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SENT These DT indirect JJ costs NNS include VVP amounts NNS paid VVN to TO the DT promoters NNS who WP have VHP actually RB purchased VVN the DT property NN on IN behalf NN of IN the DT partnership NN . SENT The DT compensation NN for IN the DT promoter's JJ services NNS may MD be VB characterized VVN as IN developer NN fees NNS rather RB than IN acquisitional JJ costs NNS . SENT These DT costs NNS should MD be VB considered VVN because IN promoters NNS can MD complete VV feasibility NN studies NNS to TO determine VV if IN they PP have VHP selected VVN the DT correct JJ property NN . SENT Also RB , , buildings NNS may MD be VB purchased VVN months NNS or CC years NNS prior RB to TO rehabilitation NN and CC extensive JJ holding NN costs NNS may MD be VB incurred VVN . SENT Throughout IN this DT time NN period NN , , the DT promoter's NNS services NNS may MD be VB necessary JJ to TO effectuate VV the DT acquisition NN and CC reimbursements NNS for IN these DT services NNS . SENT Rent NN Up IN Lease NP Costs NNS Rent NP up RP or CC lease VV up RP costs NNS are VBP the DT costs NNS necessary JJ to TO fully RB rent VV the DT newly RB renovated VVN building NN . SENT This DT initial JJ rental NN can MD , , in IN some DT situations NNS , , take VV several JJ years NNS and CC costs NNS may MD be VB extensive JJ . SENT For IN example NN , , costs NNS may MD include VV . SENT advertising NN , , sample NN unit NN costs NNS , , on IN site NN rental NN managers NNS and CC staff NN , , initial JJ rental JJ costs NNS , , and CC any DT other JJ costs NNS to TO fully RB rent VV out RP the DT buildings NNS . SENT These DT costs NNS normally RB would MD be VB amortized VVN over IN the DT life NN of IN the DT leases NNS if IN long JJ term NN , , for IN example NN , , a DT commercial JJ situation NN , , but CC , , if IN short JJ term NN , , then RB the DT amortization NN should MD be VB over IN the DT period NN necessary JJ to TO rent VV out RP all DT units NNS , , for IN example NN , , 24 CD months NNS or CC 36 CD months NNS . SENT Rental NP Management NP Rental NP management NN is VBZ the DT continuing VVG day NN to TO day NN management NN of IN the DT property NN including VVG all DT dealings NNS with IN the DT tenants NNS , , renewal NN of IN current JJ leases NNS , , procurement NN of IN new JJ tenants NNS for IN any DT vacancies NNS , , etc FW . SENT Rental JJ management NN fees NNS are VBP usually RB a DT set VVN amount NN plus CC 6 CD percent NN for IN any DT lease NN renewals NNS and CC incentives NNS for IN new JJ tenants NNS obtained VVN to TO fill VV vacancies NNS . SENT These DT amounts NNS should MD be VB expensed VVN on IN a DT yearly JJ basis NN and CC matched VVN against IN current JJ rental JJ income NN . SENT The DT above JJ costs NNS are VBP the DT most RBS common JJ expenses NNS related VVN to TO low JJ income NN housing NN and CC rehabilitation NN tax NN credit NN basis NN . SENT If IN additional JJ categories NNS are VBP encountered VVN , , determine VV what WP the DT costs NNS were VBD for IN , , how WRB they PP were VBD paid VVN , , and CC who WP received VVD the DT payment NN . SENT An DT analysis NN will MD then RB be VB necessary JJ to TO determine VV the DT proper JJ tax NN characterization NN . SENT Return NN to TO Table NN of IN Contents NNS Position NN of IN the DT Service NP Based VVN on IN the DT above JJ discussion NN and CC cases NNS encountered VVD over IN a DT number NN of IN years NNS , , a DT position NN has VHZ been VBN developed VVN to TO address VV cases NNS involving VVG developer NN fees NNS . SENT Notwithstanding IN arguments NNS that IN to TO rehabilitate VV an DT existing JJ building NN according VVG to TO the DT historical JJ standards NNS or CC under IN tax NN credit NN provisions NNS was VBD more RBR difficult JJ than IN undertaking VVG new JJ construction NN , , these DT fees NNS can MD be VB high RB when WRB compared VVN to TO arms NNS length NN transactions NNS . SENT The DT development NN of IN the DT facts NNS surrounding VVG the DT fees NNS and CC what WP services NNS were VBD provided VVN to TO warrant VV the DT fees NNS , , are VBP the DT important JJ items NNS that WDT will MD support VV adjustments NNS . SENT Refer VVP to TO Exhibit VV 11 CD 1 CD . SENT It PP is VBZ a DT sample NN report NN which WDT can MD be VB used VVN to TO address VV the DT development NN fee NN issue NN . SENT This DT position NN was VBD tested VVN in IN a DT Tax NP Court NP case NN where WRB the DT Service NP prevailed VVD . SENT Details NNS regarding VVG the DT Tax NP Court NP case NN will MD follow VV this DT position NN in IN synopsis NN form NN . SENT For IN purposes NNS of IN this DT guide NN , , fictitious JJ names NNS have VHP been VBN used VVN . SENT This DT report NN can MD be VB adapted VVN to TO address VV various JJ developer NN fee NN scenarios NNS . SENT It PP should MD be VB noted VVN that IN although IN the DT court NN case NN was VBD for IN a DT rehabilitation NN tax NN credit NN situation NN , , applications NNS can MD be VB adapted VVN for IN some DT low JJ income NN housing NN tax NN credit NN scenarios NNS . SENT Return NN to TO Table NN of IN Contents NNS Summary NN The DT case NN presented VVN in IN the DT sample NN report NN Exhibit NN 11 CD 1 CD is VBZ Richard NP E NP . SENT Carp NP and CC Minda NP Carp NP v NN . SENT Commissioner NN , , and CC Franklin NP D NP . SENT Zuckerman NP and CC Lois NP Zuckerman NP v NN . SENT Commissioner NP , , T NN . SENT C LS . SENT Memo NN . SENT 1991 CD 436 CD . SENT The DT court NN determined VVN that IN the DT partners NNS developers NNS failed VVD to TO establish VV that IN they PP performed VVD any DT of IN the DT services NNS relating VVG to TO the DT renovation NN of IN the DT property NN as RB set VVN forth RB in IN the DT development NN agreement NN . SENT In IN addition NN , , the DT court NN found VVD , , as RB developed VVN by IN the DT examiner NN , , that IN most JJS of IN the DT services NNS had VHD actually RB been VBN performed VVN by IN a DT third JJ party NN under IN a DT separate JJ agreement NN and CC for IN which WDT that DT third JJ party NN was VBD separately RB compensated VVN . SENT Cases NNS with IN similar JJ fact NN patterns NNS have VHP been VBN sustained VVN in IN the DT courts NNS using VVG the DT above JJ report NN as IN a DT guide NN . SENT The DT significance NN of IN the DT case NN lies VVZ in IN the DT Court's NP acceptance NN of IN the DT analysis NN of IN purported JJ development NN fees NNS and CC determination NN of IN proper JJ tax NN treatment NN . SENT Finally RB , , examiners NNS should MD be VB aware JJ that IN there EX are VBP regulations NNS which WDT address VVP situations NNS where WRB a DT developer NN fee NN