Extract to table

No affirmative filing or election is required to achieve partnership classification; it is the default rule

The regulations establish a two-part test for substantial economic effect: (1) the allocation must have "economic effect," and (2) the economic effect must be "substantial

In the context of the proposed PrairieSense joint venture, the built-in gain in TerraVault's contributed SoilPulse™ technology license — estimated at $2,050,000 (assuming $2,400,000 FMV and $350,000 adjusted tax basis) — must be taken into account through special tax allocations under IRC § 704(c)

The partnership must select one of these methods (or a combination of methods, applied consistently) and specify the selected method in the partnership agreement

These "tax distribution" provisions should have priority over all other distributions (including preferred returns or profit-sharing distributions) to ensure that neither member is required to fund tax liabilities out of its own resources