Question - Essay - Substantial Economic Effect

Please answer the questions below.

a) What is the essential concern motivating the requirement that allocations to partners have Substantial Economic Effect?

b) Describe the criteria under the basic test for Economic Effect and illustrate where necessary.

c) Distinguish the Alternate Test for Economic Effect from the basic test and provide an illustration of how that would work.

d) What is the meaning of "Substantiality" and how might partnerships use special allocations to violate that requirement?

e) What may the IRS do if a partnership's allocations violate Substantial Economic Effect?