A and B form a partnership on January 1 of Year 1. Each makes a cash contribution to the partnership of $80,000. The partnership purchases depreciable equipment for $160,000. The partnership agreement provides that all income and loss are allocated equally, except that all depreciation deductions are allocated to A. Assume (Code provisions to the contrary notwithstanding) that the equipment generates depreciation deductions of $40,000 per year and that in all years the partnership breaks even except for depreciation deductions, and so incurs a loss each year of $40,000.
a. Generally describe what provisions the partnership agreement will have to contain in order for the allocations to A to be respected.
c. How would your answers to “a” and “b” change if A does not have a deficit restoration obligation?