TREATMENT OF CERTAIN PARTNERSHIP ALLOCATIONS.

SEC. 10214. TREATMENT OF CERTAIN PARTNERSHIP ALLOCATIONS. (a) General Rule.— Clause (vi) of section 514(c)(9)(B) is amended to read as follows: “(vi) the real property is held by a partnership unless the partnership meets the requirements of clauses (i) through (v) and unless— “(I) all of the partners of the partnership are qualified organizations, “(II) each allocation to a partner of the partnership which is a qualified organization is a qualified allocation (within the meaning of section 168(h)(6)), or “(III) such partnership meets the requirements of subparagraph (E).” (b) Certain Allocations Permitted.— Paragraph (9) of section 514(c) is amended by adding at the end thereof the following new subparagraph: “(E) Certain allocations permitted.— “(i) In general.— A partnership meets the requirements of this subparagraph if— “(I) the allocation of items to any partner other than a qualified organization cannot result in such partner having a share of the overall partnership loss for any taxable year greater than such partner’s share of the overall partnership income for the taxable year for which such partner’s income share will be the smallest, “(II) the allocation of items to any partner which is a qualified organization cannot result in such partner having a share of the overall partnership income for any taxable year greater than such partner’s share of the overall partnership loss for the taxable year for which such partner’s loss share will be the smallest, and “(III) each allocation with respect to the partnership has substantial economic effect within the meaning of section 704(b)(2). For purposes of this clause, items allocated under section 704(c) shall not be taken into account. “(ii) Special rules.— “(I) Chargebacks.— Except as provided in regulations, a partnership may without violating the requirements of this subparagraph provide for chargebacks with respect to disproportionate losses previously allocated to qualified organizations and disproportionate income previously allocated to other partners. Any chargeback referred to in the preceding sentence shall not be at a ratio in excess of the ratio under which the loss or income (as the case may be) was allocated. “(II) Preferred rates of return, etc.— To the extent provided in regulations, a partnership may without violating the requirements of this subpara-101 STAT. 1330–408graph provide for reasonable preferred returns or reasonable guaranteed payments.” (c) Effective Date.— The amendments made by this section shall apply to— (1) property acquired by the partnership after October 13, 1987, and (2) partnership interests acquired after October 13, 1987, except that such amendments shall not apply in the case of any property (or partnership interest) acquired pursuant to a written binding contract in effect on October 13, 1987, and at all times thereafter before such property (or interest) is acquired.