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refers to situations where the net decrease in partnership minimum
gain in a taxable year exceeds the income and gain of the
partnership for that taxable year. In such cases, respondent
maintains, the excess amount of the decrease in minimum gain must
be carried over and treated as a decrease in partnership minimum
gain for the following years, at least to the extent there is
equivalent partnership income and gain in those years. From this
premise, respondent argues that the regulations restrict any
minimum gain chargeback to the amount of partnership income or gain
realized in a given taxable year. Accordingly, respondent asserts,
“before it can charge back any of the net decrease in partnership
minimum gain to the partners, petitioner must show that IHCL
realized income or gain on the liquidation.” Respondent then
points to his earlier conclusion that IHCL would have a loss on
liquidation, and concludes that, because there is not income or
gain on the liquidation, no minimum gain chargeback is allowed.
We are not persuaded by respondent’s argument. We believe
that the quoted language does not apply to situations, such as that
here, where minimum gain chargebacks are generated by the
disposition of property in which the partnership’s nonrecourse
liabilities exceed its basis. In the latter situation, the
regulations provide that sufficient gain will be generated
automatically, by operation of the Tufts principle, to equal the
amount of the minimum gain chargeback. As the regulations state,
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