occurs VVZ upon IN the DT sale NN of IN a DT completed VVN rehabilitation NN building NN first RB placed VVN in IN service NN by IN the DT new JJ owner NN . SENT In IN these DT situations NNS , , examiners NNS can MD use VV the DT following VVG regulation NN sections NNS which WDT treat VVP the DT developer NN fees NNS added VVD to TO the DT purchase NN price NN as IN costs NNS of IN acquisition NN and CC thus RB not RB includible JJ in IN the DT qualified JJ rehabilitation NN tax NN credit NN basis NN . SENT Note NN . SENT The DT regulation NN below RB only RB relates VVZ to TO the DT rehabilitation NN tax NN credit NN . SENT For IN purposes NNS of IN the DT low JJ income NN housing NN credit NN under IN IRC NP section NN 42 CD , , acquisition NN costs NNS may MD warrant VV a DT separate JJ allocation NN of IN the DT 30 CD percent NN present JJ value NN credit NN . SENT Treas NP . SENT Reg NP . SENT 1 LS . SENT 48 CD 12 CD c SYM 3 CD iii NN provides VVZ examples NNS of IN expenses NNS incurred VVN by IN the DT taxpayer NN for IN purposes NNS of IN qualified JJ rehabilitation NN expenditures NNS . SENT Extract VV Treas NP . SENT Reg NP . SENT section NN 1 CD . SENT 48 CD 12 CD c SYM 3 CD iii NNS , , Examples NNS 3 CD and CC 4 CD Example NN 3 CD . SENT D NP , , a DT taxpayer NN using VVG the DT cash NN receipts NNS and CC disbursements NNS method NN of IN accounting NN , , begins VVZ the DT rehabilitation NN of IN a DT building NN on IN January NP 11 CD , , 1982 CD . SENT Prior RB to TO May NP 1 CD , , 1982 CD , , D NP makes VVZ rehabilitation NN expenditures NNS of IN 16 CD , , 000 CD . SENT On IN May NP 3 CD , , 1982 CD , , D NP sells VVZ the DT building NN , , the DT land NN , , and CC the DT property NN attributable JJ to TO the DT rehabilitation NN expenditures NNS to TO E NN for IN 35 CD , , 000 CD . SENT The DT purchase NN price NN is VBZ properly RB allocable JJ as RB follows VVZ . SENT land NN 5 CD , , 000 CD existing JJ building NN 11 CD , , 000 CD property NN attributable JJ to TO 19 CD , , 000 CD rehabilitation NN expenditures NNS total JJ purchase NN price NN . SENT 35 CD , , 000 CD The DT property NN attributable JJ to TO the DT rehabilitation NN expenditures NNS is VBZ placed VVN in IN service NN by IN E NP on IN September NP 5 CD , , 1982 CD . SENT E NP may MD treat VV a DT portion NN of IN the DT 35 CD , , 000 CD purchase NN price NN as IN rehabilitation NN expenditures NNS paid VVN or CC incurred VVN by IN him PP . SENT Since IN the DT rehabilitation NN expenditures NNS paid VVN by IN D NP 16 CD , , 000 CD are VBP less JJR than IN the DT portion NN of IN the DT purchase NN price NN properly RB allocable JJ to TO property NN attributable JJ to TO these DT expenditures NNS 19 CD , , 000 CD , , E NP may MD treat VV only RB 16 CD , , 000 CD as IN rehabilitation NN expenditures NNS paid VVN or CC incurred VVN by IN him PP . SENT The DT excess NN of IN the DT purchase NN price NN allocable JJ to TO rehabilitation NN expenditures NNS 19 CD , , 000 CD over IN the DT rehabilitation NN expenditures NNS paid VVN by IN D NP 16 CD , , 000 CD , , or CC 3 CD , , 000 CD , , is VBZ treated VVN as IN the DT cost NN of IN acquiring VVG an DT interest NN in IN the DT building NN and CC is VBZ not RB a DT qualified JJ rehabilitation NN expenditure NN treated VVN as IN incurred VVN by IN E NP . SENT Example NN 4 CD . SENT The DT facts NNS are VBP the DT same JJ as RB in IN example NN 3 CD , , except IN that WDT the DT purchase NN price NN properly RB allocable JJ to TO the DT property NN attributable JJ to TO rehabilitation NN expenditures NNS is VBZ 15 CD , , 000 CD . SENT Under IN these DT circumstances NNS , , E NP may MD treat VV only RB 15 CD , , 000 CD of IN D's NP 16 CD , , 000 CD expenditures NNS as IN rehabilitation NN expenditures NNS paid VVN by IN D NP . SENT The DT excess NN of IN the DT rehabilitation NN expenditures NNS paid VVN by IN D NP 16 CD , , 000 CD over IN the DT purchase NN price NN allocatable JJ to TO rehabilitation NN expenditures NNS 15 CD , , 000 CD , , or CC 1 CD , , 000 CD , , is VBZ treated VVN as IN the DT cost NN of IN acquiring VVG an DT interest NN in IN the DT building NN and CC is VBZ not RB a DT qualified JJ rehabilitation NN expenditure NN treated VVN as IN incurred VVN by IN E NP . SENT Return NN to TO Table NN of IN Contents NNS Description NN of IN Syndication NN Scenarios NNS And CC Current JJ Industry NP Tools NP For IN Marketing NP the DT Low NP Income NP Housing NP Tax NP Credit NP The DT most RBS common JJ entity NN used VVN for IN the DT promotion NN of IN real JJ estate NN investments NNS is VBZ a DT partnership NN . SENT During IN the DT 1980 CD s PP , , the DT partnerships NNS had VHD numerous JJ limited JJ individual JJ partners NNS . SENT This DT type NN of IN partnership NN with IN many JJ limited JJ partners NNS worked VVD well RB for IN purposes NNS of IN the DT rehabilitation NN tax NN credit NN . SENT Simultaneously RB with IN the DT creation NN of IN the DT low JJ income NN housing NN tax NN credit NN and CC as IN a DT part NN of IN the DT Tax NP Reform NP Act NP of IN 1986 CD , , the DT passive JJ activity NN restrictions NNS were VBD enacted VVN . SENT Generally RB designed VVN to TO curb VV tax NN shelters NNS , , the DT passive JJ activity NN restrictions NNS had VHD a DT significant JJ impact NN on IN real JJ estate NN type NN investments NNS . SENT For IN the DT above JJ reasons NNS , , partnerships NNS are VBP the DT most RBS popular JJ entity NN used VVN to TO solicit VV credit NN equity NN investments NNS . SENT Although IN there EX still RB may MD be VB some DT individuals NNS who WP participate VVP in IN those DT low JJ income NN housing NN investment NN partnerships NNS , , most RBS significant JJ low JJ income NN housing NN credit NN partnership NN investment NN is VBZ coming VVG from IN corporate JJ investors NNS . SENT Partnerships NNS and CC equity NN pools NNS can MD own VV as RB few JJ as IN one CD building NN or CC as RB many JJ as IN dozens NNS of IN multiple JJ building NN projects NNS . SENT The DT larger JJR the DT pools NNS , , the DT more JJR equity NN required VVN and CC usually RB more JJR partners NNS are VBP necessary JJ to TO make VV the DT projects NNS feasible JJ . SENT Generally RB , , although IN tax NN credits NNS can MD not RB be VB sold VVN , , one PP may MD buy VV an DT interest NN in IN an DT investment NN partnership NN whether IN as IN an DT individual NN or CC corporation NN to TO receive VV a DT share NN of IN the DT credits NNS , , as RB well RB as IN any DT tax NN attributes VVZ accruing VVG from IN the DT partnership NN . SENT Investors NNS then RB must MD assume VV the DT burdens NNS and CC benefits NNS of IN ownership NN . SENT Exhibit NN 11 CD 1 CD Sample NP Report NP FORM NN 886 