Allocations Reflecting Built-in Gain or Loss on Property Contributed to a Partnership

Federal RegisterDec 28, 1994

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8585]

RIN 1545-AS00

Allocations Reflecting Built-in Gain or Loss on Property

Contributed to a Partnership

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations under section 704 of

the Internal Revenue Code relating to the remedial allocation method

with respect to property contributed by a partner to a partnership and

to allocations with respect to securities and similar investments owned

by a partnership. Changes to the applicable law were made by the Tax

Reform Act of 1984 (the 1984 Act) and the Revenue Reconciliation Act of

1989 (the 1989 Act). The final regulations affect partnerships and

their partners and provide guidance needed to comply with the

applicable tax law.

EFFECTIVE DATE: These regulations are effective December 21, 1993.

FOR FURTHER INFORMATION CONTACT: Deborah Harrington at (202) 622-3050

(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Introduction

This document adds Secs. 1.704-3(d), 1.704-3(e)(3) and 1.704-

3(e)(4) to the Income Tax Regulations (26 CFR part 1) under sections

704(c)(1)(A) and 704(c)(3), removes existing Secs. 1.704-3(e)(2)(iv)

and 1.704-3(e)(2)(v), revises existing Secs. 1.704-1(b)(1)(vi), 1.704-

1(b)(2)(iv)(d)(3), 1.704-1(c), 1.704-3(a)(1), 1.704-3(a)(3)(i), and

1.704-3(e)(2)(iii), and removes Sec. 1.704-3T of the Temporary Income

Tax Regulations.

Background

On December 22, 1993, final regulations (TD 8500, 58 FR 67676) (the

1993 regulations) under section 704 relating to allocations with

respect to property contributed by a partner to a partnership were

published in the Federal Register. The 1993 regulations implement

section 704(c) as amended by the 1984 Act and the 1989 Act. The

portions of the 1993 regulations relating to the remedial allocation

method and allocations with respect to securities and similar

investments owned by a partnership were reserved. The IRS and Treasury

contemporaneously issued temporary regulations (TD 8501, 58 FR 67684)

(the temporary regulations) addressing the issues reserved in the final

regulations. A notice of proposed rulemaking (58 FR 67744) cross-

referencing the temporary regulations was published in the Federal

received, and a public hearing was held on April 4, 1994. After

considering the comments and the statements made at the hearing, the

IRS and Treasury adopt the proposed regulations as revised by this

Treasury decision and withdraw the temporary regulations. The IRS and

Treasury also amend the 1993 regulations as described by this Treasury

decision.

Explanation of Provisions

Remedial Allocation Method

The final regulations generally adopt the provisions of the

proposed regulations with respect to the remedial allocation method of

making allocations under section 704(c). Accordingly, under the final

regulations, a partnership may eliminate ceiling rule distortions by

making remedial allocations of income, gain, loss, or deduction to the

noncontributing partners equal to the full amount of the limitation

caused by the ceiling rule, and offsetting those allocations with

remedial allocations of deduction, loss, gain, or income to the

contributing partner. In response to comments, the final regulations

emphasize that the remedial allocation method involves the creation of

notional tax items by the partnership and is not dependent upon the

actual tax items recognized by the partnership.

One comment questioned the Secretary's authority to issue

regulations allowing partnerships to create notional tax items in order

to make allocations under section 704(c). In enacting section 704(c),

Congress gave the Secretary broad authority to permit allocations that

correct ceiling rule distortions. See H.R. Rep. No. 98-432 (Part 2),

98th Cong., 2d Sess. 1209 (1984). Offering partnerships a voluntary

method of correcting ceiling rule distortions by creating notional tax

items is consistent with this congressional grant of authority.

One comment suggested that the final regulations adopt the remedial

allocation method as a safe harbor method for making section 704(c)

allocations. Another comment suggested that the remedial allocation

method be a baseline for measuring whether the section 704(c) method

used by a partnership has the effect of substantially reducing the

present value of the aggregate tax liabilities of the partners for

purposes of the anti-abuse rule set forth in Sec. 1.704-3(a)(10).

The IRS and Treasury continue to believe it is appropriate to

require that all allocation methods, including the remedial allocation

method, be subject to the anti-abuse rule. There may be circumstances

under which contributions of property could be made and the remedial

allocation method adopted with a view to shifting tax consequences

impermissibly. It would be inconsistent with the general scope of these

regulations to prescribe a method of allocation that is always

reasonable regardless of the facts and circumstances. Furthermore, the

IRS and Treasury believe that it would be inappropriate to adopt the

remedial allocation method as a baseline for measuring whether the

partners' aggregate tax liability has been reduced. Such a baseline

would make the remedial allocation method preeminent, undercutting its

elective nature.

One comment suggested that the regulations require partnerships to

elect the remedial allocation method in their partnership agreements.

The comment did not specify any reason for imposing this requirement on

partnerships.

The section 704(c) regulations generally allow partnerships to

choose a reasonable section 704(c) method. The regulations only require

adoption of an allocation method in the partnership agreement for those

section 704(c) methods that have a significant potential for abuse. See

Secs. 1.704-3(c)(3)(ii) and 1.704-3(c)(3)(iii)(B) of the 1993

regulations. The use of the remedial allocation method can generally be

determined from the partnership's books and records. Therefore, the

final regulations do not require that the method be adopted in the

partnership agreement.

The temporary and proposed regulations require that a partnership

using the remedial allocation method recover the portion of its book

basis in the property equal to its tax basis in the property at the

time of contribution in the same manner as the tax basis is recovered.

The remainder of the partnership's book basis in the property (the

amount by which book basis exceeds adjusted tax basis) is recovered

using any applicable recovery period and depreciation (or other cost

recovery) method available to the partnership for newly purchased

property placed in service at the time of contribution. The final

regulations clarify that the recovery period and depreciation (or other

cost recovery) method adopted by the partnership for this purpose must

be one that is available for newly purchased property of the type

contributed, including any applicable first-year conventions.

Under the temporary and proposed regulations, remedial allocations

are reasonable only if they have the same effect on each partner's tax

liability as the item limited by the ceiling rule. Some comments

requested clarification of this provision.

