G and H form Partnership GH. In year 1, both G and H contribute $100,000 each for equal interests in the partnership.  H has an NOL carry forward that will expire at the end of year 2. G and H agree that in years 1 and 2 100% of the net income will be allocated to H, and in year 3, G will be allocated enough gross income as to equalize the total income recognized by the partners cumulatively from years 1 through 3.

a.     Does this special allocation have substantial economic effect?

b.    What if the catch-up allocation (the special allocation of gross income to G) occurs in year 8?

Answer rating: 100% (QA)

A To determine if the special allocation has substantial economic effect we need to consider the req... View the full answer