FACTS
Prior to 1985, Douglas F. Manchester (Manchester) formed for purposes of constructing, owning, and managing two hotel facilities at the San Diego Convention Center, two limited partnerships: Pacific Landmark Hotel (Landmark) and Pacific Gateway (Gateway). The construction was primarily financed through nonrecourse borrowing. Landmark and Gateway both used accelerated depreciation to lower their bases below the amount of debt incurred in constructing the hotels. On October 3, 1985, Manchester formed another limited partnership called Interhotel Company Limited (IHCL). Manchester would own .001% of the partnership while one of his corporations, called Torrey Hotel Enterprises, Inc. (THEI) would own the other 99.999%. IHCL was formed to hold 35.354% limited …show more content…
Marriott received 95% of Landmark’s net losses and 99% of Gateway’s net losses in order to reduce the loss allocations between Landmark, Gateway, and IHCL. THEI’s capital account was a negative $5,920,614 at the end of 1990 due to the losses generated by Dondi’s default and the reallocation of losses to Marriott. On the other hand, Dondi’s capital account in IHCL grew to $14,879,392 by the end of the same year. On June 20, 1991, Dondi transferred its 15% limited interest in IHCL to the FDIC (as receiver for Vernon), who then transferred it to Manchester for his $5 million payment. The results were that THEI had a 1% general interest and an 84% limited interest. Manchester held the remaining 15% limited interest and succeeded to Dondi’s capital account. A second amendment to the agreement was made on June 21, 1991 in which income would be allocated to partners with negative capital accounts first and to the partners pro rata after that. An information return was filed by IHCL in 1991 to disclose the allocations to Dondi through June 20, 1991 and that 100% of IHCL’s income was allocated to
Prior to 1985, Douglas F. Manchester (Manchester) formed for purposes of constructing, owning, and managing two hotel facilities at the San Diego Convention Center, two limited partnerships: Pacific Landmark Hotel (Landmark) and Pacific Gateway (Gateway). The construction was primarily financed through nonrecourse borrowing. Landmark and Gateway both used accelerated depreciation to lower their bases below the amount of debt incurred in constructing the hotels. On October 3, 1985, Manchester formed another limited partnership called Interhotel Company Limited (IHCL). Manchester would own .001% of the partnership while one of his corporations, called Torrey Hotel Enterprises, Inc. (THEI) would own the other 99.999%. IHCL was formed to hold 35.354% limited …show more content…
Marriott received 95% of Landmark’s net losses and 99% of Gateway’s net losses in order to reduce the loss allocations between Landmark, Gateway, and IHCL. THEI’s capital account was a negative $5,920,614 at the end of 1990 due to the losses generated by Dondi’s default and the reallocation of losses to Marriott. On the other hand, Dondi’s capital account in IHCL grew to $14,879,392 by the end of the same year. On June 20, 1991, Dondi transferred its 15% limited interest in IHCL to the FDIC (as receiver for Vernon), who then transferred it to Manchester for his $5 million payment. The results were that THEI had a 1% general interest and an 84% limited interest. Manchester held the remaining 15% limited interest and succeeded to Dondi’s capital account. A second amendment to the agreement was made on June 21, 1991 in which income would be allocated to partners with negative capital accounts first and to the partners pro rata after that. An information return was filed by IHCL in 1991 to disclose the allocations to Dondi through June 20, 1991 and that 100% of IHCL’s income was allocated to