CD A NP , , EXPLANATION NN OF IN ITEMS NNS General NP Background NN Facts NNS ABC NP Historic JJ Partnership NP started VVD on IN October NP 15 CD , , 1990 CD , , per IN the DT 1990 CD partnership NN return NN and CC the DT partnership NN agreement NN as IN submitted VVN during IN audit NN . SENT Per IN the DT 1990 CD partnership NN return NN , , there EX are VBP 33 CD partners NNS in IN ABC NP Historic JJ . SENT The DT partnership NN is VBZ a DT limited JJ partnership NN and CC the DT sole JJ general JJ partner NN is VBZ X NP . SENT X NP has VHZ also RB been VBN designated VVN as IN the DT Tax NP Matters VVZ Partner NN per IN the DT partnership NN agreement NN , , and CC based VVN on IN recent JJ correspondence NN , , that WDT Tax NP Matters VVZ Partner NN designation NN remains VVZ currently RB in IN force NN and CC effect NN . SENT The DT Offering NP Memorandum NN indicates VVZ that IN ABC NP Historic JJ is VBZ a DT partnership NN formed VVN under IN Pennsylvania NP law NN to TO acquire VV a DT four CD story NN building NN in IN the DT Old NP City NP Historic JJ District NP of IN Philadelphia NP , , Pennsylvania NP . SENT The DT partnership NN rehabilitated VVN the DT structure NN into IN 42 CD apartments NNS and CC 8 CD , , 000 CD square JJ feet NNS of IN commercial JJ space NN . SENT Per IN the DT Offering VVG Memorandum NN and CC background NN obtained VVN during IN the DT audit NN , , the DT partnership NN intended VVN to TO , , and CC actually RB has VHZ , , operated VVD this DT project NN as IN an DT apartment NN rental JJ project NN . SENT The DT partnership NN , , from IN the DT outset NN , , intended VVN to TO obtain VV historical JJ certification NN of IN the DT project's NNS qualifying VVG rehabilitation NN costs NNS and CC take VV the DT 20 CD percent NN certified JJ historical JJ rehabilitation NN credit NN . SENT Based VVN on IN verification NN with IN the DT National NP Park NP Service NP and CC the DT Part NP III NP Certification NN as IN submitted VVN by IN the DT partnership NN during IN audit NN , , the DT rehabilitation NN work NN as IN performed VVN has VHZ been VBN certified VVN by IN the DT National NP Park NP Service NP . SENT As RB long RB as IN the DT costs NNS are VBP for IN qualified JJ rehabilitation NN expenditures NNS they PP can MD be VB included VVN in IN the DT basis NN for IN the DT 20 CD percent NN historical JJ rehabilitation NN credit NN . SENT ABC NP Historic JJ was VBD one CD of IN various JJ partnerships NNS promoted VVN , , syndicated VVN , , organized VVN , , and CC managed VVD through IN various JJ general JJ partners NNS on IN behalf NN of IN the DT Y NP Group NP . SENT These DT partnerships NNS were VBD very RB similar JJ in IN nature NN in IN that WDT all DT were VBD primarily RB formed VVN to TO acquire VV , , rehabilitate VV and CC subsequently RB rent VV the DT historic JJ structures NNS as IN residential JJ luxury NN apartments NNS . SENT A DT major JJ selling NN feature NN of IN these DT limited JJ partnership NN interests NNS was VBD the DT 20 CD percent NN certified JJ historic JJ rehabilitation NN tax NN credit NN available JJ for IN qualifying VVG rehabilitation NN expenditures NNS as RB defined VVN by IN Federal NP tax NN law NN and CC subject JJ to TO the DT rehabilitation NN works VVZ approval NN by IN the DT National NP Park NP Service NP . SENT Adding VVG to TO the DT attractiveness NN of IN these DT partnerships NNS was VBD their PP$ leveraged JJ nature NN whereby WRB usually RB less JJR than IN 10 CD percent NN of IN the DT purchase NN price NN of IN the DT investors NNS limited JJ partnership NN interest NN was VBD required VVN to TO be VB paid VVN by IN cash NN , , while IN the DT remaining JJ amounts NNS were VBD paid VVN by IN notes NNS from IN the DT investors NNS to TO the DT partnership NN and CC which WDT were VBD payable JJ over IN a DT 5 CD year NN period NN . SENT The DT partnerships NNS were VBD also RB similar JJ in IN that DT various JJ functions NNS and CC services NNS necessary JJ to TO carry VV out RP the DT intended VVN purposes NNS of IN the DT partnerships NNS were VBD usually RB performed VVN by IN the DT many JJ affiliates NNS which WDT operate VVP under IN the DT auspices NNS of IN Y NP Group NP . SENT These DT functions NNS included VVD but CC were VBD not RB limited VVN to TO the DT following NN . SENT The DT sponsoring VVG , , syndication NN , , and CC promotion NN of IN the DT various JJ limited JJ partnerships NNS to TO raise VV the DT necessary JJ capital NN to TO acquire VV , , rehabilitate VV , , and CC subsequently RB rent VV out RP the DT projects NNS . SENT Y NP and CC its PP$ affiliates NNS were VBD responsible JJ for IN creating VVG an DT investment NN package NN the DT limited JJ partnership NN interests NNS that WDT had VHD an DT appeal NN to TO investors NNS . SENT Without IN this DT attractive JJ investment NN package NN , , as RB created VVN and CC promoted VVN by IN Y NP , , the DT functions NNS performed VVN by IN X NP as RB indicated VVD below RB would MD be VB impossible JJ to TO accomplish VV . SENT After IN creation NN and CC formation NN of IN the DT various JJ partnership NN investment NN vehicles NNS it PP was VBD then RB necessary JJ to TO seek VV out RP and CC engage VV various JJ broker NN dealers NNS capable JJ of IN selling VVG these DT investments NNS to TO the DT ultimate JJ limited JJ partner NN investors NNS throughout IN the DT country NN . SENT Once RB engaged VVN , , Y NP had VHD to TO mobilize VV these DT broker NN dealers NNS to TO sell VV the DT units NNS and CC complete JJ syndication NN of IN the DT respective JJ limited JJ partnerships NNS . SENT One CD of IN the DT company's NNS strengths NNS was VBD the DT creation NN of IN partnerships NNS that WDT had VHD appeal NN to TO investors NNS . SENT Their PP$ staff NN had VHD to TO communicate VV the DT merits NNS of IN their PP$ programs NNS . SENT The DT limited JJ partnerships NNS were VBD marketed VVN through IN stock NN brokers NNS , , insurance NN agents NNS , , and CC financial JJ planners NNS who WP then RB communicated VVD with IN and CC sold VVD the DT partnership NN units NNS to TO the DT investing VVG public NN . SENT Y NP , , through IN its PP$ employees NNS , , had VHD to TO educate VV the DT registered JJ securities NNS dealers NNS of IN the DT benefits NNS of IN investing VVG in IN the DT limited JJ partnerships NNS in IN addition NN to TO the DT economic JJ and CC tax NN incentives NNS . SENT Additionally RB , , for IN the DT later JJR year NN projects NNS , , the DT company NN had VHD a DT Due JJ Diligence NN Office NN which WDT provided VVD detailed JJ financial JJ and CC tax NN information NN to TO broker NN dealers NNS on IN all DT more JJR recent JJ offerings NNS . SENT As RB indicated