EXHIBIT
D
SPECIAL
ALLOCATIONS AS REQUIRED BY THE
INTERNAL
REVENUE CODE AND REGULATIONS
This
Exhibit D is a part of that certain Operating Agreement of __________________, LLC
made the ________ day of ______________ (month), _____ (year), and is
incorporated therein by reference as if fully set forth therein.
1. Allocation
of Taxable Income and Loss:
For
purposes of this Agreement, net profits or net losses shall be determined as
required by the regulations promulgated under Section 704 of the Internal
Revenue Code, as it may be amended from time to time. Taxable Income and Tax Losses of the Company for each fiscal year
shall be determined as of the end of each fiscal year and shall be allocated as
hereinbelow set forth, and shall be subject to the rules for special
allocations set forth in Paragraph 2 hereof.
(a) Taxable Income shall first be allocated to
the Members to the extent of, and in proportion to, the excess of prior
cumulative allocations of Tax Losses over prior cumulative allocations of
Taxable Income.
(b) The balance of Taxable Income shall then be
allocated to the Members in proportion to their Capital Accounts.
(c) Tax Losses shall first be allocated to the
Members to the extent of, and in proportion to, the excess of prior cumulative
allocations of Taxable Income over prior cumulative allocations of Tax Losses.
(d) The balance of Tax Losses shall be
allocated in proportion to the Capital Contributions of the Members, until any
Members Capital Account is reduced to zero (0).
(e) To the extent remaining, Tax Losses shall
be allocated to the Members in proportion to their adjusted tax basis in the
Company as determined for Federal income tax purposes.
(f) Notwithstanding the foregoing provisions,
if Taxable Income to be allocated includes income treated as ordinary income
for income tax purposes because it is attributable to the recapture of
Depreciation and/or Amortization under Section 1245 or Section 1250 of the
Internal Revenue Code, or any other similar provision, such Taxable Income, to
the extent it is treated as ordinary income, shall be allocated to and reported
by the Members in proportion to their accumulated depreciation allocations, and
the Company shall keep records of such allocations.
(g) In the event of a transfer of, or other
change in, an interest in the Company during a fiscal year, each item of
taxable income or loss shall be prorated in accordance with Section 706 of the
Internal Revenue Code, using any convention permitted by law and selected by
the Managers.
(h) Notwithstanding any other provisions of
this Agreement or of this Exhibit D to the contrary, no allocation of any item
of income or loss shall be made to a Member if such allocation would not have
economic effect pursuant to Treasury Regulations. To the extent an allocation cannot be made to a Member due to the
application of such Treasury Regulations, such allocation shall be made to the
other Members entitled to receive such allocation hereunder.
2. Special
Allocations:
The
following special allocations shall be made in the following order and
priority:
(a) Notwithstanding any other provision of this
Exhibit D, if there is a net decrease in Company minimum gain during any fiscal
year or other period, prior to any other allocation pursuant hereto, each
Member shall be specially allocated items of Company income and gain for such
year (and, if necessary, subsequent years) in an amount and manner required by
Treasury Regulation Section 1.704-2(f) or 1.704-2(i). The items to be so allocated shall be determined in accordance
with Treasury Regulation Section 1.704-2.
(b) In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in Treasury
Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially
allocated to such Member (consisting of a pro rata portion of each item of
Company income, including gross income, and gain for such year) in an amount
and manner sufficient to eliminate, to the extent required by the Treasury
Regulations, any deficit in such Member's adjusted capital account created by
such adjustments, allocations, or distributions, as quickly as possible. The foregoing provision is intended to
constitute a "qualified income offset" within the meaning of Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations, and shall be interpreted
consistently with such Regulations.
(c) In the event any Member has a deficit
capital account at the end of any Company fiscal year which is in excess of the
sum of (i) the amount such Member is obligated to restore pursuant to any
provision of this Agreement and (ii) the amount such Member is deemed to be
obligated to restore pursuant to the penultimate sentences of Treasury
Regulation Sections 1.704-2(g)(1)and 1.704-2(i)(5), each such Member shall be
specially allocated items of Company income and gain in the amount of such
excesses as quickly as possible, provided that an allocation pursuant to this
Exhibit D shall be made only if, and to the extent that, such Member would have
a deficit capital account in excess of such sum after all other allocations
provided for in this Exhibit D have been made as if this Exhibit D were not in
this Agreement.
(d) Notwithstanding any other provision of this
Agreement to the contrary, no allocation of any item of income or loss shall be
made to a Member if such allocation would not have economic effect pursuant to
Treasury Regulation Section 1.704-1(b)(3) and 1.704-2. To the extent an allocation cannot be made
to a Member due to the application of this Section 7.2(d), such allocation
shall be made to the other Members entitled to receive such allocation
hereunder.
(e) Any allocations of items of income, gain,
or loss pursuant to this Exhibit D, Paragraphs 1(a) through 1(d) hereof shall
be taken into account in computing subsequent allocations pursuant to this
Exhibit, so that the net amount of any items so allocated and the income,
losses, and other items allocated to each Member pursuant to this Exhibit, to
the extent possible, shall be equal to the net amount that would have been
allocated to each Member had no allocations ever been made pursuant to Exhibit
D, Paragraphs 1(a) through 1(d) hereof.
(f) In accordance with Code Section 704(c) and
the Treasury Regulations thereunder, income, gain, loss and deduction with
respect to any property contributed to the capital of the Company shall, solely
for tax purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the Company for
Federal income tax purposes and its fair market value at the time of its
contribution. Allocations pursuant to
this Exhibit D, Paragraph 2(f) are solely for purposes of Federal, state, and
local taxes, and shall not affect, or in any way be taken into account in
computing any Members capital account or share of income, loss, other items, or
distribution pursuant to any provision of this Agreement.
3. Elections
and Modifications to Allocations:
The
Managers shall prepare and execute any amendments to this Agreement necessary
for the Company to comply with the provisions of Treasury Regulations Sections
1.704-1(b), 1.704-1(c) and 1.704-2 upon the happening of any of the following
events: (i) incurring any liability
which constitutes a "nonrecourse liability" as defined in Treasury
Regulation Section 1.704-2(b)(3) or a "partnership nonrecourse debt"
as defined in Treasury Regulations Section 1.704-2(b)(4); (ii) a constructive termination of the
Company pursuant to Internal Revenue Code Section 708(b)(1)(B); or (iii) the
contribution or distribution of any property, other than cash, to or by the Company.
The
Managers, in their sole discretion, may cause the Company to elect, pursuant to
Section 754 of the Internal Revenue Code, to adjust the basis of the Company
assets as provided by Sections 743 or 734 of the Internal Revenue Code and the
Treasury Regulations thereunder. The
Company shall make such elections for Federal income tax purposes as may be
determined by the Managers, acting in their sole and absolute discretion.
