Pre-Effective Amendment to Registration of Securities by a Small-Business Issuer — Form SB-2
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SB-2/A Pre-Effective Amendment to Registration of 116 599K
Securities by a Small-Business Issuer
2: EX-8 Opinion re: Tax Matters 12± 49K
3: EX-10 Material Contract 6± 22K
4: EX-13 Annual or Quarterly Report to Security Holders 1 5K
EX-8 — Opinion re: Tax Matters
[DORSEY & WHITNEY LLP LETTERHEAD]
AEI Fund Management XXI, Inc.
1300 Minnesota World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
Gentlemen:
We have acted as your counsel in connection with the
proposed public offering of up to 24,000 limited partnership
units (the "Units") in AEI Income & Growth Fund 24 LLC (the
"Fund"). In such capacity we have examined Amendment No. 1 to
the Registration Statement on Form SB-2 being filed with the
Securities and Exchange Commission on or about the date hereof
(the "Registration Statement"), the Preliminary Prospectus
included in the Registration Statement (the "Prospectus"), the
Operating Agreement included in the Registration Statement as
Exhibit A (the "Operating Agreement"), and such other additional
instruments and documents as we have deemed necessary or
appropriate for purposes of this opinion. In our examination, we
have assumed the authenticity of original documents, the accuracy
of copies, the genuineness of signatures and the capacity of each
party executing a document to so execute such document.
Our opinions below are based upon the facts described in the
Registration Statement and upon facts as they have been
represented to us by you or have been determined by us as of this
date. Any alteration of such facts may adversely affect our
opinion.
Our opinions are based upon the Internal Revenue Code of
1986, as amended (the "Code") and other provisions of existing
law and currently applicable Treasury Department regulations
("Treasury Regulations"), current published administrative
positions of the Internal Revenue Service (the "Service")
contained in revenue rulings and revenue procedures, and judicial
decisions, all of which are subject to change prospectively and
retroactively. An opinion of counsel is predicated upon all of
the facts and conditions set forth in the opinion and is based
upon counsel's analysis of the statutes, regulatory
interpretations and case law in effect as of the date of the
opinion. It is not a guaranty of the current status of the law
and should not be accepted as a guaranty that a court of law or
an administrative agency will concur in the opinion. In issuing
our opinion, we have followed the relevant professional
standards, including American Bar Association Formal Opinion 346
(Revised), January 29, 1982, which direct a lawyer in issuing a
tax shelter opinion to consider all material tax issues and to
address fully and fairly in any offering materials all such
issues that involve the reasonable possibility of a challenge by
the Internal Revenue Service. We have also been guided by
Treasury Department Circular 230, which governs lawyers
practicing before the Treasury Department.
You have specifically asked for our opinion as to the
material federal tax issues relating to an investment in the Fund
which involve a reasonable possibility of challenge by the
Internal Revenue Service or, where such an opinion cannot be
rendered with respect to a material tax issue, you have asked us
to describe the reasons for the inability to so opine. In
response to that request, please be advised as follows:
1. STATUS OF THE FUND AS A PARTNERSHIP FOR FEDERAL INCOME TAX
PURPOSES
Effective January 1, 1997, the Service substantially revised
the Regulations under Code Section 7701. Under Section 301.7701-
2(b) of the current Regulations, the following types of business
entities are classified as corporations for federal income tax
purposes: (1) entities organized under statutes which describe
the entity as incorporated or as a corporation, body corporate or
body politic; (2) entities which are "associations" under
Regulation Section 301.7701-3; (3) business entities organized
under a state statute which describes the entity as a joint-stock
company or joint-stock association; (4) insurance companies; (5)
state-chartered banks whose deposits are insured by the FDIC; (6)
business entities wholly owned by a state or any political
subdivision thereof; (7) entities taxable as a corporation under
a provision of the Code other than Section 7701(a)(3); and (8)
certain foreign entities. Under Regulation Section 301.7701-
2(c), a partnership means any business entity not listed in
clauses (1) through (8) and which has at least two members.
Under current Regulation Section 301.7701-3, a business
entity which is not classified as a corporation under clauses
(1), (3), (4), (5), (6), (7) or (8) above (an "eligible entity")
having two or more members can elect to be classified as an
association (and thus taxable as a corporation) instead of a
partnership. Such an entity would then be treated as a
corporation for federal income tax purposes pursuant to clause
(2) above. If an election is not made as provided in the
Regulations, an eligible entity with two or more members will
automatically be classified as a partnership.