VVN above RB , , a DT substantial JJ amount NN of IN time NN and CC work NN was VBD invested VVN in IN the DT creation NN of IN the DT investment NN package NN and CC the DT subsequent JJ promotion NN , , syndication NN , , and CC sale NN of IN these DT limited JJ partnership NN investments NNS by IN Y NP . SENT The DT placement NN of IN a DT general JJ partner NN for IN the DT various JJ partnerships NNS to TO act VV in IN the DT capacity NN of IN , , and CC to TO perform VV the DT normal JJ functions NNS and CC duties NNS of IN the DT general JJ partner NN . SENT In IN this DT fiduciary JJ role NN as IN general JJ partner NN , , the DT individuals NNS or CC entities NNS who WP acted VVD as IN general JJ partners NNS had VHD the DT exclusive JJ right NN to TO manage VV the DT business NN affairs NNS of IN the DT partnership NN . SENT In IN most JJS of IN the DT promotions NNS , , the DT general JJ partners NNS were VBD either RB key JJ employees NNS owners NNS of IN Y NN , , entities NNS owned VVN by IN key JJ employees NNS owners NNS of IN Y NP , , or CC shared VVD some DT affiliation NN with IN the DT key JJ employees NNS owners NNS of IN Y NN and CC usually RB acted VVD under IN the DT guidance NN of IN Y NN in IN their PP$ role NN as IN general JJ partner NN . SENT The DT work NN necessary JJ to TO organize VV the DT partnership NN was VBD more JJR in IN the DT nature NN of IN an DT expenditure NN in IN relation NN to TO the DT creation NN of IN the DT partnership NN than IN of IN an DT expenditure NN relating VVG to TO the DT carrying NN on IN of IN the DT intended VVN business NN operations NNS or CC day NN to TO day NN business NN of IN the DT partnership NN . SENT The DT acquisitional JJ work NN necessary JJ by IN Y NP and CC its PP$ affiliates NNS was VBD to TO find VV potential JJ buildings NNS and CC perform VV economic JJ and CC feasibility NN studies NNS of IN the DT buildings NNS , , and CC their PP$ general JJ market NN areas NNS including VVG phone NN and CC on IN site NN type NN reviews NNS , , and CC analysis NN , , negotiations NNS by IN Y NP and CC its PP$ affiliates NNS on IN behalf NN of IN the DT partnerships NNS for IN the DT purchase NN of IN the DT land NN and CC buildings NNS , , the DT settlements NNS closings NNS on IN the DT ultimately RB selected VVN land NN and CC buildings NNS , , and CC the DT work NN necessary JJ to TO maintain VV , , manage VV , , and CC hold VV such JJ land NN and CC buildings NNS until IN the DT rehabilitation NN is VBZ commenced VVD by IN a DT developer NN on IN behalf NN of IN the DT partnership NN . SENT The DT formation NN engagement NN of IN a DT developer NN entity NN to TO directly RB perform VV or CC to TO subjugate VV to TO an DT affiliate NN in IN order NN to TO have VH performed VVN the DT necessary JJ development NN work NN performed VVN for IN the DT rehabilitation NN of IN the DT historically RB certified JJ building NN owned VVN by IN the DT particular JJ partnership NN . SENT This DT development NN work NN contract NN usually RB includes VVZ a DT commitment NN of IN the DT various JJ Y NN entities NNS to TO effect VV the DT rehabilitation NN and CC renovation NN of IN the DT particular JJ project NN owned VVN by IN the DT partnership NN under IN audit NN . SENT The DT development NN agreements NNS are VBP usually RB turn RB key JJ in IN nature NN and CC for IN a DT fixed JJ price NN the DT developer NN will MD arrange VV for IN , , manage VV , , and CC pay VV for IN the DT construction NN and CC completion NN of IN the DT rehabilitation NN and CC renovations NNS planned VVN for IN the DT particular JJ project NN . SENT In IN all DT of IN the DT examined VVN partnerships NNS , , the DT identified VVN developer NN entities NNS were VBD determined VVN to TO be VB owned VVN by IN individuals NNS or CC entities NNS which WDT were VBD also RB determined VVN to TO have VH been VBN key JJ employees NNS or CC owners NNS of IN Y NP . SENT Two CD additional JJ services NNS included VVN as IN developer NN fees NNS were VBD cash NN flow NN guarantees NNS and CC investor NN surety NN . SENT While IN outside JJ unrelated JJ sureties NNS were VBD engaged VVN to TO guarantee VV the DT payment NN of IN the DT limited JJ partners NNS investor NN notes NNS for IN a DT non JJ refundable JJ premium NN price NN , , the DT cash NN flow NN guarantees NNS were VBD provided VVN by IN an DT entity NN which WDT was VBD an DT affiliate NN of IN Y NP . SENT These DT affiliates NNS would MD , , for IN a DT set VVN price NN , , guarantee VVP to TO lend VV to TO the DT particular JJ partnership NN the DT cash NN amounts VVZ necessary JJ to TO pay VV the DT obligations NNS of IN the DT partnership NN under IN particular JJ notes NNS or CC , , in IN some DT promotions NNS , , the DT guarantee NN was VBD limited VVN to TO a DT particular JJ dollar NN amount NN . SENT A DT final JJ category NN which WDT appeared VVD in IN the DT partnerships NNS or CC promotions NNS was VBD the DT use NN of IN an DT affiliate NN of IN Y NN as IN manager NN of IN the DT subsequent JJ rental JJ operations NNS of IN the DT particular JJ projects NNS as IN the DT buildings NNS became VVD available JJ to TO be VB placed VVN in IN service NN . SENT These DT management NN agreements NNS usually RB addressed VVD renting VVG , , leasing NN , , operating VVG , , and CC managing VVG the DT projects NNS for IN various JJ commissions NNS based VVN on IN gross JJ annual JJ rentals NNS . SENT Additional JJ incentives NNS were VBD paid VVN for IN re NN rentals NNS and CC renewals NNS at IN the DT various JJ apartment NN buildings NNS . SENT Additional JJ Facts NNS Note NN . SENT The DT preceding JJ pages NNS included VVD general JJ facts NNS and CC background NN regarding VVG both DT ABC NP Historic JJ and CC the DT promoter NN Y NN . SENT Additional JJ facts NNS will MD address VV the DT dates NNS , , amounts NNS , , and CC specifics NNS regarding VVG the DT transactions NNS entered VVD into IN by IN the DT partnership NN during IN the DT acquisition NN and CC rehabilitation NN phase NN of IN the DT project NN . SENT All DT of IN the DT information NN presented VVD below IN was VBD obtained VVN during IN the DT examination NN through IN review NN of IN the DT offering NN memorandum NN , , the DT books NNS and CC records NNS , , legal JJ documents NNS including VVG but CC not RB limited VVN to TO the DT settlement NN sheet NN for IN the DT acquisition NN of IN the DT property NN shell NN , , the DT development NN agreement NN , , development NN note NN , , partnership NN agreement NN , , AIA NP American NP Institute NP of IN Architects NPS application NN and CC certificate NN for IN payment NN , , statement NN certificate NN of IN occupancy NN , , the DT first JJ lease NN