Common use of Allocations To The Limited Partners Clause in Contracts

Allocations To The Limited Partners. It is more likely than not that all material allocations to the Limited Partners of income, gain, loss and deductions, as provided for in the Partnership Agreement and as discussed in the Prospectus, will be respected under Section 704(b) of the Code, or in the alternative, will be deemed to be in accordance with the Partners' interests in the Partnership. Counsel's opinion is based upon the facts described in this Prospectus and upon facts and assumptions as they have been represented by the General Partners to Counsel or determined by them as of the date of the opinion. Counsel has not independently audited or verified the facts represented to it by the General Partners. The material assumptions and representations are summarized below: (i) The Partnership will be organized and operated in accordance with the Revised Uniform Limited Partnership Act, as adopted by, and in effect in, the State of California. (ii) The Partnership will be operated in accordance with the Partnership Agreement, and the Partnership will have the characteristics described in the Prospectus and will be operated as described in the Prospectus. (iii) The Partnership will not participate in any Mortgage Investment on terms other than those described in "INVESTMENT OBJECTIVES AND CRITERIA" without first receiving certain advice of Counsel. (iv) The Mortgage Investments will be made by on substantially the terms and conditions described in the Prospectus in "INVESTMENT OBJECTIVES AND CRITERIA." (v) The net worth of the individual General Partners will continue to exceed an amount that is intended to assure that the Partnership may qualify as a partnership for federal income tax purposes. (vi) The General Partners will take certain steps in connection with the transfer of Units to decrease the likelihood that the Partnership will be treated as a publicly traded partnership for purposes of Sections 7704, 469(k), and 512(c) of the Code. Any alteration of the facts may adversely affect the opinion rendered. Furthermore, the opinion of Counsel is based upon existing law and applicable Regulations and Proposed Regulations, current published administrative positions of the Service contained in Revenue Rulings and Revenue Procedures, and Judicial decisions, which are subject to change either prospectively or retroactively. Counsel does not prepare or review the Partnership's income tax information return, which is prepared by the General Partners and independent accountants for the Partnership. The Partnership will make a number of decisions on tax matters in preparing its Partnership tax return and such matters and such Partnership tax return will be handled by the Partnership, often with the advice of independent accountants retained by the Partnership, and usually is not reviewed with Counsel. Each Prospective Investor should note that the opinion described herein represents only Counsel's best legal judgment and has no binding effect or official status of any kind. Thus, in the absence of a ruling from the Service, there can be no assurance that the Service will not challenge the conclusion or propriety of any of Counsel's opinions and that such challenge would not be upheld by the courts. Tax Status of the Partnership. The Partnership has not requested and does not intend to request a ruling from the Service that the Partnership will be treated for federal income tax purposes as a partnership and not as an association taxable as a corporation. It is more likely than not, in Counsel's opinion, that the Partnership will be treated for federal income tax purposes as a partnership and not as an association taxable as a corporation. The General Partners have been advised by Counsel that for federal income tax purposes an organization is treated, under the currently applicable Regulations, as a partnership and not as an association taxable as a corporation as long as the organization does not have a preponderance of the corporate characteristics described in such regulations. In the opinion of Counsel, the Partnership will not have a preponderance of those corporate characteristics set forth in the Regulations as those Regulations are currently interpreted by the Service and, consequently, the Partnership will not be an association taxable as a corporation for federal income tax purposes, provided that the General Partners have "substantial assets" as that term is used in Section 301.7701-2(d)(2) of the Regulations, and provided that the Partnership meets the conditions outlined in the following paragraphs. That opinion expressly assumes that (i) the Partnership has been duly formed and will operate in conformity with the requirements of California law and the provisions of the Limited Partnership Agreement; (ii) the net worth of the General Partners is sufficient and will remain sufficient to satisfy the requirements of "substantial assets" within the meaning of the Regulations at all times during the existence of the Partnership; (iii) no lender on a nonrecourse basis will obtain or have the right to obtain a proprietary interest in the Partnership or its assets other than as a creditor; (iv) the General Partners will at all times have at least a one percent (1%) interest in the profits, losses and each specially allocated item of income, credit or deduction of the Partnership; (v) the Partnership and the Partners will enter into the transactions described herein with a reasonable expectation of profit; and (vi) criteria or standards other than those specified in the Regulations will not be applied in determining such classifications. At present, no specific criteria have been established by the Service (other than procedural guidelines) as to the minimum net worth or other characteristics that general partners must maintain to qualify a limited partnership for federal tax classification as such, other than that the General Partners must have substantial assets and not be a mere "dummy." Based on the current net worth of the General Partners, it is likely that