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Discussion Forum Index --> Advanced Tax Questions --> Minimum Gain
Discussion Forum Index --> Tax Questions --> Minimum Gain
AAS2007 (talk|edits) said:
| 5 March 2009
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| I am having trouble understanding the minimum gain issue. So the minimum gain, 704b, is the difference in the nonrecourse liabilities vs the BOOK basis of the property. Yet 704c is the non recourse liabilities against the TAX basis of the property. Well, why does the minimum gain using book basis hold any water? As I understand it, for LIHTC, an lp partner's tax basis is allowed to go negative so long as they have minimum gain, which, as I see it, is the amount of TAX gain that you would receive if you sold the property at the debt price. What does book gain have to do with anything? Is it a partnership vs partner level issue that I'm missing. This is an issue which has been discussed in our office, and we can't come up with a logical answer. Does anybody have a quick explanation?
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Riley2 (talk|edits) said:
| 6 March 2009
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| It make sense to me that the Tier 1 allocation would be based on book values since that is how partnership profits are generally allocated. It also makes sense to me that the Tier 2 allocation would be based on the 704(c) built-in-gain rules since the partner contributing appreciated property will presumably have a larger share of any potential gain.
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AAS2007 (talk|edits) said:
| 6 March 2009
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| But isn't the pupose of minimum gain to limit the negative capital accounts to the potential taxable gain on the property, which would use tax depreciation instead of book?
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Riley2 (talk|edits) said:
| 6 March 2009
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| Yes, I believe that you are correct. However, I believe that the reason for Tier 1 and Tier 2 allocations is to allocate the minimum gain attributable to post-contribution appreciation in accordance with profit-sharing ratio's and to allocate pre-contribution appreciation in accordance with the 704(c) rules.
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AAS2007 (talk|edits) said:
| 27 March 2009
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| I appreciate all the help. Maybe you can answer one last question. As said above, minimum gain 704(b), is calculated by comparing nonrecourse liab. to the book basis of the property. We run into problems when the capital account goes below that minimum gain, then you need special allocations. Maybe I'm hung up on the capital account - what capital account do you use, tax or book. After reading and rereading the treasury regs, irc code, checkpoint, irs audit guides, you name it, I still can't determine what it is. We are getting some workpapers from some larger firms that suggest we use tax capital account vs minimum gain using book basis. I know the larger firms can make mistakes, but it makes me say, "hey, maybe I should dig deeper to make sure that it is right." It seems that would be comparing apples to oranges. Any comments would be appreciated.
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