Extract to table

Each contributing principal's adjusted basis in their GP and ManCo membership interests must be determined as of the date of the contribution

This disparity between fair market value and tax basis creates "built-in gain" (or, less likely in this case, "built-in loss") that must be accounted for under the partnership allocation rules of Sections 704(b) and 704(c) of the Code

Section 704(b) — Book Allocations Upon formation of HoldCo, the members' capital accounts must be established in accordance with the rules of Treasury Regulations Section 1

Following the establishment of capital accounts at fair market value, book income, gain, loss, and deduction of HoldCo must be allocated in accordance with the members' respective percentage interests: Aldridge 42%, Narayanan 36%, Hsiao 14%, Marchetti 4%, and Okonkwo 4%

The HoldCo LLC agreement must contain provisions ensuring that these book allocations have "substantial economic effect" within the meaning of Treasury Regulations Section 1

704-1(b)(2)(ii)(b): (i) Capital accounts must be maintained in accordance with Treasury Regulations Section 1