Diane and Ed have equal capital and profits interests in the DE Partnership, and they

share the economic risk of loss from recourse liabilities according to their partnership

interests. In addition, Diane has a special allocation of all depreciation on buildings

owned by the partnership. The buildings are financed with recourse liabilities. The

depreciation reduces Diane's capital account, and liquidation is in accordance with the

capital account balances. Depreciation for the DE Partnership is $50,000 annually. Diane

and Ed each have $50,000 capital account balances on January 1 of Year 1.Will the

special allocation be acceptable for Year 1, Year 2, and Year 3 in the following

independent situations?

a. The partners have no obligation to repay negative capital account balances, and the

partnership's operations (other than depreciation) each year have no net effect on the

capital accounts.

b. The partners have an obligation to repay negative capital account balances.

c. The partners have no obligation to repay negative capital account balances. The

partnership operates at its break-even point (excluding any depreciation claimed) and

borrows $200,000 on a full recourse basis on December 31 of Year 2.