executed VVN after IN completion NN for IN occupancy NN , , National NP Park NP Service NP application NN and CC responses NNS Parts NNS I PP , , II NP , , and CC III NP , , which WDT verify VV the DT historical JJ certification NN of IN the DT rehabilitation NN work NN on IN the DT particular JJ project NN , , and CC any DT oral JJ testimony NN as IN presented VVN by IN attorneys NNS or CC accountants NNS acting VVG as IN powers NNS of IN attorney NN for IN the DT examined VVN partnership NN , , and CC officers NNS or CC employees NNS of IN the DT Y NP organization NN . SENT The DT partnership NN name NN is VBZ ABC NP Historic JJ and CC is VBZ located VVN in IN Philadelphia NP . SENT The DT rehabilitated VVN building NN is VBZ also RB located VVN in IN Philadelphia NP . SENT The DT building NN shell NN was VBD purchased VVN September NP 6 CD , , 1990 CD . SENT The DT purchase NN price NN of IN the DT shell NN was VBD . SENT 600 CD , , 000 CD , , 400 CD , , 000 CD as IN cash NN and CC 200 CD , , 000 CD as IN seller NN take VVP back RB mortgage VV from IN a DT bank NN . SENT The DT developer NN entity NN is VBZ known VVN as IN XYZ NP Development NP Company NP . SENT The DT ownership NN of IN XYZ NP Development NP Company NP is VBZ as RB follows VVZ . SENT 65 CD Apartments NNS Inc NP . SENT 100 CD percent NN Owned VVN By IN Z NP 15 CD X NP Current NP General NP Partner NN of IN ABC NP Historic JJ 15 CD A NP Key NP Employee NP of IN Y NP 5 CD B NP Key NP Employee NP of IN Y NP The DT development NN contract NN is VBZ a DT turn NN key JJ contract NN and CC the DT amount NN is VBZ 3 CD , , 600 CD , , 000 CD with IN 750 CD , , 000 CD to TO be VB paid VVN in IN cash NN while IN the DT remainder NN of IN 2 CD , , 850 CD , , 000 CD will MD be VB paid VVN by IN note NN development NN note NN . SENT The DT rehabilitation NN expenditures NNS , , reflected VVN as IN basis NN for IN the DT rehabilitation NN tax NN credit NN , , have VHP been VBN tied VVN to TO the DT books NNS and CC records NNS and CC verified VVN by IN documents NNS submitted VVN during IN the DT audit NN . SENT Based VVN on IN all DT items NNS as IN submitted VVN , , and CC information NN obtained VVN during IN the DT audit NN , , the DT examining VVG revenue NN agent NN isolated VVD non JJ qualifying VVG items NNS . SENT The DT Fact NN Law NN and CC Argument NN presentation NN follows VVZ . SENT Issue NN Whether IN syndication NN expenses NNS in IN the DT amount NN of IN 650 CD , , 000 CD are VBP includable JJ in IN the DT qualified JJ rehabilitation NN basis NN for IN purposes NNS of IN the DT historic JJ rehabilitation NN tax NN credit NN and CC for IN depreciation NN basis NN purposes NNS . SENT Law NP Tax NP treatment NN of IN syndication NN and CC organization NN expenses NNS . SENT Under IN IRC NP section NN 709 CD , , the DT following VVG treatment NN is VBZ applied VVN to TO organization NN and CC syndication NN fees NNS . SENT Extract VV IRC NP Section NP 709 CD . SENT Treatment NN of IN Organization NP and CC Syndication NN Fees NNS . SENT General NP Rule NP . SENT Except IN as RB provided VVN in IN subsection NN b NN , , no DT deduction NN shall MD be VB allowed VVN under IN this DT chapter NN to TO the DT partnership NN or CC to TO any DT partner NN for IN any DT amounts NNS paid VVN or CC incurred VVN to TO organize VV a DT partnership NN or CC to TO promote VV the DT sale NN of IN or CC to TO sell VV an DT interest NN in IN such JJ partnership NN . SENT Amortization NN of IN Organization NP Fees NNS . SENT Deduction NN . SENT Amounts NNS paid VVN or CC incurred VVN to TO organize VV a DT partnership NN may MD , , at IN the DT election NN of IN the DT partnership NN made VVN in IN accordance NN with IN regulations NNS prescribed VVN by IN the DT Secretary NP , , be VB treated VVN as IN deferred JJ expenses NNS and CC shall MD be VB allowed VVN as IN a DT deduction NN ratably RB over IN such JJ period NN of IN not RB less JJR than IN 60 CD months NNS as RB may MD be VB selected VVN by IN the DT partnership NN beginning NN with IN the DT month NN in IN which WDT the DT partnership NN begins VVZ business NN , , or CC if IN the DT partnership NN is VBZ liquidated VVN before IN the DT end NN of IN such JJ 60 CD month NN period NN , , such JJ deferred JJ expenses NNS to TO the DT extent NN not RB deducted VVN under IN this DT section NN may MD be VB deducted VVN to TO the DT extent NN provided VVN in IN section NN 165 CD . SENT Organizational JJ Expenses NNS Defined VVD . SENT The DT organizational JJ expenses NNS to TO which WDT paragraph NN 1 CD applies VVZ , , are VBP expenditures NNS which WDT are VBP incident NN to TO the DT creation NN of IN the DT partnership NN . SENT are VBP chargeable JJ to TO capital NN account NN . SENT and CC are VBP of IN a DT character NN which WDT , , if IN expended VVN incident NN to TO the DT creation NN of IN a DT partnership NN having VHG an DT ascertainable JJ life NN , , would MD be VB amortized VVN over IN such JJ life NN . SENT Under IN Treas NP . SENT Reg NP . SENT sections NNS 1 CD . SENT 709 CD 1 CD and CC 1 CD . SENT 709 CD 2 CD , , the DT following VVG treatment NN is VBZ applied VVN to TO organization NN and CC syndication NN fees NNS . SENT Extract VV Treas NP . SENT Reg NP . SENT section NN 1 CD . SENT 709 CD 1 CD Treatment NP of IN organization NN and CC syndication NN costs NNS . SENT General NP Rule NP . SENT Except IN as RB provided VVN in IN paragraph NN b NN of IN this DT section NN , , no DT deduction NN shall MD be VB allowed VVN under IN chapter NN 1 CD of IN the DT Code NP to TO a DT partnership NN or CC to TO any DT partner NN for IN any DT amounts NNS paid VVN or CC incurred VVN , , directly RB or CC indirectly RB , , in IN partnership NN taxable JJ years NNS beginning VVG after IN December NP 31 CD , , 1975 CD , , to TO organize VV a DT partnership NN , , or CC to TO promote VV the DT sale NN of IN , , or CC to TO sell VV , , an DT interest NN in IN the DT partnership NN . SENT Amortization NN of IN organization NN expenses NNS . SENT Under IN section NN 709 CD b SYM of IN the DT Code NP , , a DT partnership NN may MD elect VV to TO treat VV its PP$ organizational JJ expenses NNS as IN defined VVN in IN section NN 709 CD b SYM 2 CD and CC in IN . SENT 1 LS . SENT 709 CD 2 CD a DT paid VVN or CC incurred VVN in IN partnership NN taxable JJ years NNS beginning VVG after IN December NP 31 CD , , 1976 CD , , as IN deferred JJ expenses NNS . SENT If IN a DT partnership NN elects VVZ to TO amortize VV organizational JJ expenses NNS , , it PP must MD select VV a DT period NN of IN not RB less JJR than IN 60 CD months NNS , , over IN which WDT the DT partnership NN will MD amortize VV all DT such JJ expenses NNS on IN a DT straight JJ line NN basis NN . SENT This DT