In response to these comments, the final regulations provide that

the tax attributes of remedial allocations of income, gain, loss, or

deduction to noncontributing partners must be the same as the tax

attributes of the items limited by the ceiling rule. The tax attributes

of offsetting remedial allocations of income, gain, loss, or deduction

to the contributing partner are determined by reference to the items

limited by the ceiling rule. Thus, for example, if the ceiling rule

limited item is loss from the sale of contributed property, the

offsetting remedial allocation to the contributing partner must be gain

from the sale of that property. If the ceiling rule limited item is

depreciation or other cost recovery from the contributed property, the

offsetting remedial allocation to the contributing partner must be

income of the type produced (directly or indirectly) by that property.

Any partner level attributes are determined at the partner level.

The tax attributes of a remedial allocation at the partner level are

determined by treating the remedial allocation as if it were related to

the same activity, investment, or business as the item limited by the

ceiling rule. For instance, a remedial allocation of depreciation to a

noncontributing partner will not be subject to section 469 (passive

activity loss) limitations if the noncontributing partner materially

participates in the activity in which the contributed property is used.

However, the offsetting remedial allocation of income to the

contributing partner will be treated as income from a passive activity

if the contributing partner does not materially participate in the

activity in which the contributed property is used. See section 469.

Several comments requested that the regulations clarify the effect

of remedial allocations on other tax computations, such as the

partnership's basis in the section 704(c) property to which the

allocation relates and the basis of the partner's partnership interest.

The final regulations clarify that remedial allocations have the same

effect on a partner's tax liability as other tax items actually

recognized by the partnership and have the same effect on the adjusted

tax basis of the partner's partnership interest.

The final regulations also clarify that, because remedial

allocations to noncontributing partners and offsetting remedial

allocations to the contributing partner net to zero at the partnership

level, remedial allocations do not affect the partnership's computation

of its taxable income under section 703. Remedial allocations also do

not affect the partnership's adjusted tax basis in partnership property

(and, consequently, do not affect the aggregate amount of depreciation

recapture income recognized by the partnership on the sale of the

property).

Some comments requested that the final regulations address the

allocation of gain from section 704(c) property that is treated as

ordinary income under sections 1245 or 1250 (depreciation recapture).

One comment suggested that the regulations require partnerships to

allocate depreciation recapture from section 704(c) property based on

the partners' relative shares of depreciation or amortization from the

property, rather than on their shares of gain or loss from the

property. See Secs. 1.1245-1(e)(2) and 1.1250-1(f).

The IRS and Treasury do not believe this issue is appropriately

addressed in regulations issued under section 704(c); however, this

issue is under review and consideration is being given to amending the

regulations under sections 1245 and 1250 to incorporate the rule

suggested by these comments. Additional comments on the proper

allocation of depreciation recapture income by a partnership, both

inside and outside of the section 704(c) context, are welcomed.

The temporary and proposed regulations provide that the IRS will

not require a partnership to use the remedial allocation method

described in Sec. 1.704-3T(d). In response to a comment, the final

regulations clarify that the IRS may not force a partnership to use any

other method involving the creation of notional tax items.

Several comments requested that the final regulations clarify the

interaction between the remedial allocation method and other Code

provisions, notably sections 743, 752, and 754. The IRS and Treasury

have determined that these issues would be better addressed in other

guidance. To give the IRS and Treasury flexibility in addressing these

issues in the future, the final regulations provide that the

Commissioner may, by published guidance, prescribe adjustments to the

remedial allocation method as necessary or appropriate. This guidance

may, for example, prescribe adjustments to the remedial allocation

method to prevent the duplication or omission of items of income or

deduction or to reflect more clearly the partners' income or the income

of a transferee of a partner.

Securities Aggregation

The frequency of capital account restatements under Sec. 1.704-

1(b)(2)(iv)(f) and the number of partnership assets may make it

impractical for certain securities partnerships to make reverse section

704(c) allocations on an asset-by-asset basis. Therefore, the temporary

and proposed regulations permit certain securities partnerships to

aggregate gains and losses from securities or similar instruments when

making reverse section 704(c) allocations. The temporary and proposed

regulations define a securities partnership as one that: (1) is

diversified as defined in section 851(b)(4), (2) has at least 90

percent of its non-cash assets in stock, securities, commodities,

options, warrants, futures, or similar investments that are readily

tradeable on an established securities market, (3) either is registered

as a management company with the Securities and Exchange Commission

under the Investment Company Act of 1940, as amended (15 U.S.C. 80a)

(the 1940 Act), or does not have 50 percent or more of its capital

interests held at any time during the current partnership year by five

or fewer unrelated persons, and (4) makes all of its allocations in

proportion to the partners' relative book capital accounts (except for

reasonable special allocations to a partner that provides management

services).

The IRS and Treasury requested and received comments suggesting

other definitions of securities partnerships. After considering these

comments, the IRS and Treasury have determined that a more flexible

definition of securities partnership should be adopted. Accordingly,

under the final regulations, a securities partnership is a partnership

that is either a management company or an investment partnership, and

that makes all of its book allocations in proportion to the partners'

relative book capital accounts (except for reasonable special

allocations to a partner providing management services or investment

advisory services). The final regulations define a management company

as a partnership that is registered as a management company under the

1940 Act. The final regulations define an investment partnership as a

partnership that, on the date of each capital account restatement,

holds qualified financial assets constituting at least 90 percent of

the fair market value of its non-cash assets and that reasonably

expects, as of the end of the first taxable year in which the

partnership adopts an aggregate approach for reverse section 704(c)

allocations, to make revaluations of its qualified financial assets at

least annually.

Some comments suggested that the regulations allow a securities

partnership to aggregate gains and losses from all of its assets. The

IRS and Treasury believe that it is not generally appropriate to allow

a partnership to aggregate gains and losses from financial assets with

gains and losses from other types of assets. The IRS and Treasury also

believe that aggregation should generally be limited to financial

assets that are easily valued.

Nevertheless, the IRS and Treasury recognize that some financial

assets that are not readily tradeable on an established securities

market may be easily valued. These financial assets are included in

Sec. 1.1092(d)-1 (defining actively traded property for purposes of the

straddle rules). Accordingly, the final regulations permit securities

partnerships to aggregate gains and losses from qualified financial

assets, defined as any personal property (including stock) that is

actively traded as defined in Sec. 1.1092(d)-1, even if it is not

readily tradeable on an established securities market.

