Common use of Minimum Gain Chargeback and Qualified Income Offset Clause in Contracts

Minimum Gain Chargeback and Qualified Income Offset. (1) Notwithstanding anything to the contrary set forth in this Agreement, if at the close of any taxable year (A) the foregoing allocation provisions of this Article III and the distribution provisions of this Agreement would (but for this Section 3.4(b) cause the negative Capital Account balance of any Member to exceed such Member’s Share (as defined below) of the Company’s Minimum Gain, taking into account the rules of Treasury Regulations Sections 1.704-1(b)(2)(ii)(a)(4), (5) and (6), plus any amounts which such Member is required to restore to the Company upon liquidation (or that are treated as such amounts pursuant to Treasury Regulations Sections 1.704-1(b)(2)(ii)(c)), or (B) the allocation of further taxable loss or deductions of the Company pursuant to the other provisions of this Article III would result in any such excess, then to the extent (but only to the extent) required to eliminate or prevent the creation of any such excess: (I) all items of taxable loss and deduction of the Company for such year and subsequent years shall be allocated to Members having positive Capital Account balances in proportion to such balances until such balances are reduced to zero and (II) all gross income of the Company for such year and subsequent years shall be allocated to those Members having excess negative Capital Account balances in proportion to such excess balances until such excess negative balances are reduced to zero. Thereafter all taxable income, taxable loss and deductions of the Company shall be allocated in accordance with the foregoing provisions of this Article III. This Section 3.4(b) is intended to comply with the minimum gain chargeback requirements of Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(f) and with the qualified income offset requirement of Treasury Regulations Section 1.704-1(b)(2)(ii)(d). For purposes of this Section 3.4(b), a Member’s Share of the Company’s Minimum Gain shall mean the excess of (A) the sum of (X) the aggregate nonrecourse deductions of the Company (as defined in Treasury Regulations Section 1.704-2(c)) and Member nonrecourse deductions of the Company (as defined in Treasury Regulations Section 1.704-2(i)(2) allocated to such Member, plus (Y) its distribution of any financing or refinancing proceeds allocable (under Treasury Regulations Sections 1.704-1(h)(i)(2) to an increase in Company Minimum Gain with respect to a liability other than a Member Loan plus (Z) its distribution of any financing or refinancing proceeds allocable (under Treasury Regulations Sections 1.704-2(i)(6) to an increase in Company Minimum Gain with respect to a Member Loan but only if such Member (or a person related to such Member) bears the economic risk of loss for the Member Loan at the time of the distribution with respect to such distribution, over (B) its share of any net decrease in the Company’s Minimum Gain as determined under Treasury Regulations Sections 1.70402(f)(1) and 1.704-2(g)(2). (2) If there is a net decrease in Company Minimum Gain for a taxable year of the Company (or a net decrease in the Minimum Gain attributable to a Member Loan) allocable to the disposition of a Property, then each Member must be allocated items of income or gain of the Company for such year in proportion to, and to the extent of, the portion of such Member’s share of the net decrease in Company Minimum Gain determined under Treasury Regulations Sections 1.704-2(g)(2) (or such Member’s share of the net decrease in the Minimum Gain attributable to a Member Loan as determined under Treasury Regulations Section 1.704-2(i)(4)). This Section 3.4(b)(ii) shall be applied before applying Section 3.4(b)(i). (3) If upon the liquidation of the Company any allocation pursuant to clause (i) or (ii) above has the net effect (after taking into account all adjustments to Capital Accounts during the term of, and upon liquidation of the Company and after making distributions except as set forth in Subsection 7.2(c)) of adjusting the Capital Accounts of the Members so that the ratio thereof does not reflect the ratio of their respective Percentage Interests, then the gains and losses realized upon liquidation shall (to the extent not strictly prohibited by Treasury Regulations) be allocated in a manner so as to make the ratio of each Member’s Capital Account reflect the ratio of each Member’s Percentage Interest.