LSI 2010 Real Estate Joint Ventures conference materials.pdf

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Brian Todd of Davis Wright Tremaine LLP Andrew H. Zuccotti of K&L Gates LLP Capital; Speaker 11: 20 Speaker 12: 20 (ii) Distributions shall then be made to the Class A Members, in proportion to their respective Percentage Interests, until each Class A Member has received aggregate Distributions pursuant to Section 7.7(b)(i) and this Section 7.7(b)(ii) resulting in a ____ percent (___%) IRR on such Class A Member’s Invested Capital calculated through the date of the Distribution; (iii) Distributions shall then be made to the Class B Members until each Class B Member has received in aggregate an amount equal to a ______ percent (___%) per year cumulative, noncompounded return on the total amount of Invested Capital contributed by the Class A Members; (iv) Distributions shall then be made ____________ percent (___%) to the Class A Members, in proportion to their respective Percentage Interests, and ____________ percent (___%) to the Class B Members, until each Class A Member has received aggregate Distributions pursuant to Section 7.7(b)(i), Section 7.7(b)(ii) and this Section 7.7(b)(iv) resulting in an __________ percent (___%) IRR on such Class A Member’s Invested Capital calculated through the date of the Distribution; and (v) The balance of funds available for Distribution, if any, shall be distributed _________ percent (___%) to the Class A Members, in proportion to their respective Percentage Interests, and ________ percent (___%) to the Class B Members. Mandatory Tax Distributions shall be treated as advances against the Distributions payable to the Members pursuant to Sections 7.7(b)(i) through (v). Distributions to Class B Members as a group shall be made in accordance with Section 7.4.3. 7.8 Liquidating Distributions. Distributions in liquidation of the Company shall be made in the order of priority described in Section 7.7. It is intended that the allocation provisions of this Article 7 will produce final Capital Account balances of the Members that would permit liquidating distributions, if such distributions were made in accordance with final Capital Account balances (instead of being made in the order of priorities set forth in Section 7.7) to be made (after unpaid loans and interest thereon, including amounts owed to Members have been paid) in a manner identical to the order of priorities set forth in Section 7.7. To the extent that such allocation provisions of this Article 7 would fail to produce such final Capital Account balances, net profits and losses (including items of gross income, loss and deduction if required to fulfill the intent of this Section 7.8) will be reallocated among the Members for the fiscal year of the liquidation (and, if necessary, prior fiscal years) so as to cause the balances in the Capital Accounts to be in the correct amounts. Notwithstanding anything herein to the contrary, in the DWT 12372832v1 0053770-000001 Law Seminars International | Real Estate Joint Ventures and Funds | 02/08/10 in Seattle, WA
Brian Todd of Davis Wright Tremaine LLP Andrew H. Zuccotti of K&L Gates LLP event the Company is liquidated within the meaning of Regulation Section 1.704- 1(b)(2)(ii)(g), liquidating distributions shall be made by the end of the taxable year in which the Company liquidates or, if later, within 90 days of the date of such liquidation. V. Allocations in LLCs and Partnerships with Exempt Entity Partners or Members. A. Unrelated Business Taxable Income – General Rule. Under Code Section 511, a retirement plan or other entity otherwise exempt from federal income tax nonetheless will be subject to tax on its “unrelated business taxable income” (“UBTI”) which, generally speaking is the net income the tax-exempt entity derives from the conduct of any trade or business not substantially related to its exempt function. Included in the computation of UBTI is the tax-exempt entity’s allocable share of net income of a partnership (or limited liability company treated as a partnership for federal tax purposes) in which the entity is a partner or member (as the case may be), except to the extent the income is derived from activities of the partnership that are substantially related to the exempt function of the tax-exempt entity. This latter rule applies regardless of whether the income is distributed and regardless of whether the entity holds the interest as a general partner, a limited partner or a member in an LLC. Rev. Rul. 79-222, 1979-2 C.B. 236; Service Bolt & Nut Co. Profit Sharing Trust v. Comm'r, 78 T.C. 812 (1982). B. General Exclusions from UBTI. Subject to limitations, UBTI does not include certain enumerated types of investment income – such as dividends, interest, rents and royalties – or gain from the sale of property other than inventory and property held for sale to customers in the ordinary course of business. I.R.C. § 512(b)(1), (2), (3) and (5). C. Debt Financed Property. In addition to income derived from activities not substantially related to a tax-exempt entity’s exempt purpose, UBTI includes “unrelated debt financed income,” which is a portion of the income (including gain from a sale or exchange) derived from property held to produce income with respect to which there is “acquisition indebtedness.” I.R.C. §§ 512(b)(4); 514. The percentage of the income generated by an item of property that is unrelated debt financed income depends upon the extent to which the cost of acquisition or improvement of the property was financed through borrowing. I.R.C. § 514(a). “Acquisition indebtedness” is indebtedness incurred directly or indirectly in connection with the acquisition or improvement of property. Acquisition indebtedness does not, however, include indebtedness incurred by certain defined categories of taxexempt entities (“qualified organizations”), or by a partnership or LLC in which such an entity is a partner or member, to acquire or improve real property if certain conditions are satisfied. I.R.C. § 514(c)(9). These conditions are: • The price for the acquisition or improvement must be a fixed amount, determined as of the date of the acquisition or completion of the improvement; Speaker 11: 21 Speaker 12: 21 DWT 12372832v1 0053770-000001 Law Seminars International | Real Estate Joint Ventures and Funds | 02/08/10 in Seattle, WA
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L A W S E M I N A R S I N T E R N A
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Monday, February 08, 2010 Real Esta
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John W. Hanley, Jr., Ste
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Table of Contents Topic Speaker # L
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Faculty for Real Estate Joint Ventu
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John W. Hanley, Jr. of Davis Wright
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Steven L. Wood of Century Pacific,
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Tracy B. Edgers of Wells Fargo Bank
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Steven L. Wood of Century Pacific,
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Gregory K. Johnson of Wright Runsta
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Joseph P. McCarthy of Stoel Rives L
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Page 106 and 107: Brian Todd of Davis Wright Tremaine
Page 132 and 133: John W. Hanley, Jr. of Davis Wright
Page 141 and 142: John M. Parker of Kennedy Associate
Page 146 and 147: Quentin Kuhrau of Unico Properties
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James E. Wreggelsworth of Davis Wri
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Erin Joyce Letey of Riddell William
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John Orehek of Security Properties
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Matthew G. Paddock of Metzler North
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Stephen P. Latimer of ING Clarion P
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Donald E. Percival of Davis Wright
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