As Managing Member to the Fund, you have represented to us
that you will not cause the Fund to elect to be classified as an
association under the current Regulations. Based upon that
representation, we are of the opinion that the Fund will be
classified as a partnership for federal income tax purposes.
2. STATUS OF THE FUND AS A "PUBLICLY TRADED PARTNERSHIP"
The Code contains several provisions that significantly
change the tax treatment of "publicly traded partnerships" and
the income and loss they generate. Under the Code, unless 90% of
a publicly traded partnership's income is from passive-type
investments, a publicly traded partnership will be taxed as if it
were a corporation.
The Code defines an entity as a "publicly traded
partnership" if (i) interests in the entity are traded on an
established securities market, or (ii) interests in such entity
are readily tradeable on a secondary market (or the substantial
equivalent thereof). Treasury Regulations under Section 7704 of
the Code provide that an established securities market includes a
national exchange registered under the Securities Exchange Act of
1934, or exempted therefrom because of limited volume, any
regional or local exchange or any inter-dealer quotation system
that regularly disseminates firm buy or sell quotations. The
Regulations provide that a "secondary market" or its "substantial
equivalent" exists if interests in the entity are regularly
quoted by any person making a market in the interests, any person
regularly makes available bid or offer quotes and stands ready to
effect buy or sell transactions at the quoted prices, the holder
of a partnership interest has a readily available regular and
ongoing opportunity to sell or exchange the interest through a
public means of obtaining or providing information of offers to
by, sell or exchange the partnership interest, or there is any
other opportunity to buy, sell or exchange interests in the
partnership in a manner that is comparable to the foregoing.
The Treasury Regulations provide for several "safe harbors"
from the definition of "readily tradeable on a secondary market."
Interests in an entity will not be considered readily tradeable
on a secondary market or its substantial equivalent if the
interests traded during the tax year represent two percent or
less of the entity's capital or profits. Generally, transfers of
interests by gift, at death, between family members, as a
distribution from a retirement plan, as a large block, at
original issue, through a qualified matching service or pursuant
to certain redemption and repurchase agreements regardless of
volume, will be disregarded for purposes of the safe harbor test
above.
Furthermore, Treasury Regulations provide that transfers of
interests will be disregarded if they are made pursuant to a
redemption or repurchase agreement whereby the partners may
tender their interests for purchase by the entity, provided that
(1) the redemption or repurchase cannot occur until at least 60
calendar days after the member notifies the entity in writing of
his or her intention to exercise the redemption or repurchase
right, and (2) either (i) the redemption or repurchase price may
not be established until at least 60 calendar days after receipt
of the notification by the entity, or (ii) the redemption or
repurchase price is established not more than four times during
the entity's capital year and (3) the sum of the percentage
interests in the entity's capital or profits transferred during
the taxable year (other than in certain private transfers) does
not exceed ten percent (10%) of the total interests in capital or
profits.
As Managing Member of the Fund, you have represented that:
(1) The Fund will not list the Units for trading on an
exchange, in the over-the-counter market, or in any inter-
dealer quotation system;
(1) Transfers of Units will be on an individual basis and
will not be negotiated in a time frame comparable to that
which would be available on a secondary market;
(1) You will enforce the provisions of Section 7.7 of the
Operating Agreement establishing the time periods for
notification that a Limited Partner must give to the Fund
in order to have the Fund repurchase Units from the Limited
Partner, the limitations on the time periods during which
the Fund will repurchase Units, and the limitation on the
percentage of interests that you will redeem in accordance
with the provisions of that section; and
(1) You will enforce provisions of Section 9.1 of the
Operating Agreement allowing the managing member to refuse
to recognize any transfer or refuse to repurchase any Units
if such transfer or repurchase, together with all other
transfers or repurchases of Units in the same calendar year
other than Permitted Transfers, Qualified Matching Service
Transfers, and transfers pursuant to the repurchase
provisions of Section 7.7 of the Operating Agreement, would
exceed two percent (2%) of the Units outstanding at the
beginning of such calendar year.
Based upon your representations, existing interpretations of
the Service and the foregoing provisions of the Operating
Agreement, and provided that any transfers are made in accordance
with such interpretations and provisions, we are of the opinion
that the Fund will not be considered a publicly traded
partnership as contemplated by the Code.