the General Partners would be deemed to have "economic substance" within the meaning of the Regulations. In 1976, the Tax Court, with six judges dissenting, in Pxxxxxx X. Xxxxxx, 66 T.C. 159 (1976), held that two California limited partnerships met the criteria contained in the currently applicable Regulations to be taxed as partnerships. The Service has acquiesced in this case. The Tax Court, in the course of its opinion, suggested that the Commissioner of Internal Revenue modify the currently applicable Regulations. On January 5, 1977, the Commissioner issued Proposed Regulations that would have altered drastically the criteria for determining the tax status of partnerships, with the result that the Partnership would be treated as an association taxable as a corporation rather than as a partnership. In that case, Partners would not be entitled to the deductions for tax purposes available to Limited Partners with respect to their investments in the Partnership. The Proposed Regulations were withdrawn by the Secretary of the Treasury on the same day they were proposed for comment, and on January 14, 1977, the then Secretary of the Treasury, Wxxxxxx X. Xxxxx, announced that the Proposed Regulations would not be reissued. However, there can be no assurance that this decision will not be reversed and that the Proposed Regulations will not be reissued. A similar proposal has been included in certain tax bills being considered by Congress. Revenue Procedure 89-12. The Service recently issued Revenue Procedure 89-12 which specifies certain conditions that must be present before it will consider issuing an advance ruling on the classification of a limited partnership for federal income tax purposes. The conditions set forth in the Revenue Procedure are as follows: (1) The general partners interest in each item of income gain, deduction and loss must, in the aggregate, equal at least one percent (1%) of each such item throughout the existence of the partnership. (2) The general partners, in the aggregate, must maintain a minimum capital account balance equal to the lesser of (a) one percent (1%) of the total positive capital account balances for the partnership or (b) $300,000. An exception to this condition, however, provides that the minimum capital account balance need not be met if at least one general partner will contribute substantial services as a partner to the partnership which are not compensated by guaranteed payments and the partnership agreement provides that, upon the dissolution and termination of the partnership, the general partners will contribute to the partnership an amount equal to the lesser of (a) the deficit balance, if any, in their capital accounts or (b) the excess of 1.01% of the total capital contributions of the limited partners over the capital previously contributed by the general partners. (3) The net worth of corporate general partners (if a partnership has only corporate general partners) must equal at least ten percent (10%) of the total capital contributions to the partnership throughout the life of the partnership.

Allocations To The Limited Partners. It is more likely than not that all material allocations to the Limited Partners of income, gain, loss and deductions, as provided for in the Partnership Agreement and as discussed in the Prospectus, will be respected under Section 704(b) of the Code, or in the alternative, will be deemed to be in accordance with the Partners' interests in the Partnership. Counsel's opinion is based upon the facts described in this Prospectus and upon facts and assumptions as they have been represented by the General Partners to Counsel or determined by them as of the date of the opinion. Counsel has not independently audited or verified the facts represented to it by the General Partners. The material assumptions and representations are summarized below: (i) The Partnership will be organized and operated in accordance with the Revised Uniform Limited Partnership Act, as adopted by, and in effect in, the State of California. (ii) The Partnership will be operated in accordance with the Partnership Agreement, and the Partnership will have the characteristics described in the Prospectus and will be operated as described in the Prospectus. (iii) The Partnership will not participate in any Mortgage Investment on terms other than those described in "INVESTMENT OBJECTIVES AND CRITERIA" without first receiving certain advice of Counsel. (iv) The Mortgage Investments will be made by on substantially the terms and conditions described in the Prospectus in "INVESTMENT OBJECTIVES AND CRITERIA." (v) The net worth of the individual General Partners will continue to exceed an amount that is intended to assure that the Partnership may qualify as a partnership for federal income tax purposes. (vi) The General Partners will take certain steps in connection with the transfer of Units to decrease the likelihood that the Partnership will be treated as a publicly traded partnership for purposes of Sections 7704, 469(k), and 512(c) of the Code. Any alteration of the facts may adversely affect the opinion rendered. Furthermore, the opinion of Counsel is based upon existing law and applicable Regulations and Proposed Regulations, current published administrative positions of the Service contained in Revenue Rulings and Revenue Procedures, and Judicial decisions, which are subject to change either prospectively or retroactively. Counsel does not prepare or review the Partnership's income tax information return, which is prepared by the General Partners and independent accountants for the Partnership. The Partnership will make a number of decisions on tax matters in preparing its Partnership tax return and such matters and such Partnership tax return will be handled by the Partnership, often with the advice of independent accountants retained by the Partnership, and usually is not reviewed with Counsel. Each Prospective Investor should note that the opinion described herein represents only Counsel's best legal judgment and has no binding effect or official status of any kind. Thus, in the absence