Life Care Communities of America, Ltd., A Florida Limited Partnership, Robert W. McMichael, A Partner Other Than The Tax Matters Partner - Page 7

                                        - 7 -                                         
          interest was not transferred on January 12, 1989.  In fact, on              
          that date the parties had not yet decided which option would be             
          exercised.  There is insufficient evidence to alter our                     
          construction of the unambiguous terms of the agreement.                     
               In the alternative, petitioner contends that he did not                
          receive any distributions after January 12, 1989, and, therefore,           
          any allocation to him of partnership income accrued after that              
          date lacks substantial economic effect.  We disagree.                       
               The substantial economic effect requirement involves a two-            
          part analysis:  the allocation must be found to have economic               
          effect, and such economic effect must be substantial.  Sec.                 
          1.704-1(b)(2)(i), Income Tax Regs.  In order for an allocation to           
          have economic effect, it must be consistent with the underlying             
          economic arrangement of the partners.  Sec. 1.704-1(b)(2)(ii)(a),           
          Income Tax Regs.  Although the partnership did not make any                 
          actual distributions to petitioner, Smith, or Fowler in 1989 and            
          1990, its income was used to make payments relating to the $20              
          million loan.  Pursuant to section 752(b), the partnership is               
          deemed to have made distributions to all partners liable for such           
          loan.  Sec. 752(b); sec. 1.702-1(a), Income Tax Regs.; United               
          States v. Basye, 410 U.S. 441, 453 (1973).  In 1989, all of the             
          partners were liable for the loan, and petitioner was liable for            
          the loan until at least April of 1990.  Thus, in 1989 and 1990              
          petitioner received an economic benefit consistent with the                 

Page:  Previous  1  2  3  4  5  6  7  8  Next

Last modified: May 25, 2011