3. ALLOCATIONS AMONG MEMBERS
The Operating Agreement allocates to each member, including
investors as limited members, his, her or its distributive share
of income, gain, loss, deduction, or credit. The Operating
Agreement also provides for a specific allocation of Fund
proceeds among the limited members and the managing members upon
dissolution and termination of the Fund, upon the refinancing,
sale, or other disposition of the Fund properties, and a specific
allocation of cash flow. Section 704(b) of the Internal Revenue
Code provides that the allocations under the Operating Agreement
shall govern unless those allocations do not have substantial
economic effect. In the event the allocations in the Operating
Agreement do not have substantial economic effect, the
distributive share of income, gain, loss, deduction, or credit
(or item thereof) of each limited member and managing member
shall be determined in accordance with the interest in the Fund
held by such limited member or managing member.
Regulations under Section 704(b) impose three requirements
for an allocation to be deemed to have economic effect: (1)
capital accounts must be maintained in accordance with the rules
established in the final Regulations; (2) upon liquidation,
liquidating distributions are required in all cases to be made in
accordance with positive capital account balances; and (3) if a
partner has a deficit balance in his or her capital account at
the time of liquidation of the partner's interest in the entity,
he or she must be unconditionally obligated to restore such
negative balance to the partnership. The Regulations further
provide an alternate test for economic effect. If requirements
(1) and (2) above are met and the entity contains a "qualified
income offset," an allocation that does not cause or increase a
deficit balance in a partner's capital account will be deemed to
have economic effect.
The Operating Agreement complies with requirements (1) and
(2) above, and contains a "qualified income offset" provision.
Therefore, assuming that throughout the term of the Fund, all the
limited members and managing members have positive balances in
their capital accounts (determined after adjusting such accounts
for reasonably expected adjustments of the nature described in
Treasury Regulation 1.704-1(b)(2)(ii)(d)(4), (5) and (6) and
for the share of minimum gain under Treasury Regulation 1.704-
2(g)(1) of each such limited member and managing member), the
allocations made under the Operating Agreement should be deemed
to have economic effect under Section 704(b) and the Treasury
Regulations. As managing member, you have indicated that you
believe that the limited members will maintain such a positive
balance (after adjustment as set forth above) in their capital
accounts throughout the term of the Fund. In the event the
limited members were to have negative balances in their capital
accounts (after adjustment as set forth above), the Operating
Agreement provides that losses will not be allocated to the
limited members.
Under the Treasury Regulations, the economic effect of an
allocation must also be "substantial" in order to be recognized
for tax purposes. An allocation is generally treated as being
"substantial" if there is a reasonable possibility that the
allocation will affect substantially the dollar amounts the
participants will receive from the entity, independent of tax
consequences. However, the economic effect of an allocation is
not substantial if (1) the after-tax economic consequences of at
least one participant may be enhanced by the existence of the
allocation, and (2) there is a strong likelihood that the after-
tax economic consequences of no participant will be substantially
diminished by the existence of the allocation. For purposes of
this determination, tax attributes of the participants that are
unrelated to the entity must be taken into account.
It appears that the allocations provided for in the
Operating Agreement will affect substantially the dollar amounts
the limited members and managing members will receive from the
Fund, and therefore satisfy the "substantiality" requirement of
the Treasury Regulations. Although we are unable to make a
determination as to the after-tax economic consequences to the
limited members and managing members of the allocations given the
inherently factual nature of this inquiry, we have no reason to
believe that these consequences will result in failure to satisfy
the "substantiality" requirement. Accordingly, it appears that
the allocations provided for in the Operating Agreement will be
found to be substantial under the Treasury Regulations.
You have represented that the Fund will not incur
indebtedness in connection with the acquisition of its properties
and that any indebtedness it will incur will be structured as
nonrecourse financing under applicable Treasury Regulations.
Deductions with respect to nonrecourse financing (for example,
depreciation on a building financed with nonrecourse debt) are
referred to in the Regulations as "nonrecourse deductions." To
establish substantial economic effect with respect to nonrecourse
deductions, such deductions must be allocated in accordance with
the participants' interests as determined by Regulations Section
1.704-2(e), which requires among other things that the
partnership agreement contain a provision known as a "minimum
gain chargeback." "Minimum gain" is defined as the amount of
gain, if any, that would be realized by a partnership if it
disposed of the property subject to the liability for no
consideration other than the satisfaction of the liability. Thus,
a minimum gain occurs each year the outstanding nonrecourse
indebtedness at the end of the year exceeds the adjusted tax
basis of the property at the end of the year. A "minimum gain
chargeback" provision requires that, if there is a net decrease
in partnership minimum gain for any taxable year, for that year
each partner must be allocated items of partnership gain and
income equal to that partner's share of the net decrease in
partnership minimum gain, computed according to the manner
prescribed in the Regulations. The Operating Agreement for the
Fund contains a "minimum gain chargeback" and appears to
otherwise comply with the requirements of Regulations Section
1.704-2(e).
