Model Tax Allocations for Partnership Agreement

Article IV:  Capital Accounts, Allocations of Profits and Losses

4.1 Capital Accounts

(a) A separate capital account shall be maintained for each Member (each a “Capital Account”) in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv). The Managers may modify the manner in which Capital Accounts are computed as deemed necessary to comply with such regulations, provided that such modifications shall not have a material effect on the amounts distributable to any Member under this Agreement.
(b) The Company may at the discretion of the Managers (or, whenever the Company issues a Profits Interest1, the Company shall) revalue Company property as permitted under Treasury Regulations Section 1.704-1(b)(2)(iv)(f).
(c) If the book value of Company property differs from its adjusted tax basis, including but not limited to by reason of a contribution of property to the Company, the revaluation of Company property, or the exercise of an option to acquire an interest in the Company, the Members’ Capital Accounts shall be adjusted in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of gain or loss, depreciation, depletion, and amortization with respect to such property.

4.2 Allocations of Profits and Losses.  Subject to the remaining provisions of this Article IV, . . .

[Customized.]

4.3 Allocations Without Economic Effect.

(a) Tax credits, nonrecourse deductions, and other items the allocation of which cannot have economic effect shall be allocated at the discretion of the Managers in a manner consistent with the Treasury Regulations under Code Section 704(b).
(b) Nonrecourse liabilities, including excess nonrecourse liabilities, shall be allocated at the discretion of the Managers in a manner consistent with the Treasury Regulations under Code Section 752.

4.4 Regulatory Allocations. The provisions of the Treasury Regulations under Code Section 704(b) relating to qualified income offset, minimum gain chargeback, minimum gain chargeback with respect to partner nonrecourse debt, allocations of nonrecourse deductions, allocations with respect to partner nonrecourse debt, and forfeiture allocations with respect to substantially nonvested partnership interests are hereby incorporated by reference and shall be applied to the allocation of income, gain, loss, or deduction in the manner provided in the Treasury Regulations. Notwithstanding anything to the contrary in this Agreement, the Company shall make no allocation of loss or deduction to cause or increase a Member’s Adjusted Capital Account2 deficit, and such loss or deduction shall be allocated to other Member’s in accordance with their positive Adjusted Capital Account balances.
The Managers may, in its discretion, adjust the subsequent allocations of income, gain, losses, or deduction to prevent distortion of the economic arrangement of the Members, as otherwise described in this Agreement, due to allocations resulting from the foregoing.

4.5 Income Tax Allocations.

(a) Unless otherwise determined by the Managers, a Member’s distributive share shall be deemed to consist of a pro rata portion of each item of income, gain, loss, or deduction required to be separately stated under Code Section 702(a).
(b) If the book value of Company property differs from its adjusted tax basis, including but not limited to by reason of a contribution of property to the Company, the revaluation of Company property, or the exercise of an option to acquire an interest in the Company, the Managers shall adjust allocations of income, gain, loss, or deduction for income tax purposes to take into account such difference by any method permitted by the Treasury Regulations under Code Section 704(c).

Although capitalized terms will be defined in the agreement’s “Definitions” section, for convenience some are re-printed here. “Profits Interest” means an interest in the Company intended to qualify as a “profits interest” within the meaning of IRS Revenue Procedure 93-27.

“Adjusted Capital Account” means the balance in the Capital Account maintained for each Member, further (i) increased by any amounts which such Member is obligated to restore pursuant to any provision of this Agreement or is treated as being obligated to restore pursuant to Treasury Regulations Section 1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii) decreased by the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.