period NN must MD begin VV with IN the DT month NN in IN which WDT the DT partnership NN begins VVZ business NN as IN determined VVN under IN . SENT 1 LS . SENT 709 CD 2 CD c SYM . SENT However RB , , in IN the DT case NN of IN a DT partnership NN on IN the DT cash NN receipts NNS and CC disbursements NNS method NN of IN accounting NN , , no DT deduction NN shall MD be VB allowed VVN for IN a DT taxable JJ year NN with IN respect NN to TO any DT such JJ expenses NNS that WDT have VHP not RB been VBN paid VVN by IN the DT end NN of IN that DT taxable JJ year NN . SENT Portions NNS of IN such JJ expenses NNS which WDT would MD have VH been VBN deductible JJ under IN section NN 709 CD b SYM in IN a DT prior JJ taxable JJ year NN if IN the DT expenses NNS had VHD been VBN paid VVN are VBP deductible JJ in IN the DT year NN of IN payment NN . SENT The DT election NN is VBZ irrevocable JJ and CC the DT period NN selected VVN by IN the DT partnership NN in IN making VVG its PP$ election NN may MD not RB be VB subsequently RB changed VVN . SENT Exhibit NN 11 CD 1 CD 7 CD of IN 11 CD If IN there EX is VBZ a DT winding VVG up RP and CC complete VV liquidation NN of IN the DT partnership NN prior RB to TO the DT end NN of IN the DT amortization NN period NN , , the DT unamortized JJ amount NN of IN organizational JJ expenses NNS is VBZ a DT partnership NN deduction NN in IN its PP$ final JJ taxable JJ year NN to TO the DT extent NN provided VVN under IN section NN 165 CD relating VVG to TO losses NNS . SENT However RB , , there EX is VBZ no DT partnership NN deduction NN with IN respect NN to TO its PP$ capitalized JJ syndication NN expenses NNS . SENT The DT election NN to TO amortize VV organizational JJ expenses NNS provided VVN by IN section NN 709 CD b NN shall MD be VB made VVN by IN attaching VVG a DT statement NN to TO the DT partnership's JJ return NN of IN income NN for IN the DT taxable JJ year NN in IN which WDT the DT partnership NN begins VVZ business NN . SENT In IN the DT case NN of IN a DT partnership NN which WDT begins VVZ business NN in IN a DT taxable JJ year NN that WDT ends VVZ after IN March NP 31 CD , , 1983 CD , , the DT original JJ return NN and CC statement NN must MD be VB filed VVN and CC the DT election NN made VVD not RB later RBR than IN the DT date NN prescribed VVN by IN law NN for IN filing VVG the DT return NN including VVG any DT extensions NNS of IN time NN for IN that DT taxable JJ year NN . SENT Once RB an DT election NN has VHZ been VBN made VVN , , an DT amended VVN return NN or CC returns NNS and CC statement NN or CC statements NNS may MD be VB filed VVN to TO include VV any DT organizational JJ expenses NNS not RB included VVD in IN the DT partnership's JJ original JJ return NN and CC statement NN . SENT Extract VV Treas NP . SENT Reg NP . SENT section NN 1 CD . SENT 709 CD 2 CD Definitions NNS . SENT Organizational JJ expenses NNS . SENT Section NP 709 CD b SYM 2 CD of IN the DT Internal NP Revenue NP Code NP defines VVZ organizational JJ expenses NNS as IN expenses NNS which WDT . SENT are VBP incident NN to TO the DT creation NN of IN a DT partnership NN . SENT are VBP chargeable JJ to TO capital NN account NN . SENT and CC are VBP of IN a DT character NN which WDT , , if IN expended VVN incident NN to TO the DT creation NN of IN a DT partnership NN having VHG an DT ascertainable JJ life NN , , would MD but CC for IN section NN 709 CD a DT be VB amortized VVN over IN such JJ life NN . SENT An DT expenditure NN which WDT fails VVZ to TO meet VV one CD or CC more JJR of IN these DT three CD tests NNS does VVZ not RB qualify VV as IN an DT organizational JJ expense NN for IN purposes NNS of IN section NN 709 CD b SYM and CC this DT section NN . SENT To TO satisfy VV the DT statutory JJ requirement NN described VVN in IN paragraph NN a DT 1 CD of IN this DT section NN , , the DT expense NN must MD be VB incurred VVN during IN the DT period NN beginning NN at IN a DT point NN which WDT is VBZ a DT reasonable JJ time NN before IN the DT partnership NN begins VVZ business NN and CC ending VVG with IN the DT date NN prescribed VVN by IN law NN for IN filing VVG the DT partnership NN return NN determined VVN without IN regard NN to TO any DT extensions NNS of IN time NN for IN the DT taxable JJ year NN the DT partnership NN begins VVZ business NN . SENT In IN addition NN , , the DT expenses NNS must MD be VB for IN creation NN of IN the DT partnership NN and CC not RB for IN operation NN or CC starting VVG operation NN of IN the DT partnership NN trade NN or CC business NN . SENT To TO satisfy VV the DT statutory JJ requirement NN described VVN in IN paragraph NN a DT 3 CD of IN this DT section NN , , the DT expense NN must MD be VB for IN an DT item NN of IN a DT nature NN normally RB expected VVN to TO benefit VV the DT partnership NN throughout IN the DT entire JJ life NN of IN the DT partnership NN . SENT The DT following VVG are VBP examples NNS of IN organizational JJ expenses NNS within IN the DT meaning NN of IN section NN 709 CD and CC this DT section NN . SENT Legal JJ fees NNS for IN services NNS incident NN to TO the DT organization NN of IN the DT partnership NN , , such JJ as IN negotiation NN and CC preparation NN of IN a DT partnership NN agreement NN . SENT accounting NN fees NNS for IN services NNS incident NN to TO the DT organization NN of IN the DT partnership NN . SENT and CC filing NN fees NNS . SENT The DT following VVG are VBP examples NNS of IN expenses NNS that WDT are VBP not RB organizational JJ expenses NNS within IN the DT meaning NN of IN section NN 709 CD and CC this DT section NN regardless RB of IN how WRB the DT partnership NN characterizes VVZ them PP . SENT Expenses NNS connected VVN with IN acquiring VVG assets NNS for IN the DT partnership NN or CC transferring VVG assets NNS to TO the DT partnership NN . SENT expenses NNS connected VVN with IN the DT admission NN or CC removal NN of IN partners NNS other JJ than IN at IN the DT time NN the DT partnership NN is VBZ first RB organized VVN . SENT expenses NNS connected VVN with IN a DT contract NN relating VVG to TO the DT operation NN of IN the DT partnership NN trade NN or CC business NN even RB where WRB the DT contract NN is VBZ between IN the DT partnership NN and CC one CD of IN its PP$ members NNS . SENT and CC syndication NN expenses NNS . SENT Syndication NN expenses NNS . SENT Syndication NN expenses NNS are VBP expenses NNS connected VVN with IN the DT issuing VVG and CC marketing VVG of IN interests NNS in IN the DT partnership NN . SENT Examples NNS of IN syndication NN expenses NNS are VBP brokerage NN fees NNS . SENT registration NN fees NNS . SENT legal JJ fees NNS of IN the DT underwriter NN or CC placement NN agent NN and CC the DT issuer NN the DT