There is less reason to limit aggregation to easily valued assets

when the partnership is registered as a management company under the

1940 Act, because a management company's valuation of its assets is

closely regulated by the Securities and Exchange Commission.

Accordingly, the final regulations allow partnerships registered as

management companies to aggregate gains and losses from stock,

evidences of indebtedness, notional principal contracts, derivative

financial instruments, options, forward or futures contracts, short

positions, and similar financial instruments, whether or not actively

traded.

In response to comments, the final regulations also clarify the

treatment of tiered partnerships. Under the final regulations, a

partnership interest is not a qualified financial asset. However, if a

partnership (upper-tier partnership) holds an interest in a securities

partnership (lower-tier partnership), the upper-tier partnership must

treat its proportionate share of the lower-tier partnership's assets as

assets of the upper-tier partnership in determining whether the upper-

tier partnership qualifies as an investment partnership. The final

regulations also provide that, if the upper-tier partnership adopts an

aggregate approach under the special rule for securities partnerships,

the upper-tier partnership must aggregate the gains and losses from its

directly held qualified financial assets with its distributive share of

the gains and losses from the qualified financial assets of the lower-

tier partnership.

The temporary and proposed regulations require that a securities

partnership aggregate its gains separately from its losses. In response

to comments, this requirement has been eliminated in the final

regulations. Under the final regulations, partnerships may net book

gains with book losses and may also net tax gains with tax losses when

making reverse section 704(c) allocations so long as the partnership's

aggregate approach is reasonable and does not violate the anti-abuse

rule set forth in Sec. 1.704-3(a)(10). This rule accords more with the

overall flexibility of the section 704(c) regulations than does an

outright prohibition of netting.

Two examples of aggregate approaches have been added to the

regulations for purposes of illustrating the operation of the

aggregation rules. Other aggregate approaches were suggested. Although

those approaches may be reasonable in appropriate situations, they are

not specifically described in the final regulations because they appear

to be less common than those aggregate approaches that are described in

the regulations.

Under the final regulations, the character and other tax attributes

of gain or loss allocated to the partners must: (1) preserve the tax

attributes of each item of gain or loss realized by the partnership;

(2) be determined under an approach that is consistently applied; and

(3) not be determined with a view to reducing substantially the present

value of the partners' aggregate tax liability.

In response to a comment, the IRS and Treasury have added in the

final regulations a transitional rule that allows securities

partnerships to use any reasonable approach to coordinate revaluations

occurring on or after the effective date of these regulations with

revaluations occurring before the effective date of these regulations.

This provision allows securities partnerships to net book gains and

book losses from revaluations occurring before the effective date of

these regulations with book gains and book losses from revaluations

occurring on or after the effective date of these regulations in making

allocations under these regulations.

The IRS and Treasury recognize that a partnership may, at some

point, no longer qualify as a securities partnership. The final

regulations make it clear that a securities partnership that adopts an

aggregate approach and subsequently fails to qualify as a securities

partnership is not required to disaggregate the book gain or book loss

from qualified asset revaluations before the date of disqualification

when making reverse section 704(c) allocations on or after the date of

disqualification. Additional guidance relating to this issue may be

issued in the future. The final regulations authorize the Commissioner

to permit, by published guidance or by letter ruling, aggregation of

gain and loss from qualified financial assets by partnerships not

qualifying as securities partnerships. The IRS and Treasury welcome

comments on whether and under what circumstances waivers of the

qualification requirements should be granted.

Aggregation of Section 704(c) and Reverse Section 704(c)

Allocations

Several comments requested that the final regulations allow

partnerships that restate capital accounts pursuant to Sec. 1.704-

1(b)(2)(iv)(f) to aggregate their built-in gains and losses from

contributed property with their built-in gains and losses from capital

account restatements. Because this type of aggregation could lead to

substantial distortions in the character and timing of the income or

loss recognized by contributing partners, the final regulations do not

specifically authorize this type of aggregation. The IRS and Treasury

recognize, however, that there may be instances in which the likelihood

of character and timing distortions is minimal and the burden of making

section 704(c) allocations separate from reverse section 704(c)

allocations is great. Accordingly, the final regulations authorize the

Commissioner to permit, by letter ruling or in published guidance,

aggregation of section 704(c) gains and losses with reverse section

704(c) gains and losses.

In response to another comment, the final regulations also

authorize the Commissioner to permit, by letter ruling or in published

guidance, aggregation of section 704(c) gains and losses from

properties other than those specifically authorized in the regulations

or from properties contributed by more than one partner.

Effective date

The provisions added by this Treasury decision apply to property

contributed to a partnership and to restatements pursuant to

Sec. 1.704-1(b)(2)(iv)(f) on or after December 21, 1993. However,

taxpayers may rely on the provisions of Sec. 1.704-3T when making

allocations with respect to properties contributed to a partnership and

to restatements pursuant to Sec. 1.704-1(b)(2)(iv)(f) on or after

December 21, 1993 and before December 28, 1994.

General tax principles continue to apply to all transactions

involving section 704(c) entered into before and after the effective

date of the regulations under section 704(c). The IRS and Treasury are

aware of certain transactions entered into after the proposed section

704(c) regulations were issued under Sec. 1.704-3, but before the

regulations were finalized, that were similar to the anti-abuse

examples contained in the proposed regulations and that would violate

the anti-abuse rule contained in the final section 704(c) regulations

under Sec. 1.704-3(a)(10) but for the effective date of those

regulations. The IRS and Treasury believe that the validity of these

transactions is subject to challenge under general tax principles and

will apply these principles in reviewing such transactions.

Special Analyses

It has been determined that this Treasury decision is not a

significant regulatory action as defined in EO 12866. Therefore, a

regulatory assessment is not required. It also has been determined that

section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)

and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to

these regulations, and, therefore, a Regulatory Flexibility Analysis is

not required. Pursuant to section 7805(f) of the Internal Revenue Code,

the notice of proposed rulemaking preceding these regulations was

submitted to the Small Business Administration for comment on its

impact on small business.

