ID

accounts and the partnership agreement maintains no deficit$-$restoration obligation. The

partnership agreement provides that $Y0\%$ to $Z.$ At the end of three years, what are the

cumulative amounts properly allocated to the three partners?

a$.x,$$$60,000$;$Y,$$$60,000$;$Z,$$$120,000$

b$.x,$$$70,000$;$Y,$$$70,000$;$Z,$$$100,000$

c$.x,$$$80,000$;$Y,$$$80,000$;$Z,$$$80,000$

d$.x,$$$85,000$;$Y,$$$85,000$;$Z,$$$70,000$

e$.$ None of the above.

After the close of its taxable year, when all items of partnership profit and loss are known, the

TAX $9868$ Investment Partnership amends its partnership agreement to provide that Florence, a

$20\%$ partner who prior to the amendment was entitled to $$1,400$ of municipal bond interest and

$$1,400$ of fully taxable interest, will receive $$2,800$ of municipal will receive $$2,800$

a $20\%$ partner with the same preamendment entitlements, $15\%$ tax bracket.

interest. Florence is in the $35\%$ tax bracket. Jose is in the $15\%$ is that

special allocations satisfy the safe harbor for economic effect, is that effect substantial?

a$.$ No$,$ under the shifting tax consequences rule.

b$.$ No$,$ under the after$-$tax exception.

c$.$ No$,$ because they reflect transitory allocation.

d$.$ No$,$ because of some combination of the above$-$referenced tests.

e$.$ Yes, because they satisfy all applicable tests for substantiality.

The facts are the same as in Question $6,$ except that Florence and Jose are in exactly the same

tax position. Is the economic effect of these special allocations substantial?

a$.$ No$,$ under the shifting tax consequences rule.

b$.$ No$,$ under the after$-$tax exception.

c$.$ No$,$ because they reflect transitory allocation.

d$.$ No$,$ because of some combination of the above$-$referenced tests.

e$.$ Yes, because they satisfy all applicable tests for substantiality.

The TAX $9868$ Investment Partnership identifies two of its partners who are in substantially

different tax positions. To the low$-$bracket partner, who otherwise would be entitled to $20\%$ of

all items of income, gain and loss, it allocates $40\%$ of its taxable interest income for a period of

three years, at which point the allocation falls to $0\%$ for three years and then reverts to $20\%$

thereafter. To the high$-$bracket partner, also ordinarily entitled to $20\%$ of all items, it allocates no

taxable interest income for a period of three years, then $40\%$ for three years, and then $20\%$

thereafter. There are no other changes to the partnership agreement, other than provisions th

prevent either partner from liquidating their partnership interests during the period that these

special allocations are in effect. Assuming that the allocations have economic effect, is that effect substantial? a$)$ no$,$ under the shifting tax consequences rule

b$)$ no$,$ under the after$-$tax exception

c$)$ no$,$ because they reflect transitory allocation

d$)$ no$,$ because of some combination of the above referenced test

e$)$ yes, because they satisfy all applicable tests for substantiality