UEI is considering partnering with Hugo Drax (a local real estate baron) to form the Moonraker Partnership. UEI and Drax will each contribute $1 million cash to Moonraker and each will be a 50% general partner. Moonraker will buy a piece of rental property (paying cash), rent it out for 2 years (likely at a small loss each year) and then sell the property at the beginning of year 3 for a substantial gain. As an incentive for UEI to enter into the deal, Drax agrees that Moonraker will allocate all depreciation deductions to UEI. However, when the building is sold, UEI will first be allocated the gain on the sale to the extent of prior depreciation allocations. Any remaining gain will be split 50/50. Bond is really eager to get his hands on those depreciation deductions but something sounds fishy to him about this arrangement. Will the allocation of depreciation deductions be respected for tax purposes?

See part G, above. Bond is worried that UEI cannot afford a $1 million investment at this time and is also worried about legal liability issues. Therefore, Bond asks Drax to rework the deal set forth in part G so Bond can have an alternative proposal to present to UEIs investment committee. Under the alternative approach that Drax worked up, UEI and Drax will each contribute only $1. UEI will be a limited partner and Drax will be a general partner. Moonraker will borrow $2 million on a nonrecourse basis and use the $2 million to buy the building. The nonrecourse debt will be qualified nonrecourse debt for purposes of Section 465. All items of income, expense, gain, and loss are to be allocated between the partners 50/50 with the exception of depreciation deductions. Depreciation deductions will be allocated 100% to UEI until the building is sold (at the start of Year 3). When the building is sold, UEI will first be allocated the gain on the sale to the extent of prior depreciation allocations. Any remaining gain will be split 50/50. Can UEI still get 100% of the depreciation deductions under this alternative plan and have it respected for tax purposes?

Answer both parts.