Drafting Information

The principal author of these final regulations is Deborah

Harrington of the Office of the Assistant Chief Counsel (Passthroughs

and Special Industries). However, other personnel from the IRS and

Treasury participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read as

follows:

Authority: 26 U.S.C. 7805 * * *

Section 1.704-3 also issued under 26 U.S.C. 704(c). * * *

Sec. 1.704 [Amended]

Par. 2. Section 1.704-1 is amended as follows:

1. Paragraph (b)(1)(vi) is amended by removing the reference

``Sec. 1.704-3T(d)(2)'' and adding ``Sec. 1.704-3(d)(2)'' in its place.

2. Paragraph (b)(2)(iv)(d)(3) is amended by removing the reference

``Sec. 1.704-3T(d)(2)'' and adding ``Sec. 1.704-3(d)(2)'' in its place.

3. Paragraph (c) is amended by removing the reference ``See

Secs. 1.704-3 and 1.704-3T'' and adding ``See Sec. 1.704-3'' in its

place.

* * * * *

Par. 3. Section 1.704-3 is amended as follows:

1. Paragraph (a)(1) is amended by removing the reference

``Sec. 1.704-3T(d)'' and adding ``Sec. 1.704-3(d)'' in its place.

2. Paragraph (a)(3)(i) is amended by removing the reference

``Sec. 1.704-3T(d)(2)'' and adding ``Sec. 1.704-3(d)(2)'' in its place.

3. Paragraph (d) is revised.

4. Paragraph (e)(2)(iii) is revised.

5. Paragraphs (e)(2)(iv) and (e)(2)(v) are removed.

6. Paragraph (e)(3) is revised and paragraph (e)(4) is added.

7. The additions and revisions read as follows:

Sec. 1.704-3 Contributed property.

* * * * *

(d) Remedial allocation method--(1) In general. A partnership may

adopt the remedial allocation method described in this paragraph to

eliminate distortions caused by the ceiling rule. A partnership

adopting the remedial allocation method eliminates those distortions by

creating remedial items and allocating those items to its partners.

Under the remedial allocation method, the partnership first determines

the amount of book items under paragraph (d)(2) of this section and the

partners' distributive shares of these items under section 704(b). The

partnership then allocates the corresponding tax items recognized by

the partnership, if any, using the traditional method described in

paragraph (b)(1) of this section. If the ceiling rule (as defined in

paragraph (b)(1) of this section) causes the book allocation of an item

to a noncontributing partner to differ from the tax allocation of the

same item to the noncontributing partner, the partnership creates a

remedial item of income, gain, loss, or deduction equal to the full

amount of the difference and allocates it to the noncontributing

partner. The partnership simultaneously creates an offsetting remedial

item in an identical amount and allocates it to the contributing

partner.

(2) Determining the amount of book items. Under the remedial

allocation method, a partnership determines the amount of book items

attributable to contributed property in the following manner rather

than under the rules of Sec. 1.704-1(b)(2)(iv)(g)(3). The portion of

the partnership's book basis in the property equal to the adjusted tax

basis in the property at the time of contribution is recovered in the

same manner as the adjusted tax basis in the property is recovered

(generally, over the property's remaining recovery period under section

168(i)(7) or other applicable Internal Revenue Code section). The

remainder of the partnership's book basis in the property (the amount

by which book basis exceeds adjusted tax basis) is recovered using any

recovery period and depreciation (or other cost recovery) method

(including first-year conventions) available to the partnership for

newly purchased property (of the same type as the contributed property)

that is placed in service at the time of contribution.

(3) Type. Remedial allocations of income, gain, loss, or deduction

to the noncontributing partner have the same tax attributes as the tax

item limited by the ceiling rule. The tax attributes of offsetting

remedial allocations of income, gain, loss, or deduction to the

contributing partner are determined by reference to the item limited by

the ceiling rule. Thus, for example, if the ceiling rule limited item

is loss from the sale of contributed property, the offsetting remedial

allocation to the contributing partner must be gain from the sale of

that property. Conversely, if the ceiling rule limited item is gain

from the sale of contributed property, the offsetting remedial

allocation to the contributing partner must be loss from the sale of

that property. If the ceiling rule limited item is depreciation or

other cost recovery from the contributed property, the offsetting

remedial allocation to the contributing partner must be income of the

type produced (directly or indirectly) by that property. Any partner

level tax attributes are determined at the partner level. For example,

if the ceiling rule limited item is depreciation from property used in

a rental activity, the remedial allocation to the noncontributing

partner is depreciation from property used in a rental activity and the

offsetting remedial allocation to the contributing partner is ordinary

income from that rental activity. Each partner then applies section 469

to the allocations as appropriate.

(4) Effect of remedial items--(i) Effect on partnership. Remedial

items do not affect the partnership's computation of its taxable income

under section 703 and do not affect the partnership's adjusted tax

basis in partnership property.

(ii) Effect on partners. Remedial items are notional tax items

created by the partnership solely for tax purposes and do not affect

the partners' book capital accounts. Remedial items have the same

effect as actual tax items on a partner's tax liability and on the

partner's adjusted tax basis in the partnership interest.

(5) Limitations on use of methods involving remedial allocations--

(i) Limitation on taxpayers. In the absence of published guidance, the

remedial allocation method described in this paragraph (d) is the only

reasonable section 704(c) method permitting the creation of notional

tax items.

(ii) Limitation on Internal Revenue Service. In exercising its

authority under paragraph (a)(10) of this section to make adjustments

if a partnership's allocation method is not reasonable, the Internal

Revenue Service will not require a partnership to use the remedial

allocation method described in this paragraph (d) or any other method

involving the creation of notional tax items.

(6) Adjustments to application of method. The Commissioner may, by

published guidance, prescribe adjustments to the remedial allocation

method under this paragraph (d) as necessary or appropriate. This

guidance may, for example, prescribe adjustments to the remedial

allocation method to prevent the duplication or omission of items of

income or deduction or to reflect more clearly the partners' income or

the income of a transferee of a partner.

(7) Examples. The following examples illustrate the principles of

this paragraph (d).

Example 1. Remedial allocation method--(i) Facts. On January 1,

L and M form partnership LM and agree that each will be allocated a

50 percent share of all partnership items. The partnership agreement

provides that LM will make allocations under section 704(c) using

the remedial allocation method under this paragraph (d) and that the

straight-line method will be used to recover excess book basis. L

contributes depreciable property with an adjusted tax basis of

$4,000 and a fair market value of $10,000. The property is

depreciated using the straight-line method with a 10-year recovery

period and has 4 years remaining on its recovery period. M

contributes $10,000, which the partnership uses to purchase land.

