Posted: December 19th, 2016

If the requested indemnities are given, what are the partners’ respective shares of the bank loan allocated to their outside basis?

1.

A, B and C are the members of All, LLC, a limited liability company that is treated as a partnership for

federal income tax purposes. All, LLC is contemplating taking a loan of $90,000 from a local Maryland

bank to finance acquisition of the newest generation of river rafts for use in its operation on the Middle

River, not asking for personal guarantees. After careful review, A does not see where the loan

agreement limits her personal exposure and demands that B and C indemnify her from liability on the

loan. B, in turn, demands an indemnity from C with respect to any amount that she is required to pay

to A (although not with respect to any amount she is required to pay to the bank). If the requested

indemnities are given, what are the partners’ respective shares of the bank loan allocated to their

outside basis? Also: Indicate how the loan should be considered allocated – recourse or non-recourse.

Explain why.

See Section 752 of the Internal Revenue Code; Regs 1.752-3(a)