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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). To
illustrate, assume that a partnership owed $1 million in
nonrecourse debt that it used to acquire depreciable property. If
the partnership claimed $200,000 in depreciation deductions (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 (sometimes called “phantom gain”2) that the partnership would
realize when it 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
that is allocated to the partners who had claimed (as pass
throughs) the nonrecourse deductions. These allocations of minimum
2 See Nadler v. Commissioner, T.C. Memo. 1992-383
(quoting Westin, The Tax Lexicon 413 (1989)), affd. without
published opinion 993 F.2d 1533 (2d Cir. 1993).
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