Tax Protections. (a) Subject to Section 12.2(a) (i) and (ii) below, for the benefit of the Contributor (including any person who holds an interest in Contributor, either directly or through one or more pass-through or disregarded entities and is otherwise required to include all or a portion of the income of such Contributor in its own gross income) who receives Units at the Closing (the “Protected Partners”), prior to the termination of the Protection Period (as defined below) with respect to the Project, neither SCOLP, nor any entity in which SCOLP holds a direct or indirect interest, will consummate a sale, transfer, exchange or other disposition of the Project or a successor project acquired in a Section 1031 exchange or any other non-recognition transaction in which a substituted basis or carryover basis is applied (each, a “Protected Project”) or any indirect interest therein, in a transaction (including a merger) that results in the recognition by any Protected Partner, for federal income tax purposes, of all or any portion of the built-in gain under Section 704(c)(1) the Internal Revenue Code of 1986, as amended (the “Code”). Notwithstanding anything to the contrary herein, this covenant shall not apply to any transferee of Units by a Protected Partner whose tax basis has been determined under Sections 1014 or 1012 of the Code. In the event that SCOLP breaches this Section 12.2, SCOLP shall pay to each Protected Partner: if the breach occurs during the first one half of the Protection Period, an amount equal to the federal, state and local income taxes incurred by such Protected Partner as a result of such breach and arising solely under Section 704(c); and if the breach occurs during the remaining period of the Protection Period, an amount equal to the excess of (A) the federal, state and local income taxes incurred by such Protected Partner solely as a result of such breach and arising solely under Section 704 (c), over (B) the net present value of such taxes, as of the date such Protected Partner actually pays such taxes, assuming for this purpose that payment of such taxes had been made on the last day of the applicable Protection Period and using a discount rate equal to five (5%) percent. Within ninety (90) days after the closing of a transfer or other transaction giving rise to a breach requiring a payment hereunder, SCOLP shall provide to each of the Protected Partners an estimate of such Protected Partner’s allocable share of the Section 704(c) gain from such transaction, and an estimate of total taxes payable based on the highest marginal rates applicable to such Protected Partner for all federal, state, and local tax purposes. SCOLP shall pay such Protected Partner cash equal to the estimated amount of taxes payable as so calculated. If it is later determined that the taxes payable by the Protected Partner with respect to such gain exceeds the estimated amount calculated and paid by SCOLP, then, SCOLP shall pay such excess to such Protected Partners within ninety (90) days after demand is made therefor, and if it is determined the estimated amount calculated and paid by SCOLP exceeds the amount required to be paid by the Protected Partner with respect to such gain, then the Protected Partner shall refund such excess to SCOLP within thirty (30) days of such request. The parties shall cooperate in confirming the determinations referenced in the prior sentence by providing copies of tax returns and certifications from certified public accountants at the request of either party.
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Samples: Contribution Agreement (Sun Communities Inc), Contribution Agreement (Sun Communities Inc), Contribution Agreement (Sun Communities Inc)
Tax Protections. (a) Subject to Section 12.2(a) (i) and (ii) below, for the benefit of Associates and the Contributor Limited Partners (including any person who holds an interest in ContributorAssociates or a Limited Partner, either directly or through one or more pass-through or disregarded entities and is otherwise required to include all or a portion of the income of Associates or such Contributor Limited Partner in its own gross income) who receives Units at the Closing (the “Protected Partners”), prior to the termination of the Protection Period (as defined below) with respect to the Project, neither SCOLP, nor any entity in which SCOLP holds a direct or indirect interest, will consummate a sale, transfer, exchange or other disposition of the Project or a successor project acquired in a Section 1031 exchange or any other non-recognition transaction in which a substituted basis or carryover basis is applied (each, a “Protected Project”) or any indirect interest therein, in a transaction (including a merger) that results in the recognition by any Protected Partner, for federal income tax purposes, of all or any portion of the built-in gain under Section 704(c)(1) the Internal Revenue Code of 1986, as amended (the “Code”). Notwithstanding anything to the contrary herein, this covenant shall not apply to any transferee of Units by a Protected Partner whose tax basis has been