Phantom Income. Due to the nature of the assets in which we will invest, we may be required to recognize taxable income from certain of our assets in advance of our receipt of cash flow on or proceeds from disposition of such assets, which we refer to as “phantom income,” and we may be required to report taxable income in early periods that exceeds the economic income ultimately realized on such assets. We have and may continue to acquire debt instruments, including SBC Loans, mortgage loans, and MBS, in the secondary market for less than their face amount. The discount at which such debt instruments are acquired may reflect doubts about their ultimate collectability rather than current market interest rates. The amount of such discount will nevertheless generally be treated as “market discount” for U.S. federal income tax purposes. We expect to accrue market discount on a constant yield to maturity of the debt instrument, based generally on the assumption that all future payments on the debt instrument will be made. Accrued market discount is reported as income when, and to the extent that, any payment of principal on the debt instrument is received, unless we elect to include accrued market discount in incomes as it accrues. Principal payments on certain loans are made monthly, and consequently accrued market discount may have to be included in income each month as if the debt instrument would ultimately be collected in full. If we collect less on the debt instrument than our purchase price plus any market discount we had previously reported as income, we may not be able to benefit from any offsetting loss deductions in subsequent years. In certain cases, we may be able to cease accruing interest income with respect to a debt instrument, to the extent there is reasonable doubt as to our ability to collect such interest income. However, if we recognize insufficient interest income, and the IRS were to successfully assert that we did not accrue the appropriate amount of income with respect to such a debt instrument in a given taxable year, we may be required to increase our taxable income with respect to such year, which could cause us to be required to pay a deficiency dividend or a tax on undistributed income, or fail to qualify as a REIT. Some of the MBS and other debt instruments that we purchase will likely have been issued with OID. We will be required to accrue OID based on a constant yield method and income will accrue on the debt instruments based on the assumpti...
Phantom Income. Each Member understands that taxable income and gain allocated to such Member by the Company pursuant to this Agreement and the tax on the portion thereof allocated to such Member for any Fiscal Year may exceed the distributions of Net Cash Flow to such Member and such Member may have to look to sources other than distributions of Net Cash Flow from the Company to pay such tax.
Phantom Income. For purposes of section 2.a, any federal, state or local taxes to be paid by any of the Outside-the-Box Entities on account of taxable income with respect to income that is not actually received by the Outside-the-Box Entities, shall not, except as set forth in Section 2.b.i., be included in the computation of Available Cash Flow as an expense and shall not be accounted for as an addition to the Apollo Capital Account.
Phantom Income. He, she or it understands that Profits allocated to such Member by the Company under this Agreement and the tax on the portion thereof allocated to such Member hereunder for any year may exceed the Distributions from the Company to such Member and, accordingly, such Member may have to look to sources other than Distributions from the Company to pay such tax.