Except for the depreciation deductions, LM's expenses equal its

income in each year of the 10 years commencing with the year the

partnership is formed.

(ii) Years 1 through 4. Under the remedial allocation method of

this paragraph (d), LM has book depreciation for each of its first 4

years of $1,600 [$1,000 ($4,000 adjusted tax basis divided by the 4-

year remaining recovery period) plus $600 ($6,000 excess of book

value over tax basis, divided by the new 10-year recovery period)].

(For the purpose of simplifying the example, the partnership's book

depreciation is determined without regard to any first-year

depreciation conventions.) Under the partnership agreement, L and M

are each allocated 50 percent ($800) of the book depreciation. M is

allocated $800 of tax depreciation and L is allocated the remaining

$200 of tax depreciation ($1,000-$800). See paragraph (d)(1) of this

section. No remedial allocations are made because the ceiling rule

does not result in a book allocation of depreciation to M different

from the tax allocation. The allocations result in capital accounts

at the end of LM's first 4 years as follows:

------------------------------------------------------------------------

L M

-------------------------------------------

Book Tax Book Tax

------------------------------------------------------------------------

Initial contribution........ $10,000 $4,000 $10,000 $10,000

Depreciation................

-------------------------------------------

$6,800 $3,200 $6,800 $6,800

------------------------------------------------------------------------

(iii) Subsequent Years. (A) For each of years 5 through 10, LM

has $600 of book depreciation ($6,000 excess of initial book value

over adjusted tax basis divided by the 10-year recovery period that

commended in year 1), but no tax depreciation. Under the partnership

agreement, the $600 of book depreciation is allocated equally to L

and M. Because of the application of the ceiling rule in year 5, M

would be allotted $300 of book depreciation, but no tax

depreciation. Thus, at the end of LM's fifth year L's and M's book

and tax capital accounts would be as follows:

----------------------------------------------------------------------------------------------------------------

L M

---------------------------------------------------------------------------------------

Book Tax Book Tax

----------------------------------------------------------------------------------------------------------------

End of year 4........... $6,800 $3,200 $6,800 $6,800

Depreciation............ ....................... .......................

---------------------------------------------------------------------------------------

$6,500 $3,200 $6,500 $6,800

----------------------------------------------------------------------------------------------------------------

(B) Because the ceiling rule would cause an annual disparity of

$300 between M's allocations of book and tax depreciation, LM must

make remedial allocations of $300 of tax depreciation deductions to

M under the remedial allocation method for each of years 5 through

10. LM must also make an offsetting remedial allocation to L of $300

of taxable income, which must be of the same type as income produced

by the property. At the end of year 5, LM's capital accounts are as

follows:

------------------------------------------------------------------------

L M

-------------------------------------------

Book Tax Book Tax

------------------------------------------------------------------------

End of year 4............... $6,800 $3,200 $6,800 $6,800

Depreciation................ ......... .........

Remedial allocations........ ......... 300 .........

-------------------------------------------

$6,500 $3,500 $6,500 $6,500

------------------------------------------------------------------------

L M

-------------------------------------------

Book Tax Book Tax

------------------------------------------------------------------------

End of year 5............... $6,500 $3,500 $6,500 $6,500

Depreciation................ ......... .........

Remedial allocations........ ......... .........

-------------------------------------------

$5,000 $5,000 $5,000 $5,000

------------------------------------------------------------------------

Example 2. Remedial allocations on sale--(i) Facts. N and P form

partnership NP and agree that each will be allocated a 50 percent

share of all partnership items. The partnership agreement provides

that NP will make allocations under section 704(c) using the

remedial allocation method under this paragraph (d). N contributes

Blackacre (land) with an adjusted tax basis of $4,000 and a fair

market value of $10,000. Because N has a built-in gain of $6,000,

Blackacre is section 704(c) property. P contributes Whiteacre (land)

with an adjusted tax basis and fair market value of $10,000. At the

end of NP's first year, NP sells Blackacre to Q for $9,000 and

recognizes a capital gain of $5,000 ($9,000 amount realized less

$4,000 adjusted tax basis) and a book loss of $1,000 ($9,000 amount

realized less $10,000 book basis). NP has no other items of income,

gain, loss, or deduction. If the ceiling rule were applied, N would

be allocated the entire $5,000 of tax gain and N and P would each be

allocated $500 of book loss. Thus, at the end of NP's first year N's

and P's book and tax capital accounts would be as follows:

------------------------------------------------------------------------

N P

-------------------------------------------

Book Tax Book Tax

------------------------------------------------------------------------

Initial contribution........ $10,000 $4,000 $10,000 $10,000

Sale of Blackacre........... 5,000 .........

-------------------------------------------

$9,500 $9,000 $9,500 $10,000

------------------------------------------------------------------------

(ii) Remedial allocation. Because the ceiling rule would cause a

disparity of $500 between P's allocation of book and tax loss, NP

must make a remedial allocation of $500 of capital loss to P and an

offsetting remedial allocation to N of an additional $500 of capital

gain. These allocations result in capital accounts at the end of

NP's first year as follows:

------------------------------------------------------------------------

N P

-------------------------------------------

Book Tax Book Tax

------------------------------------------------------------------------

Initial contribution........ $10,000 $4,000 $10,000 $10,000

Sale of Blackacre........... 5,000 .........

Remedial allocations........ ......... 500 .........