determined under Sections 1014 or 1012 of the Code. In the event that SCOLP breaches this Section 12.2, SCOLP shall pay to each Protected Partner: if the breach occurs during the first one half of the Protection Period, an amount equal to the federal, state and local income taxes incurred by such Protected Partner as a result of such breach and arising solely under Section 704(c); and if the breach occurs during the remaining period of the Protection Period, an amount equal to the excess of (A) the federal, state and local income taxes incurred by such Protected Partner solely as a result of such breach and arising solely under Section 704 (c), over (B) the net present value of such taxes, as of the date such Protected Partner actually pays such taxes, assuming for this purpose that payment of such taxes had been made on the last day of the applicable Protection Period and using a discount rate equal to five (5%) percent. Within ninety (90) days after the closing of a transfer or other transaction giving rise to a breach requiring a payment hereunder, SCOLP shall provide to each of the Protected Partners an estimate of such Protected Partner’s allocable share of the Section 704(c) gain from such transaction, and an estimate of total taxes payable based on the highest marginal rates applicable to such Protected Partner for all federal, state, and local tax purposes. SCOLP shall pay such Protected Partner cash equal to the estimated amount of taxes payable as so calculated. If it is later determined that the taxes payable by the Protected Partner with respect to such gain exceeds the estimated amount calculated and paid by SCOLP, then, SCOLP shall pay such excess to such Protected Partners within ninety (90) days after demand is made therefor, and if it is determined the estimated amount calculated and paid by SCOLP exceeds the amount required to be paid by the Protected Partner with respect to such gain, then the Protected Partner shall refund such excess to SCOLP within thirty (30) days of such request. The parties shall cooperate in confirming the determinations referenced in the prior sentence by providing copies of tax returns and certifications from certified public accountants at the request of either party.
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Tax Protections. (a) Subject to Section 12.2(a) (i) and (ii) below, for the benefit of the Contributor (including any person who holds an interest in Contributor, either directly or through one or more pass-through or disregarded entities and is otherwise required to include all or a portion of the income of such Contributor in its own gross income) who receives Units at the Closing (the “Protected Partners”), prior to the termination of the Protection Period (as defined below) with respect to the Project, neither SCOLP, nor any entity in which SCOLP holds a direct or indirect interest, will consummate a sale, transfer, exchange or other disposition of the Project or a successor project acquired in a Section 1031 exchange or any other non-recognition transaction in which a substituted basis or carryover basis is applied (each, a “Protected Project”) or any indirect interest therein, in a transaction (including a merger) that results in the recognition by any Protected Partner, for federal income tax purposes, of all or any portion of the built-in gain under Section 704(c)(1) the Internal Revenue Code of 1986, as amended (the “Code”). Notwithstanding anything to the contrary herein, this covenant shall not apply to any transferee of Units by a Protected Partner whose tax basis has been determined under Sections 1014 or 1012 of the Code. In the event that SCOLP breaches this Section 12.2, SCOLP shall pay to each Protected Partner: if the breach occurs during the first one half of the Protection Period, an amount equal to the federal, state and local income taxes incurred by such Protected Partner as a result of such breach and arising solely under Section 704(c); and if the breach occurs during the remaining period of the Protection Period, an amount equal to the excess of (A) the federal, state and local income taxes incurred by such Protected Partner solely as a result of such breach and arising solely under Section 704 (c), over (B) the net present value of such taxes, as of the date such Protected Partner actually pays such taxes, assuming for this purpose that payment of such taxes had been made on the last day of the applicable Protection Period and using a discount rate equal to five (5%) percent. Within ninety (90) days after the closing of a transfer or other transaction giving rise to a breach requiring a payment hereunder, SCOLP shall provide to each of the Protected Partners an estimate of such Protected Partner’s allocable share of the Section 704(c) gain from such transaction, and an estimate of total taxes payable based on the highest marginal rates applicable to such Protected Partner for all federal, state, and local tax purposes. SCOLP shall pay such Protected Partner cash equal to the estimated amount of taxes payable as so calculated. If it is later determined that the taxes payable by