of a ruling from the Service, there can be no assurance that the Service will not challenge the conclusion or propriety of any of Counsel's opinions and that such challenge would not be upheld by the courts. Tax Status of the Partnership. The Partnership has not requested and does not intend to request a ruling from the Service that the Partnership will be treated for federal income tax purposes as a partnership and not as an association taxable as a corporation. It is more likely than not, in Counsel's opinion, that the Partnership will be treated for federal income tax purposes as a partnership and not as an association taxable as a corporation. The General Partners have been advised by Counsel that for federal income tax purposes an organization is treated, under the currently applicable Regulations, as a partnership and not as an association taxable as a corporation as long as the organization does not have a preponderance of the corporate characteristics described in such regulations. In the opinion of Counsel, the Partnership will not have a preponderance of those corporate characteristics set forth in the Regulations as those Regulations are currently interpreted by the Service and, consequently, the Partnership will not be an association taxable as a corporation for federal income tax purposes, provided that the General Partners have "substantial assets" as that term is used in Section 301.7701-2(d)(2) of the Regulations, and provided that the Partnership meets the conditions outlined in the following paragraphs. That opinion expressly assumes that (i) the Partnership has been duly formed and will operate in conformity with the requirements of California law and the provisions of the Limited Partnership Agreement; (ii) the net worth of the General Partners is sufficient and will remain sufficient to satisfy the requirements of "substantial assets" within the meaning of the Regulations at all times during the existence of the Partnership; (iii) no lender on a nonrecourse basis will obtain or have the right to obtain a proprietary interest in the Partnership or its assets other than as a creditor; (iv) the General Partners will at all times have at least a one percent (1%) interest in the profits, losses and each specially allocated item of income, credit or deduction of the Partnership; (v) the Partnership and the Partners will enter into the transactions described herein with a reasonable expectation of profit; and (vi) criteria or standards other than those specified in the Regulations will not be applied in determining such classifications. At present, no specific criteria have been established by the Service (other than procedural guidelines) as to the minimum net worth or other characteristics that general partners must maintain to qualify a limited partnership for federal tax classification as such, other than that the General Partners must have substantial assets and not be a mere "dummy." Based on the current net worth of the General Partners, it is likely that the General Partners would be deemed to have "economic substance" within the meaning of the Regulations. In 1976, the Tax Court, with six judges dissenting, in Pxxxxxx Xxxxxxx X. Xxxxxx, 66 T.C. 159 (1976), held that two California limited partnerships met the criteria contained in the currently applicable Regulations to be taxed as partnerships. The Service has acquiesced in this case. The Tax Court, in the course of its opinion, suggested that the Commissioner of Internal Revenue modify the currently applicable Regulations. On January 5, 1977, the Commissioner issued Proposed Regulations that would have altered drastically the criteria for determining the tax status of partnerships, with the result that the Partnership would be treated as an association taxable as a corporation rather than as a partnership. In that case, Partners would not be entitled to the deductions for tax purposes available to Limited Partners with respect to their investments in the Partnership. The Proposed Regulations were withdrawn by the Secretary of the Treasury on the same day they were proposed for comment, and on January 14, 1977, the then Secretary of the Treasury, Wxxxxxx Xxxxxxx X. Xxxxx, announced that the Proposed Regulations would not be reissued. However, there can be no assurance that this decision will not be reversed and that the Proposed Regulations will not be reissued. A similar proposal has been included in certain tax bills being considered by Congress. Revenue Procedure 89-12. The Service recently issued Revenue Procedure 89-12 which specifies certain conditions that must be present before it will consider issuing an advance ruling on the classification of a limited partnership for federal income tax purposes. The conditions set forth in the Revenue Procedure are as follows: (1) The general partners interest in each item of income gain, deduction and loss must, in the aggregate, equal at least one percent (1%) of each such item throughout the existence of the partnership. (2) The general partners, in the aggregate, must maintain a minimum capital account balance equal to the lesser of (a) one percent (1%) of the total positive capital account balances for the partnership or (b) $300,000. An exception to this condition, however, provides that the minimum capital account balance need not be met if at least one general partner will contribute substantial services as a partner to the partnership which are not compensated by guaranteed payments and the partnership agreement provides that, upon the dissolution and termination of the partnership, the general partners will contribute to the partnership an amount equal to the lesser of (a) the deficit balance, if any, in their capital accounts or (b) the excess of 1.01% of the total capital contributions of the limited partners over the capital previously contributed by the general partners. (3) The net worth of corporate general partners (if a partnership has only corporate general partners) must equal at least ten percent (10%) of the total capital contributions to the partnership throughout the life of the partnership.