To meet the substantial economic effect tests, a partnership's allocations of income and deductions to the partners are required to be proportionate to the partners' percentage ownership of partnership capital.

Question

Quizplus · Accepted Answer

The substantial economic effect test does not require allocations to be proportionate to ownership percentages. Instead, it requires that the allocations have economic substance and are consistent with the underlying economic arrangement of the partners.

To Meet the Substantial Economic Effect Tests, a Partnership's Allocations