-------------------------------------------

$9,500 $9,500 $9,500 $9,500

------------------------------------------------------------------------

Example 3. Remedial allocation where built-in gain property sold

for book and tax loss--(i) Facts. The facts are the same as in

Example 2, except that at the end of NP's first year, NP sells

Blackacre to Q for $3,000 and recognizes a capital loss of $1,000

($3,000 amount realized less $4,000 adjusted tax basis) and a book

loss of $7,000 ($3,000 amount realized less $10,000 book basis). If

the ceiling rule were applied, P would be allocated the entire

$1,000 of tax loss and N and P would each be allocated $3,500 of

book loss. Thus, at the end of NP's first year, N's and P's book and

tax capital accounts would be as follows:

------------------------------------------------------------------------

N P

-------------------------------------------

Book Tax Book Tax

------------------------------------------------------------------------

Initial contribution........ $10,000 $4,000 $10,000 $10,000

Sale of Blackacre........... 0

-------------------------------------------

$6,500 $4,000 $6,500 $9,000

------------------------------------------------------------------------

(ii) Remedial allocation. Because the ceiling rule would cause a

disparity of $2,500 between P's allocation of book and tax loss on

the sale of Blackacre, NP must make a remedial allocation of $2,500

of capital loss to P and an offsetting remedial allocation to N of

$2,500 of capital gain. These allocations result in capital accounts

at the end of NP's first year as follows:

------------------------------------------------------------------------

N P

-------------------------------------------

Book Tax Book Tax

------------------------------------------------------------------------

Initial contribution........ $10,000 $4,000 $10,000 $10,000

Sale of Blackacre........... 0

Remedial Allocations........ ......... 2,500 .........

-------------------------------------------

$6,500 $6,500 $6,500 $6,500

------------------------------------------------------------------------

(iii) Subsequent Years. (A) For each of years 5 through 10, LM has

$600 of book depreciation ($6,000 excess of initial book value over

adjusted tax basis divided by the 10-year recovery period that

commenced in year 1), but no tax depreciation. Under the partnership

agreement, the $600 of book depreciation is allocated equally to L and

M. Because of the application of the ceiling rule in year 5, M would be

allocated $300 of book depreciation, but no tax depreciation. Thus, at

the end of LM's fifth year L's and M's book and tax capital accounts

would be as follows:

(e) * * *

(2) * * *

(iii) Inventory. For partnerships that do not use a specific

identification method of accounting, each item of inventory, other than

qualified financial assets (as defined in paragraph (e)(3)(ii) of this

section).

(3) Special aggregation rule for securities partnerships--(i)

General rule. For purposes of making reverse section 704(c)

allocations, a securities partnership may aggregate gains and losses

from qualified financial assets using any reasonable approach that is

consistent with the purpose of section 704(c). Notwithstanding

paragraphs (a)(2) and (a)(6)(i) of this section, once a partnership

adopts an aggregate approach, that partnership must apply the same

aggregate approach to all of its qualified financial assets for all

taxable years in which the partnership qualifies as a securities

partnership. Paragraphs (e)(3)(iv) and (e)(3)(v) of this section

describe approaches for aggregating reverse section 704(c) gains and

losses that are generally reasonable. Other approaches may be

reasonable in appropriate circumstances. See, however, paragraph

(a)(10) of this section, which describes the circumstances under which

section 704(c) methods, including the aggregate approaches described in

this paragraph (e)(3), are not reasonable. A partnership using an

aggregate approach must separately account for any built-in gain or

loss from contributed property.

(ii) Qualified financial assets--(A) In general. A qualified

financial asset is any personal property (including stock) that is

actively traded. Actively traded means actively traded as defined in

Sec. 1.1092(d)-1 (defining actively traded property for purposes of the

straddle rules).

(B) Management companies. For a management company, qualified

financial assets also include the following, even if not actively

traded: shares of stock in a corporation; notes, bonds, debentures, or

other evidences of indebtedness; interest rate, currency, or equity

notional principal contracts; evidences of an interest in, or

derivative financial instruments in, any security, currency, or

commodity, including any option, forward or futures contract, or short

position; or any similar financial instrument.

qualified financial asset for purposes of this paragraph (e)(3)(ii).

However, for purposes of this paragraph (e)(3), a partnership (upper-

tier partnership) that holds an interest in a securities partnership

(lower-tier partnership) must take into account the lower-tier

partnership's assets and qualified financial assets as follows:

(1) In determining whether the upper-tier partnership qualifies as

an investment partnership, the upper-tier partnership must treat its

proportionate share of the lower-tier securities partnership's assets

as assets of the upper-tier partnership; and

(2) If the upper-tier partnership adopts an aggregate approach

under this paragraph (e)(3), the upper-tier partnership must aggregate

the gains and losses from its directly held qualified financial assets

with its distributive share of the gains and losses from the qualified

financial assets of the lower-tier securities partnership.

(iii) Securities partnership--(A) In general. A partnership is a

securities partnership if the partnership is either a management

company or an investment partnership, and the partnership makes all of

its book allocations in proportion to the partners' relative book

capital accounts (except for reasonable special allocations to a

partner that provides management services or investment advisory

services to the partnership).

(B) Definitions--(1) Management company. A partnership is a

management company if it is registered with the Securities and Exchange

Commission as a management company under the Investment Company Act of

1940, as amended (15 U.S.C. 80a).

(2) Investment partnership. A partnership is an investment

partnership if:

(i) On the date of each capital account restatement, the

partnership holds qualified financial assets that constitute at least

90 percent of the fair market value of the partnership's non-cash

assets; and

(ii) The partnership reasonably expects, as of the end of the first

taxable year in which the partnership adopts an aggregate approach

under this paragraph (e)(3), to make revaluations at least annually.

(iv) Partial netting approach. This paragraph (e)(3)(iv) describes

the partial netting approach of making reverse section 704(c)

allocations. See Example 1 of paragraph (e)(3)(ix) of this section for

an illustration of the partial netting approach. To use the partial

netting approach, the partnership must establish appropriate accounts

for each partner for the purpose of taking into account each partner's

share of the book gains and losses and determining each partner's share

of the tax gains and losses. Under the partial netting approach, on the

date of each capital account restatement, the partnership:

(A) Nets its book gains and book losses from qualified financial

assets since the last capital account restatement and allocates the net

amount to its partners;

(B) Separately aggregates all tax gains and all tax losses from

qualified financial assets since the last capital account restatement;

and

loss to the partners in a manner that reduces the disparity between the

book capital account balances and the tax capital account balances

(book-tax disparities) of the individual partners.

(v) Full netting approach. This paragraph (e)(3)(v) describes the

full netting approach of making reverse section 704(c) allocations on

an aggregate basis. See Example 2 of paragraph (e)(3)(ix) of this

section for an illustration of the full netting approach. To use the

full netting approach, the partnership must establish appropriate

accounts for each partner for the purpose of taking into account each

partner's share of the book gains and losses and determining each

partner's share of the tax gains and losses. Under the full netting

approach, on the date of each capital account restatement, the

partnership:

(A) Nets its book gains and book losses from qualified financial

assets since the last capital account restatement and allocates the net

amount to its partners;

(B) Nets tax gains and tax losses from qualified financial assets

since the last capital account restatement; and

a manner that reduces the book-tax disparities of the individual

partners.

