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the absence of further evidence, we again accept petitioner’s
figures as accurate.
Next, respondent contends that, even if petitioner has proved
the amount of IHCL’s partnership minimum gain, petitioner
improperly included this amount in the liquidation proceeds.
Respondent argues that the minimum gain chargeback is only an
allocation of income, not income itself. Accordingly, respondent
concludes that, absent evidence that a liquidation of IHCL would
produce economic income or gain, it is improper to include minimum
gain in the figures produced by a liquidation.
In our opinion, respondent misperceives the function of the
minimum gain chargeback. Section 1.704-1T(b)(4)(iv)(a)(2),
Temporary Income Tax Regs., 53 Fed Reg. 53162 (Dec. 30, 1988),
states that when the amount of nonrecourse liability exceeds the
basis of the partnership’s property securing it, “a disposition of
such property will generate gain in an amount that is at least
equal to such excess.” (Emphasis supplied.) Although this
“phantom” gain does not exist in the form of cash, it nevertheless
is taken into account for tax purposes.
The regulations explain the relation of this phantom gain to
nonrecourse deductions as follows:
Although an allocation of nonrecourse deductions cannot
have economic effect, the amount of nonrecourse
deductions allocated to any partner decreases such
partner’s capital account. Similarly, although the
allocation to a partner of partnership minimum gain that
is attributable to nonrecourse deductions claimed by the
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