Also known as: remedial methods · remedy · remedial procedure
Written by attorneys · grounded in primary & secondary sources — see below
A method for allocating tax items among partners that creates notional tax gains and losses to eliminate distortions caused by the ceiling rule during reverse 704(c) allocations. The method assigns notional items so that partners' tax capital accounts and bases align with their book capital accounts after a book-up or book-down event.
Riverfront Developments terminated a lease with Ralph Richardson. Richardson remained in possession after the lease ended. The controlling law provided a speedy judicial remedy for recovery of possession. Riverfront Developments therefore pursued that judicial remedy rather than attempting self-help eviction. The court granted possession to Riverfront Developments and awarded damages for the holdover period.
The City of Metropolis enacted an ordinance requiring ten percent of public contracts to go to minority-owned businesses. The program rested on evidence of past discrimination against minority contractors in the local construction industry. A non-minority contractor challenged the ordinance. The court upheld the program after finding it narrowly tailored to remedy the identified discrimination.
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Regal Apparel contracted to buy fabric from a supplier. The supplier repudiated the contract before the delivery date. Regal Apparel notified the supplier that it would await performance for a commercially reasonable time and then resorted to its remedies for breach under the UCC. The court awarded Regal Apparel damages measured by the difference between the contract price and the cost of cover.
A court in State A issued a custody determination awarding primary custody to Ryan Roberts. Rosa Ruiz, the other parent, moved with the child to State B. Ryan Roberts registered the order in State B. The State B court recognized and enforced the determination using available state remedies, including a writ of assistance to return the child.
Rajesh Rao promised to transfer land to Rebecca Ross in exchange for her services managing his properties. Ross performed the services in reliance on the promise. When Rao refused to convey the land, Ross sued for specific performance. The court enforced the promise because injustice could be avoided only by enforcement and limited the remedy to the extent justice required.
Royal Crest Hotels held a junior mortgage on an office building. After default, it obtained appointment of a receiver who collected rents. The receiver applied the rents first to taxes and maintenance expenses. The excess was applied to the junior obligation before any senior receiver was appointed.
The remedial method applies when a partnership elects it for reverse 704(c) allocations after a book-up or book-down of property. It creates notional tax items to correct ceiling-rule distortions so that partners' tax capital accounts match their book capital accounts.
The traditional method makes no additional adjustment when the ceiling rule prevents full allocation of tax items. The remedial method creates notional tax losses or gains for the non-contributing partners and corresponding notional income or loss for the contributing partner to achieve matching.
The remedial method adjusts partners' outside bases through the notional allocations. Non-contributing partners receive additional tax loss that reduces basis, while the contributing partner receives notional income that increases basis, restoring parity with book capital accounts.