Which of the following is not a requirement of the substantial economic effect test?
A) Income, gains, losses, and deductions must be allocated to the partners in accordance with their capital contributions.
B) An allocation of income must increase the partner's capital account balance, and an allocation of deduction must decrease the partner's capital account balance.
C) A partner with a negative capital account balance must restore that capital account, generally by contributing cash to the partnership.
D) On liquidation of the partner's interest in the partnership, the partner must receive assets that have a fair market value equal to that partner's (positive) capital account balance.
E) All of these are requirements of the substantial economic effect test.

Question

Quizplus · Accepted Answer

The substantial economic effect test generally requires that allocations of income, gains, losses, and deductions have an economic effect that is substantial, but it does not specifically require that these allocations be made in accordance with the partners' capital contributions. This is a simplification, as the actual rules are more nuanced and focus on whether the allocations affect the partners' economic arrangement in a meaningful way.

Which of the Following Is Not a Requirement of the Substantial