the Protected Partner with respect to such gain exceeds the estimated amount calculated and 30 paid by SCOLP, then, SCOLP shall pay such excess to such Protected Partners within ninety (90) days after demand is made therefor, and if it is determined the estimated amount calculated and paid by SCOLP exceeds the amount required to be paid by the Protected Partner with respect to such gain, then the Protected Partner shall refund such excess to SCOLP within thirty (30) days of such request. The parties shall cooperate in confirming the determinations referenced in the prior sentence by providing copies of tax returns and certifications from certified public accountants at the request of either party. (i) For purposes of this Section 12.2(a), “Protection Period” shall mean, the Protection Period set forth in the Summary of Terms. (ii) Notwithstanding anything to the contrary herein, Section 12.2 (a) shall not apply to: (A) any transaction which would not result in the recognition and allocation of any built-in gain to any Protected Partner, including, without limitation, to the extent a transaction which qualifies as a tax-free like-kind exchange under Code Section 1031 or a tax-free contribution under Code Section 721 or Code Section 351 or a tax-free merger or consolidation of SCOLP (or any subsidiary) with or into another entity that qualifies for taxation as a partnership for federal income tax purposes, or (B) the condemnation or other taking of all or any portion of any Protected Project by a governmental entity or authority in eminent domain proceedings or otherwise or a casualty with respect thereto (each, a “Permitted Transfer”). In the case of a Permitted Transfer, SCOLP shall use its good faith commercially reasonable efforts to structure such disposition as either a tax-free like-kind exchange under Code Section 1031 or other tax-free contribution or tax-free reinvestment of proceeds under Code Section 1033; provided, that, commercially reasonable efforts shall not require SCOLP to pay additional amounts to purchase replacement property over and above the proceeds of the Permitted Transfer. (b) SCOLP shall use, and shall cause any other entity in which SCOLP has a direct or indirect interest to use, the “traditional method” under Regulations Section 1.704-3(b) for purposes of making allocations under Section 704(c) of the Code with respect to the Project to take into account the book-tax disparities as of the effective time of the contribution with respect to the Project and with respect to any revaluation of the Project pursuant to Regulations Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(2)(iv)(g) and 1.704-3(a)(6) with no “curative allocations,” “remedial allocations” or adjustments to other items to offset the effect of the “ceiling rule.” (c) SCOLP will allocate, in accordance with the Treasury Regulations, to each Protected Partner an amount of “excess nonrecourse liabilities,” as defined in Regulations Section 1.752-3(a)(3), up to the amount of built-in gain that is allocable to such Protected Partner with respect to each property acquired by SCOLP to the extent that each such property is subject to nonrecourse liabilities and such Protected Partner’s built-in gain with respect to each such property exceeds his gain with respect thereto described in Regulations Section 1.752-3(a)(2). 31 (d) SCOLP shall make available to each Protected Partner the opportunity to either: (A) enter into a deficit restoration obligation (DRO) or (B) make a guarantee (or, at the option of such Protected Partner, allow its indirect owners to make such a guarantee) of unsecured debt or secured debt of SCOLP, in such amount or amounts so as to cause the amount of SCOLP liabilities allocated to such Protected Partner for purposes of Section 752 of the Code to be not less than such Protected Partner’s Desired Liability Amount and to cause the amount of SCLOP liabilities with respect to which such Protected Partner will be considered to be “at risk” for purposes of Section 465 of the Code to be not less than such Protected Partner’s Desired Liability Amount. For purposes of this Section 12.2(d), the term “Desired Liability Amount” shall mean, with respect to each Protected Partner, a specific amount agreed to by SCOLP, which generally will be equal to the amount that would allow such Protected Partner to avoid gain recognition as a result of a reduction in liabilities allocated to the Protected Partners for federal income tax purposes as a result of the contribution transactions contemplated by this Agreement. (e) The parties hereto intend and agree that, for federal income tax purposes, the contribution by the Contributor to SCOLP as provided in this Agreement, shall constitute a transaction qualifying under Section 721(a) of the Code. SCOLP represents that it is not an investment company for purposes of Code Section 721(b). Contributor and SCOLP agree to the tax treatment described in this Section 12.2(e), and each shall file its respective tax returns consistent with the above-described transaction structure. 13.
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