(vi) Type of tax gain or loss. The character and other tax

attributes of gain or loss allocated to the partners under this

paragraph (e)(3) must:

(A) Preserve the tax attributes of each item of gain or loss

realized by the partnership;

(B) Be determined under an approach that is consistently applied;

and

present value of the partners' aggregate tax liability.

(vii) Disqualified securities partnerships. A securities

partnership that adopts an aggregate approach under this paragraph

(e)(3) and subsequently fails to qualify as a securities partnership

must make reverse section 704(c) allocations on an asset-by-asset basis

after the date of disqualification. The partnership, however, is not

required to disaggregate the book gain or book loss from qualified

asset revaluations before the date of disqualification when making

reverse section 704(c) allocations on or after the date of

disqualification.

(viii) Transitional rule for qualified financial assets revalued

after effective date. A securities partnership revaluing its qualified

financial assets pursuant to Sec. 1.704-1(b)(2)(iv)(f) on or after the

effective date of this section may use any reasonable approach to

coordinate with revaluations that occurred prior to the effective date

of this section.

(ix) Examples. The following examples illustrate the principles of

this paragraph (e)(3).

Example 1. Operation of the partial netting approach--(i) Facts.

Two regulated investment companies, X and Y, each contribute

$150,000 in cash to form PRS, a partnership that registers as a

management company. The partnership agreement provides that book

items will be allocated in accordance with the partners' relative

book capital accounts, that book capital accounts will be adjusted

to reflect daily revaluations of property pursuant to Sec. 1.704-

1(b)(2)(iv)(f)(5)(iii), and that reverse section 704(c) allocations

will be made using the partial netting approach described in

paragraph (e)(3)(iv) of this section. X and Y each have an initial

book capital account of $150,000. In addition, the partnership

establishes for each of X and Y a revaluation account with a

beginning balance of $0. On Day 1, PRS buys Stock 1, Stock 2, and

Stock 3 for $100,000 each. On Day 2, Stock 1 increases in value from

$100,000 to $102,000, Stock 2 increases in value from $100,000 to

$105,000, and Stock 3 declines in value from $100,000 to $98,000. At

the end of Day 2, Z, a regulated investment company, joins PRS by

contributing $152,500 in cash for a one-third interest in the

partnership [$152,500 divided by $300,000 (initial values of stock)

+ $5,000 (net gain at end of Day 2)+ $152,500]. PRS uses this cash

to purchase Stock 4. PRS establishes a revaluation account for Z

with a $0 beginning balance. As of the close of Day 3, Stock 1

increases in value from $102,000 to $105,000, and Stocks 2, 3, and 4

decrease in value from $105,000 to $102,000, from $98,000 to

$96,000, and from $152,500 to $151,500, respectively. At the end of

Day 3, PRS sells Stocks 2 and 3.

(ii) Book allocations--Day 2. At the end of Day 2, PRS revalues

the partnership's qualified financial assets and increases X's and

Y's book capital accounts by each partner's 50 percent share of the

$5,000 ($2,000 + $5,000 - $2,000) net increase in the value of the

partnership's assets during Day 2. PRS increases X's and Y's

respective revaluation account balances by $2,500 each to reflect

the amount by which each partner's book capital account increased on

Day 2. Z's capital account is not affected because Z did not join

PRS until the end of Day 2. At the beginning of Day 3, the

partnership's accounts are as follows:

------------------------------------------------------------------------

Stock 1 Stock 2 Stock 3 Stock 4

------------------------------------------------------------------------

Opening Balance............ $100,000 $100,000 $100,000 ..........

Day 2 Adjustment........... 2,000 5,000 (2,000) ..........

--------------------------------------------

Total...................... $102,000 $105,000 $98,000 $152,500

------------------------------------------------------------------------

----------------------------------

Revaluation

Book Tax account

------------------------------------------------------------------------

Opening Balance...................... $150,000 $150,000 0

Day 2 Adjustment..................... 2,500 0 $2,500

----------------------------------

Closing Balance...................... $152,500 $150,000 $2,500

------------------------------------------------------------------------

----------------------------------

Revaluation

Book Tax account

------------------------------------------------------------------------

Opening Balance...................... $150,000 $150,000 0

Day 2 Adjustment..................... 2,500 0 $2,500

----------------------------------

Closing balance...................... $152,500 $150,000 $2,500

------------------------------------------------------------------------

----------------------------------

Revaluation

Book Tax account

------------------------------------------------------------------------

Opening Balance...................... ......... ......... ...........

Day 2 Adjustment..................... ......... ......... ...........

Closing Balance...................... $152,500 $152,500 $0

------------------------------------------------------------------------

(iii) Book and tax allocations--Day 3. At the end of Day 3, PRS

decresases the book capital accounts of X, Y, and Z by $1,000 to

reflect each partner's share of the $3,000 ($3,000--$3,000--$2,000--

$1,000) net decrease in the value of the partnership's qualified

financial assets. PRS also reduces each partner's revaluation

account balance by $1,000. Accordingly, X's and Y's revaluation

account balances are reduced to $1,500 each and Z's revaulation

account balance is ($1,000). PRS then separately allocates the tax

gain from the sale of Stock 2 and the loss from the sale of Stock 3.

The $2,000 of tax gain recognized on the sale of Stock 2 ($102,000--

$100,000) is allocated among the partners with positive revaluation

account balances in accordance with the relative balances of those

revaluation accounts. X's and Y's revaluation accounts have equal

positive balances; thus, PRS allocates $1,000 of the gain from the

sale of Stock 2 to X and $1,000 of that gain to Y. PRS allocates

none of the gain from the sale to Z because Z's revaluation account

balance is negative. The $4,000 of tax loss recognized from the sale

of Stock 3 ($96,000--$100,000) is allocated first to the partners

with negative revaluation account balances to the extent of those

balances. Because Z is the only partner with a negative revaluation

account balance, the tax loss is allocated first to Z to the extent

of Z's ($1,000) balance. The remaining $3,000 of tax loss is

allocated among the partners in accordance with their distributive

shares of the loss. Accordingly, PRS allocates $1,000 of tax loss

from the sale of Stock 3 to each of X and Y. PRS also allocates an

additional $1,000 of the tax loss to Z, so that Z's total share of

the tax loss from the sale of Stock 3 is $2,000. PRS then reduces

each partner's revaluation account balance by the amount of any tax

gain allocated to that partner and increases each partner's

revaluation account balance by the amount of any tax loss allocated

to that partner. At the beginning of Day 4, the partnership's

accounts are as follows:

------------------------------------------------------------------------

Stock 1 Stock 2 Stock 3 Stock 4

------------------------------------------------------------------------

Opening Balance......... $100,000 $100,000 $100,000 $152,500

Day 2 Adjustment........ 2,000 5,000 (2,000) ...........