general JJ partner NN or CC the DT partnership NN for IN securities NNS advice NN and CC for IN advice NN pertaining VVG to TO the DT adequacy NN of IN tax NN disclosures NNS in IN the DT prospectus NN or CC placement NN memorandum NN for IN securities NNS law NN purposes NNS . SENT accounting NN fees NNS for IN preparation NN of IN representations NNS to TO be VB included VVN in IN the DT offering NN materials NNS . SENT and CC printing NN costs NNS of IN the DT prospectus NN , , placement NN memorandum NN , , and CC other JJ selling NN and CC promotional JJ material NN . SENT These DT expenses NNS are VBP not RB subject JJ to TO the DT election NN under IN section NN 709 CD b SYM and CC must MD be VB capitalized VVN . SENT Beginning VVG business NN . SENT The DT determination NN of IN the DT date NN a DT partnership NN begins VVZ business NN for IN purposes NNS of IN section NN 709 CD presents NNS a DT question NN of IN fact NN that WDT must MD be VB determined VVN in IN each DT case NN in IN light NN of IN all PDT the DT circumstances NNS of IN the DT particular JJ case NN . SENT Ordinarily RB , , a DT partnership NN begins VVZ business NN when WRB it PP starts VVZ the DT business NN operation NN for IN which WDT it PP was VBD organized VVN . SENT The DT mere JJ signing NN of IN a DT partnership NN agreement NN is VBZ not RB alone RB sufficient JJ to TO show VV the DT beginning NN of IN business NN . SENT If IN the DT activities NNS of IN the DT partnership NN have VHP advanced VVN to TO the DT extent NN necessary JJ to TO establish VV the DT nature NN of IN its PP$ business NN operations NNS , , it PP will MD be VB deemed VVN to TO have VH begun VVN business NN . SENT Accordingly RB , , the DT acquisition NN of IN operating VVG assets NNS which WDT are VBP necessary JJ to TO the DT type NN of IN business NN contemplated VVN may MD constitute VV beginning VVG business NN for IN these DT purposes NNS . SENT The DT term NN operating NN assets NNS , , as RB used VVN herein RB , , means VVZ assets NNS that WDT are VBP in IN a DT state NN of IN readiness NN to TO be VB placed VVN in IN service NN within IN a DT reasonable JJ period NN following VVG their PP$ acquisition NN . SENT Revenue NN Rulings NNS and CC Applicable JJ Court NP Cases NNS Rev NP . SENT Rul NP . SENT 81 CD 153 CD , , 1981 CD 1 CD C NP . SENT B SYM . SENT 387 CD , , states VVZ the DT following NN . SENT An DT investor NN in IN a DT limited JJ partnership NN may MD not RB deduct VV that DT part NN of IN the DT purchase NN price NN that WDT is VBZ paid VVN , , through IN a DT rebate NN or CC discount NN arrangement NN , , by IN the DT investor NN to TO a DT tax NN advisor NN on IN behalf NN of IN the DT partnership NN for IN services NNS related VVN to TO the DT sale NN of IN the DT partnership NN interest NN . SENT The DT partnership NN may MD not RB amortize VV this DT amount NN under IN IRC NP section NN 709 CD b SYM . SENT The DT investor's NNS basis NN in IN the DT partnership NN is VBZ the DT amount NN of IN cash NN contributed VVD . SENT Rev NP . SENT Rul NP . SENT 85 CD 32 CD , , 1985 CD 1 CD C NP . SENT B SYM . SENT 186 CD , , states VVZ the DT following NN . SENT Syndication NN costs NNS incurred VVN in IN connection NN with IN the DT sale NN of IN limited JJ partnership NN interests NNS are VBP chargeable JJ by IN the DT partnership NN to TO a DT capital NN account NN and CC cannot NN be VB amortized VVN . SENT In IN Vandenhoff NP v NN . SENT Commissioner NP , , 53 CD T NN . SENT C LS . SENT M NP . SENT CCH NP 271 CD , , T NN . SENT C LS . SENT Memo NN . SENT 1987 CD 116 CD and CC Isenberg NP v NN . SENT Commissioner NP , , 53 CD T NN . SENT C LS . SENT M NP . SENT CCH NP 946 CD , , T NN . SENT C LS . SENT Memo NN . SENT 1987 CD 269 CD , , it PP was VBD found VVN that IN guaranteed JJ payments NNS by IN a DT motion NN picture NN partnership NN to TO the DT general JJ partners NNS were VBD in IN the DT nature NN of IN syndication NN expenses NNS and CC were VBD required VVN to TO be VB capitalized VVN . SENT In IN Schwartz NP v NN . SENT Commissioner NP , , 54 CD T NN . SENT C LS . SENT M NP . SENT CCH NP 11 CD , , T NN . SENT C LS . SENT Memo NN . SENT 1987 CD 381 CD , , aff'd NN without IN opinion NN , , 930 CD F NN . SENT 2 CD d SYM 920 CD 9 CD th NN Cir NP . SENT 1991 CD , , it PP was VBD found VVN that IN payments NNS made VVN to TO a DT partner NN were VBD syndication NN expenses NNS that WDT must MD be VB capitalized VVN and CC were VBD not RB deductible JJ as IN guaranteed JJ payments NNS . SENT In IN Driggs NP v NN . SENT Commissioner NP , , 87 CD T NN . SENT C LS . SENT 759 CD 1986 CD , , it PP was VBD found VVN that IN amounts NNS paid VVN to TO a DT general JJ partner NN as IN sponsor's JJ fees NNS were VBD not RB deductible JJ because IN the DT partnership NN failed VVD to TO prove VV whether IN the DT expenses NNS were VBD for IN syndication NN fees NNS or CC for IN organization NN costs NNS . SENT In IN Finoli NP v NN . SENT Commissioner NP , , 86 CD T NN . SENT C LS . SENT 697 CD 1986 CD , , it PP was VBD determined VVN that IN amounts NNS paid VVN for IN preparation NN of IN a DT tax NN opinion NN , , incurred VVN to TO promote VV or CC facilitate VV the DT sale NN of IN partnership NN interests NNS , , and CC commissions NNS and CC consulting NN fees NNS constituted VVD non JJ deductible JJ syndication NN expenses NNS . SENT In IN Surloff NP v NN . SENT Commissioner NP , , 81 CD T NN . SENT C LS . SENT 210 CD 1983 CD , , it PP was VBD found VVN that IN fees NNS paid VVN to TO an DT attorney NN by IN partnerships NNS mainly RB for IN the DT preparation NN of IN a DT tax NN opinion NN letter NN that WDT was VBD used VVN in IN a DT prospectus NN given VVN to TO potential JJ investors NNS were VBD syndication NN expenses NNS and CC had VHD to TO be VB capitalized VVN . SENT In IN Flowers NNS v NN . SENT Commissioner NP , , 80 CD T NN . SENT C LS . SENT 914 CD 1983 CD , , it PP was VBD determined VVN that IN expenditures NNS for IN tax NN advice NN were VBD incurred VVN for IN purposes NNS of IN obtaining VVG the DT tax NN opinion NN letter NN that IN accompanied VVN organization NN and CC sales NNS promotion NN of IN limited JJ partnership NN interests NNS and CC were VBD non JJ deductible JJ capital NN expenditures NNS . SENT In IN Tolwinsky NP v NN . SENT Commissioner NP , , 86 CD T NN . SENT C LS . SENT 1009 CD 1986 CD , , and CC Law NP v NN . SENT Commissioner NP , , 86 CD T NN . SENT C LS . SENT 1065 CD 1986 CD , , it PP was VBD found VVN that IN organizational JJ expenses NNS for IN a DT motion NN picture NN tax NN shelter NN were VBD amortizable JJ only RB to TO the DT extent NN that IN such JJ expenses NNS were VBD substantiated VVN . SENT In IN Wendland NP v NN . SENT Commissioner NP , , 