minimum gain” is created when a partnership claims deductions
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.
The event that triggers a “minimum gain chargeback” is one
which causes a decrease in partnership minimum gain. A triggering
event therefore occurs when a partnership disposes of property in
respect of which the partnership’s nonrecourse indebtedness exceeds
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