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gain increase the partners’ capital accounts3 as well as expose the
partners to income taxation on the amount of gain.
Minimum Gain and the Comparative Liquidation Test
Petitioner maintains that the minimum gain chargeback
provisions required IHCL to realize approximately $7 million in
minimum gain chargebacks with respect to the comparative
liquidation test. Petitioner’s position is based on the following
theory: although IHCL owned no property subject to nonrecourse
debt, it had ownership interests in Landmark and Gateway, both of
3 Specifically, sec. 1.704-1T(b)(4)(iv)(e), Temporary
Income Tax Regs., 53 Fed. Reg. 53163 (Dec. 30, 1988), provides:
(e) Minimum gain chargeback--(1) In general. If
there is a net decrease in partnership minimum gain for
a partnership taxable year, the partners must be
allocated items of partnership income and gain in
accordance with this paragraph (b)(4)(iv)(e) (“minimum
gain chargeback”).
(2) Allocations required pursuant to minimum gain
chargeback. If a minimum gain chargeback is required
for a partnership taxable year, then each partner must
be allocated items of income and gain for such year
(and, if necessary, for subsequent years) in proportion
to, and to the extent of, an amount equal to the
greater of--
(i) The portion of such partner’s share
of the net decrease in partnership minimum
gain during such year that is allocable to
the disposition of partnership property
subject to one or more nonrecourse
liabilities of the partnership; or
(ii) The deficit balance in such
partner’s capital account at the end of such
year * * *
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