Extract to table

The partnership agreement must provide for the maintenance of capital accounts for each partner in accordance with the rules of Treasury Regulation § 1

Upon liquidation of the partnership (or any partner's interest in the partnership), the partnership agreement must provide that liquidating distributions will be made in accordance with the partners' positive capital account balances

In addition to the economic effect requirement, the allocation must also be substantive — that is, it must not be merely a shifting or transitory allocation that exists solely for the purpose of tax avoidance

Capital Account Maintenance Capital accounts must be established and maintained for each member in accordance with Treasury Regulation § 1

Qualified Income Offset Because neither Fairwater HP Manager, LLC nor Prescott HP Investor, LLC will have an unlimited deficit restoration obligation under the Operating Agreement, the Operating Agreement must include a qualified income offset provision in order to satisfy the alternate test for economic effect under Treasury Regulation § 1

It must be drafted carefully and should be reviewed in coordination with the minimum gain chargeback provisions described below