79 CD T NN . SENT C LS . SENT 355 CD 1982 CD , , aff'd NP , , 739 CD F NN . SENT 2 CD d SYM 580 CD 11 CD th NN Cir NP . SENT 1984 CD it PP was VBD determined VVN that IN legal JJ expenses NNS paid VVN to TO a DT law NN firm NN by IN a DT coal NN mining NN tax NN shelter NN partnership NN constituted VVD organizational JJ expenses NNS that WDT had VHD to TO be VB capitalized VVN in IN the DT absence NN of IN evidence NN allocating VVG such JJ expenses NNS between IN legal JJ advice NN and CC tax NN advice NN . SENT In IN Johnsen NP v NN . SENT Commissioner NP , , 83 CD T NN . SENT C LS . SENT 103 CD 1984 CD , , motion NN denied VVD , , 84 CD T NN . SENT C LS . SENT 344 CD 1985 CD , , rev'd NN on IN other JJ grounds NNS , , 794 CD F NN . SENT 2 CD d SYM 1157 CD 6 CD th NN Cir NP . SENT 1986 CD , , it PP was VBD found VVN that IN a DT partner NN could MD not RB deduct VV his PP$ share NN of IN claimed VVN expenses NNS for IN legal JJ and CC tax NN advice NN because IN the DT evidence NN showed VVD that IN the DT services NNS concerned VVD the DT organization NN and CC promotion NN of IN the DT partnership NN . SENT In IN Egolf NP v NN . SENT Commissioner NP , , 87 CD T NN . SENT C LS . SENT 34 CD 1986 CD , , it PP was VBD held VVN that IN a DT partnership NN could MD not RB currently RB deduct VV organization NN and CC syndication NN costs NNS by IN indirectly RB paying VVG them PP to TO a DT partner NN under IN the DT guise NN of IN management NN fees NNS . SENT Since IN no DT election NN was VBD made VVN by IN the DT partnership NN , , no DT amortization NN of IN partnership NN organization NN expenses NNS was VBD allowed VVN . SENT In IN Durkin NP v NN . SENT Commissioner NP , , 87 CD T NN . SENT C LS . SENT 1329 CD 1986 CD , , the DT court NN ruled VVN that IN payments NNS made VVN by IN a DT partnership NN to TO two CD general JJ partners NNS for IN services NNS were VBD for IN expenses NNS in IN connection NN with IN organizing VVG the DT partnership NN and CC the DT offering NN and CC such JJ payments NNS were VBD not RB currently RB deductible JJ as IN guaranteed JJ payments NNS . SENT The DT partnership NN was VBD entitled VVN to TO amortize VV the DT expenses NNS . SENT In IN Collins NP v NN . SENT Commissioner NP , , 53 CD T NN . SENT C LS . SENT M NP . SENT CCH NP 873 CD , , T NN . SENT C LS . SENT Memo NN . SENT 1987 CD 259 CD , , it PP was VBD found VVN that IN management NN and CC consulting NN fees NNS paid VVD shortly RB after IN the DT formation NN of IN a DT general JJ partnership NN were VBD held VVN to TO be VB organizational JJ expenses NNS and CC were VBD required VVN to TO be VB amortized VVN rather RB than IN currently RB deducted VVN . SENT Similarly RB , , legal JJ and CC accounting NN fees NNS incurred VVN shortly RB after IN formation NN were VBD nondeductible JJ organization NN and CC syndication NN expenses NNS . SENT Rev NP . SENT Rul NP . SENT 88 CD 4 CD , , 1988 CD 1 CD C NP . SENT B SYM . SENT 264 CD , , states NNS that IN the DT fee NN paid VVN by IN a DT syndicated JJ limited JJ partnership NN for IN the DT tax NN opinion NN used VVN in IN the DT partnership NN prospectus NN is VBZ a DT syndication NN expense NN chargeable JJ by IN the DT partnership NN to TO a DT capital NN account NN and CC cannot NN be VB amortized VVN . SENT Argument NN and CC Conclusion NN Syndication NN expenses NNS have VHP been VBN adjusted VVN as RB follows VVZ . SENT Development NN contract NN of IN 650 CD , , 000 CD has VHZ been VBN re IN characterized VVN as IN syndication NN expense NN , , and CC as RB such JJ is VBZ not RB includable JJ in IN either CC the DT depreciable JJ basis NN nor CC the DT qualified JJ rehabilitation NN expenditures NNS for IN purposes NNS of IN the DT historic JJ rehabilitation NN tax NN credit NN . SENT The DT promoter NN of IN the DT examined VVN partnership NN was VBD Y NP and CC its PP$ related JJ and CC affiliated JJ entities NNS . SENT Their PP$ primary JJ function NN as IN sponsor NN , , syndicator NN , , and CC promoter NN of IN the DT various JJ partnerships NNS they PP syndicated VVN was VBD necessary JJ to TO raise VV the DT required VVN capital NN to TO acquire VV , , rehabilitate VV , , and CC subsequently RB place VV the DT projects NNS in IN service NN . SENT Y NP and CC its PP$ affiliates NNS created VVD an DT investment NN package NN and CC trained JJ various JJ brokers NNS dealers NNS to TO sell VV the DT units NNS to TO the DT ultimate JJ limited JJ partner NN investors NNS . SENT Y NP had VHD an DT in IN house NN Investment NP Marketing NP Division NP and CC Syndications NNS Department NN which WDT were VBD responsible JJ for IN sponsoring VVG , , syndicating VVG , , and CC promoting VVG their PP$ partnerships NNS . SENT A DT substantial JJ amount NN of IN time NN was VBD expended VVN to TO create VV , , syndicate NN , , and CC market VV these DT investment NN packages NNS or CC limited JJ partnership NN units NNS . SENT Additionally RB , , the DT primary JJ source NN of IN compensation NN for IN these DT services NNS are VBP the DT development NN contracts NNS as RB entered VVD into IN with IN ABC NP Historic JJ . SENT It PP has VHZ been VBN determined VVN , , for IN the DT partnership NN ABC NP Historic JJ , , that IN the DT amounts NNS as RB specified VVN were VBD attributable JJ to TO the DT syndicating VVG aspects NNS of IN the DT project NN and CC as IN such PDT these DT costs NNS have VHP been VBN re IN characterized VVN to TO reflect VV their PP$ proper JJ tax NN treatment NN . SENT Note NN . SENT When WRB an DT examiner NN determines VVZ costs NNS are VBP syndication NN expenses NNS and CC , , as IN a DT result NN , , reduces VVZ the DT depreciable JJ basis NN by IN the DT amount NN of IN such JJ costs NNS , , the DT examiner NN should MD be VB aware JJ that IN this DT change NN in IN treatment NN of IN the DT costs NNS from IN depreciable JJ property NN to TO nondepreciable JJ property NN may MD be VB a DT change NN in IN method NN of IN accounting NN subject NN to TO IRC NP sections NNS 446 CD e NN and CC 481 CD . SENT While IN a DT full JJ discussion NN of IN a DT change NN in IN method NN of IN accounting NN in IN this DT situation NN is VBZ beyond IN the DT scope NN of IN this DT text NN , , the DT examiner NN must MD become VV familiar JJ with IN the DT rules NNS and CC exceptions NNS applicable JJ to TO a DT change NN in IN method NN of IN accounting NN in IN order NN to TO make VV the DT proper JJ adjustment NN . SENT Taxpayer's NP Position NN The DT Tax NN Matters VVZ Partners NNS have VHP indicated VVN they PP are VBP in IN agreement NN with IN the DT adjustments NNS as RB presented VVN on IN this DT report NN . SENT Return NN to TO Table NN of IN Contents NNS IRS NP Privacy NN Policy NP Contact NP Us NP