It is our opinion, therefore, as of the date of this letter,
that, assuming that all the limited members and managing members
have positive balances in their respective capital accounts
(determined after adjusting such capital accounts as noted above)
throughout the term of the Fund and that the after-tax economic
consequences of the allocations made pursuant to the Operating
Agreement do not violate the "substantiality" requirement imposed
by the Regulations, it is more likely than not that the
allocations to a limited member, if properly made in accordance
with the Operating Agreement, will have substantial economic
effect within the meaning of Section 704(b) of the Code. We are
unable to render an opinion on the allocation of losses or
deductions where the limited members have negative balances in
their respective capital accounts (adjusted as noted above) given
the absence of an unlimited deficit restoration obligation by any
of the limited members. It is assumed for purposes of this
opinion that the allocations in the Operating Agreement do not,
by design or in practice, provide for allocations to limited
members based on their individual tax situation or status.
Because the interpretation of certain aspects of the Regulations
under Section 704(b) is still uncertain, we can give you no
assurance that the allocations contained in the Operating
Agreement will not be challenged by the Service.
4. DEPRECIATION DEDUCTIONS
Allocation of the purchase price of a property among the
various depreciable and nondepreciable assets is a factual
question, and there can be no assurance that the allocations made
by the managing members on behalf of the Fund will be accepted by
the Service. Because none of the Fund's properties have been
acquired and the issue depends on facts that are not yet
determined, we have not rendered an opinion on this issue.
5. LEASES
The Service has taken the position in certain situations
that lease transactions should be treated as financing
transactions with the result that, for federal income tax
purposes, the lessor of the property is not treated as the owner
and is not entitled to take depreciation and other deductions
with respect to his or her investment. In several cases the
Service has been sustained in court on this issue. In this
regard, the Service has promulgated guidelines in Revenue
Procedure 75-21, 1975-1 C.B. 715, indicating the conditions that
must be satisfied in order to obtain an advance ruling that the
lessor is the owner of property for federal income tax purposes.
Some of these conditions may not be met by the Fund in its
anticipated net leasing of the properties. Nevertheless, Revenue
Procedure 75-21 expressly states that the guidelines do not
define, as a matter of law, whether a transaction is or is not a
lease and are not intended to be used for audit purposes.
In recent cases in which the ownership status of the lessor
has been upheld for tax purposes, the courts have given
significant weight to such factors as (1) the presence of a third-
party lender; (2) the possibility that the lessor will obtain
material non-tax benefits from its ownership of the property; and
(3) the structuring of purchase options granted to the lessee in
such a fashion that the purchase price is "fair" and there is no
"economic compulsion" on the part of the lessee to purchase the
property pursuant to such options. Moreover, in several recent
cases, the courts rejected arguments by the Service that such
factors as the net nature of the lease, the nonrecourse nature of
the mortgage loan or the equivalence of rental payments due under
the lease to debt service payments due under the mortgage loan
evidence a lack of ownership by the lessor for tax purposes.
SEE, E.G., DUNLAP V. COMMISSIONER, 74 T.C. 1377 (1980); SANDERSON
V. COMMISSIONER, 50 T.C. 1033 (1985); HILTON V. COMMISSIONER, 671
F.2d 316 (9th Cir. 1982).
We have reviewed leases entered into by prior programs
sponsored by the managing member and their affiliates. These
leases have, in general, contained terms indicative of ownership
in accordance with the factors enumerated above. As managing
member you have represented that you will continue to attempt to
enter into leases that will result in the Fund being treated as
the owner of the leased property. Because, the characterization
of transactions as leases involves analysis of complex factual
situations under evolving judicial doctrines and, because the
Fund has not yet entered into any leases and no analysis thereof
is possible, we are not opining on the status of the Fund as
owner and lessor of properties.