Day 3 Adjustment........ $3,000 (3,000) (2,000) (1,000)

-----------------------------------------------

Total................... $105,000 $102,000 $96,000 $151,500

------------------------------------------------------------------------

X and Y

--------------------------------------

Revaluation

Book Tax account

------------------------------------------------------------------------

Opening Balance.................. $150,000 $150,000 0

Day 2 Adjustment................. 2,500 0 $2,500

Day 3 Adjustment................. (1,000) 0 ($1,000)

--------------------------------------

Total............................ $151,500 $150,000 $1,500

Gain from Stock 2................ 0 $1,000 (1,000)

Loss from Stock 3................ 0 ($1,000) 1,000

--------------------------------------

Closing Balance.................. $151,500 $150,000 $1,500

------------------------------------------------------------------------

------------------------------------

Revaluation

Book Tax account

------------------------------------------------------------------------

Opening Balance.................... $151,500 $152,500 0

Day 3 Adjustment................... (1,000) 0 ($1,000)

------------------------------------

Total.............................. $151,500 $152,500 ($1,000)

Gain from Stock 2.................. 0 0 0

Loss from Stock 3.................. 0 (2,000) 2,000

------------------------------------

Closing Balance.................... $151,500 $150,500 $1,000

------------------------------------------------------------------------

Example 2. Operation of the full netting approach--(i) Facts.

The facts are the same as in Example 1, except that the partnership

agreement provides that PRS will make reverse section 704(c)

allocations using the full netting approach described in paragraph

(e)(3)(v) of this section.

(ii) Book allocations--Days 2 and 3. PRS allocates its book

gains and losses in the manner described in paragraphs (ii) and

(iii) of Example 1 (the partial netting approach). Thus, at the end

of Day 2, PRS increases the book capital accounts of X and Y by

$2,500 to reflect the appreciation in the parntership's assets from

the close of Day 1 to the close of Day 2 and records that increase

in the revaluation account created for each partner. At the end of

Day 3, PRS decreases the book capital accounts of X, Y, and Z by

$1,000 to reflect each partner's share of the decline in value of

the partnership's assets from Day 2 to Day 3 and reduces each

partner's revaluation account by a corresponding amount.

(iii) Tax allocations--Day 3. After making the book adjustments

described in the previous paragraph, PRS allocates its net tax gain

(or net tax loss) from its sales of qualified financial assets

during Day 3. To do so, PRS first determines its net tax gain (or

net tax loss) recognized from its sales of qualified financial

assets for the day. There is a $2,000 net tax loss ($2,000 gain from

the sale of Stock 2 less $4,000 loss from the sale of Stock 3) on

the sale of PRS's qualified financial assets. Because Z is the only

partner with a negative revaluation account balance, the

partnership's net tax loss is allocated first to Z to the extent of

Z's ($1,000) revaluation account balance. The remaining net tax loss

is allocated among the partners in accoradnce with their

distributive shares of loss. Thus, PRS allocates $333.33 of the

$2,000 net tax loss to each of X and Y. PRS also allocates an

additional $333.33 of the net tax loss to Z, so that the total net

tax loss allocation to Z is $1,333.33. PRS then increases each

partner's revaluation account balance by the amount of net tax loss

allocated to that partner. At the beginning of Day 4, the

partnership's accounts are as follows:

------------------------------------------------------------------------

Stock 1 Stock 2 Stock 3 Stock 4

------------------------------------------------------------------------

Opening Balance.......... $100,000 $100,000 $100,000 $152,500

Day 2 Adjustment......... 2,000 5,000 (2,000) ..........

Day 3 Adjustment......... 3,000 (3,000) (2,000) ($1,000)

----------------------------------------------

Total.................... $105,000 $102,000 $96,000 $151,500

------------------------------------------------------------------------

Z and Y

--------------------------------------

Revaluation

Book Tax account

------------------------------------------------------------------------

Opening Balance.................. $150,000 $150,500 0

Day 2 Adjustment................. $2,500 0 $2,500

Day 3 Adjustment................. (1,000) 0 (1,000)

--------------------------------------

Total............................ $151,500 $150,000 $1,500

Net Tax Loss-Stocks 2 & 3........ 0 (333) 333

--------------------------------------

Closing Balance.................. $151,500 $149,667 $1,833

------------------------------------------------------------------------

------------------------------------

Revaluation

Book Tax account

------------------------------------------------------------------------

Opening Balance.................... $152,500 $152,500 0

Day 3 Adjustment................... (1,000) 0 ($1,000)

------------------------------------

Total.......................... $151,500 $152,500 ($1,000)

Net Tax Loss-Stocks 2 & 3.......... 0 (1,333) 1,333

------------------------------------

Closing Balance.................... $151,500 $151,167 $333

------------------------------------------------------------------------

(4) Aggregation as permitted by the Commissioner. The Commissioner

may, by published guidance or by letter ruling, permit:

(i) Aggregation of properties other than those described in

paragraphs (e)(2) and (e)(3) of this section;

(ii) Partnerships and partners not described in paragraph (e)(3) of

this section to aggregate gain and loss from qualified financial

assets; and

(iii) Aggregation of qualified financial assets for purposes of

making section 704(c) allocations in the same manner as that described

in paragraph (e)(3) of this section.

* * * * *

Sec. 1.704-3T [Removed]

Par. 4. Section 1.704-3T is removed.

Dated: December 13, 1994.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved:

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 94-31435 Filed 12-27-94; 8:45 am]

BILLING CODE 4830-01-P

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.