(3) PROCEDURE.
(a) Allocation of Capital Credit. The Capital
Credit shall be allocated among the shareholders, partners, members, owners or
beneficiaries of the Investing Company or Companies entitled to the Capital
Credit based on their distributive share, whether or not distributed, of the
Project's Alabama taxable apportionable income (or item thereof).
1. The Allocations of Capital Credit schedule
contained in Form:INT, and Form:INT-2, shall serve as the written agreement
between the Department and the Investing Company or Companies with respect to
Qualifying Projects undertaken by partnerships, limited liability companies or
other Joint Ventures and the method by which the Qualifying Project's Alabama
taxable apportionable income or the Capital Credit (or item thereof) is
allocated among the business entities investing in the Project. The most recent
form filed by the Project shall be considered the current allocation to be used
by the Project.
(i) Any changes made to the
Allocation of Capital Credit schedule after the filing of the Form:INT-2 by the
Reporting Company shall be reported to the Department on the
Form:INT-4.
(b) Substantial Economic Effect. If the
allocation of either the Project's Alabama taxable apportionable income or the
Capital Credit (or item thereof) does not have substantial economic effect,
then the Investing Company's distributive share of such income or credit (or
item thereof) shall be determined in accordance with such Investing Company's
interest in the Joint Venture taking into account all facts and circumstances.
1. Two-part analysis. The determination of
whether an allocation of the Project's Alabama taxable apportionable income or
the Capital Credit (or item thereof) to an Investing Company has substantial
economic effect involves a two-part analysis that is made as of the end of the
taxable year to which the allocation relates.
(i) First, the allocation must have economic
effect (within the meaning of paragraph (3)(b)2 of this section).
(ii) Second, the economic effect of the
allocation must be substantial (within the meaning of paragraph (3) (b)3 of
this section).
2.
Economic effect. In order for an allocation to have economic effect, it must be
consistent with the underlying economic arrangement of the Investing Companies.
This means that in the event there is an economic benefit or economic burden
that corresponds to an allocation, the Investing Company to whom the allocation
is made must receive such economic benefit or bear such economic
burden.
3. Substantiality. The
economic effect of an allocation (or allocations) is substantial if there is a
reasonable possibility that the allocation (or allocations) will affect
substantially the dollar amounts to be received by the Investing Companies from
the Joint Venture, independent of tax consequences. Notwithstanding the
preceding sentence, the economic effect of an allocation (or allocations) is
not substantial if, at the time the allocation becomes part of the Joint
Venture agreement,
(i) the after-tax economic
consequences of at least one Investing Company may, in present value terms, be
enhanced compared to such consequences if the allocation (or allocations) were
not contained in the Joint Venture agreement, and
(ii) there is a strong likelihood that the
after-tax economic consequences of no Investing Company will, in present value
terms, be substantially diminished compared to such consequences if the
allocation (or allocations) were not contained in the Joint Venture agreement.
In deterring the after-tax economic benefit or detriment to a
Investing Company, tax consequences that result from the interaction of the
allocation with such Investing Company's tax attributes that are unrelated to
the Joint Venture will be taken into account.
Author: Verlon Frost