Under Section 467 of the Code, a lessor may be required to
accrue rental income for income tax purposes during a taxable
period in amounts that differ from the actual rental payments
received during such period if (i) rental payments are made after
the close of the calendar year following the calendar year in
which the use of the property occurs, or (ii) rental payments
increase over the term of the lease ("Section 467 Lease").
If a lease is a Section 467 Lease but is not a disqualified
leaseback or long-term agreement described below, the lessor must
include in current income for any period rentals allocated by the
lease to that period plus the present value of rentals allocated
to such period but not paid until future periods. Accordingly,
unless such a Section 467 Lease allocates rent to periods earlier
than the payment date of such rent, Section 467 should not have
any effect on the taxable income from such lease.
If a lease that is a Section 467 Lease does not allocate
rent to specific periods or, subject to certain exceptions, (i)
is entered into in a leaseback transaction, or (ii) is for a term
of in excess of 75% of the statutory recovery period for the
property subject to the lease, and (iii) provides for increasing
rents to avoid income taxation (a "disqualified leaseback or long-
term agreement"), the lessor may be required to disregard actual
rental payments and accrue and recognize as income in each lease
period a constant amount which, if paid as of the close of each
lease period under the rental agreement, would result in an
aggregate present value equal to the present value of the
aggregate payments required under the agreement.
Treasury Regulations adopted in May 1999 provide that a
leaseback or long-term agreement will not be "disqualified"
unless (1) the total value of the rental payments reasonably
expected to be made as of the date of the rental agreement
exceeds $2 million, and (2) a principal purpose for providing for
increasing or decreasing rent is the avoidance of federal income
tax. The avoidance of federal income tax will not be considered
a principal purpose for providing for increasing or decreasing
rent if either one of the following is true: (1) the rent
allocated to each calendar year does not vary from the average
rent allocated to all calendar years by more than 10%; or (2) all
of the increases and decreases in rent are attributable to one or
more of the following provisions: (i) a rental increase
provision based on a percentage of the lessee's receipts, (ii) an
adjustment based on a "reasonable price index," (iii) a provision
requiring the lessee to pay third-party costs, or (iv) a rent
holiday provision allowing reduced or no rent for a period at the
beginning of the lease term if certain conditions are met.
Lessors under leaseback or long-term agreements who are not
required to accrue a constant amount must, upon disposition of
the property subject to the lease, recapture as ordinary income
the lesser of (i) the difference between the amount which would
have been taken into account had the lessor been required to
accrue a constant amount and the amount actually taken into
account for the periods prior to the disposition or (ii) the gain
realized.
We have reviewed leases used by affiliated programs of the
Fund and it appears that some may qualify as Section 467 Leases.
In certain instances, such agreements may require accrual of a
constant amount or may require recapture on the disposition of
the property subject to the lease. Because the Fund has not yet
entered into any lease agreements, it is not possible for use to
determine what treatment of the Fund's leases may be required
under Section 467 and we are therefore not opining on this
matter.
6. CHARACTER OF GAIN ON LOSS ON DISPOSITION OF PROPERTIES
Any gain or loss on the sale or other disposition of
property that is held by the Fund as a "dealer" at the time of
the sale or other disposition will be taxed as ordinary income or
loss, as the case may be, rather than at the lower rates
applicable to long-term capital gains. Because the
characterization of the Fund as a "dealer" depends upon facts
that cannot be known at the present time, we are not able to
issue an opinion as to whether the Fund will be considered to be
a "dealer."
7. ORGANIZATION AND SYNDICATION COSTS AND OTHER PAYMENTS TO THE
MANAGERS
Section 709 of the Code denies the Fund a deduction for
amounts paid or incurred in connection with the issuance or
marketing of Units ("syndication expenses"). However, under
Sections 709 and 195 of the Code, amounts paid or incurred to
organize the Fund ("organization expenses"), or to create an
active trade or business conducted by the Fund ("start-up
expenses") may be amortized over a period of not less than 60
months. You will allocate expenses, including expenses
representing reimbursements to you and your affiliates as
managing member, between syndication, organization and start-up
and may amortize certain organization and start-up expenses.
Because such allocations have not been made and their
deductibility is inherently factual in nature, we have rendered
no opinion on the deductibility of the expenses so allocated.
