A and B form a partnership, using an LLC. Accordingly, both partners have liability limited to their investment in the partnership. The operating agreement satisfies the alternate test for economic effect and contains a QIO and minimum gain chargeback provision. The partnership agreement provides that all allocations of income and loss, other than nonrecourse deductions, are to be allocated 50/50. The agreement provides that nonrecourse deductions should be allocated 20% to A and 80% to B. At the beginning of the prior year, nonrecourse liabilities were $1 million. Basis in the building securing that liability was $800,000 at the start of the year and $400,000 at the end of the year. Assuming that the partnership's losses for the year equaled $400,000, how should this amount be allocated between A and B?

a. $320,000 to A, $80,000 to B

b. None of these answers is correct.

c. $80,000 to A, $320,000 to B

d. $200,000 to each partner.

e.$0 to each partner.

Answer rating: 100% (QA)

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