Further, the Service has in several cases successfully
challenged the deductibility of management expenses paid to
general partners and may allege that such expenses reimbursed to
the managing members of the Fund are not currently deductible by
the Fund. We understand that the Fund will deduct such expenses
under Code Section 707(a) (transactions between a limited
liability company and a member acting in a capacity other than as
a member of the limited liability company) or under Section
707(c) ("guaranteed payments" that are determined without regard
to the income of the limited liability company), and such
expenses will be paid for necessary and ordinary services
rendered to the Fund. Upon audit, the Service may challenge the
Fund's allocation of expenses, either on the basis of the nature
of the reimbursements paid or on the basis that the
reimbursements were paid to the managing member or an affiliate
for performing services within the normal scope of their duty as
managing members and, therefore, may not be deducted. The
deductibility of such reimbursements to be paid to the managing
member or an affiliate ultimately will depend upon, among other
things, a factual determination of the nature of the services
performed and cannot be predicted with certainty. We have not
rendered an opinion on the deductibility of these expenses
because their deductibility is inherently a factual issue that
depends upon their amount or the appropriateness of the relevant
items for reimbursement.
8. PASSIVE ACTIVITY LOSSES
Under Section 469 of the Code, losses from a "passive
activity" are deductible only to the extent of the income from
such activity and other passive activities. Passive activity
losses that are not deductible because of inadequate passive
activity income are carried forward and become deductible against
future passive activity income or upon complete liquidation of
the taxpayer's interest in the activity. Credits from passive
activities are, in general, limited to the tax attributable to
income from passive activities. Passive activities include trade
or business activities in which the taxpayer does not materially
participate and presumptively include holders of a limited
liability company interest such as Units in the Fund.
Accordingly, to the extent losses or deductions from passive
activities of the Fund, when combined with deductions from all
other passive activities of a limited member, exceed the limited
member's income from passive activities, the excess losses or
deductions will be suspended and carried forward to future years
until applied.
Gross income from interest, dividends, annuities or
royalties not derived in the ordinary course of a trade or
business, expenses allocable to such gross income, and gain or
loss attributable to the disposition of property producing such
gross income or property (other than an interest in a passive
activity) held for investment, are not taken into account in
computing income or loss from passive activity but, instead, are
considered "portfolio income items." If a limited liability
company holds assets producing portfolio income items in addition
to the assets used in its trade or business, the gross income
(and gain or loss) from and expenses allocable to such portfolio
assets are considered to arise from an activity which is separate
from any passive activity engaged in by the limited liability
company. Also, that portion of any gain from the sale of an
interest in such a limited liability company will be considered a
portfolio income item to the extent the underlying assets
determined on an applicable date generate portfolio income items.
Income, gain or loss attributable to an investment of working
capital is treated as a portfolio income item.
The taxpayer's net aggregate loss and net aggregate credit
from passive activities are to be allocated to activities, and
within activities, on a pro rata basis as prescribed by Treasury
Regulations. Whether a particular property constitutes a single
activity or part of a larger activity is relevant in determining
the amount of suspended passive losses (if any) for the activity
and whether suspended passive losses (if any) are deductible upon
disposition of such property.
Under IRS regulations, the Fund will have some discretion as
to whether to treat each of the properties that it acquires and
leases as a separate "activity" for purposes of the passive
activity loss rules, or to aggregate some or all of its
properties as a single "activity." If the Fund chose to treat the
operation of different properties as a single activity, the
limited members would be required to adopt the same treatment on
their own tax returns. The aggregation or separation of the
Fund's operations with respect to different properties as a
single "activity" or as multiple "activities" can have tax
consequences to the limited members when the Fund finally
disposes of a property. Upon complete disposition of an interest
in a passive activity, previously suspended passive losses
attributable to that activity, as well as any losses sustained
from the operation of the activity during the year of disposition
and any loss realized on the disposition, can be used to offset
income from other sources, including non-passive income.
In our opinion, and subject to Treasury Regulations which
may be adopted in the future, it is more likely than not that :
(1) the real estate rental activities of the Fund, from
which the Fund does not derive the equivalent of a guaranteed
return or portfolio income or other item not allocable thereto,
will constitute passive activities with respect to a limited
member, and therefore that a limited member's distributive share
of Fund income or loss (computed without taking into account
portfolio income items and other non-passive activity items, if
any) will constitute income or loss from passive activities;
(2) interest income earned on the proceeds of the offering
of Units prior to the investment of such proceeds in real
property and income (or loss) attributable to working capital
investments will be treated as portfolio income items, and losses
from passive activities will not offset an limited member's share
of income derived from such portfolio income items.
CONCLUSION
Subject upon the foregoing we hereby confirm that it is our
opinion that the material tax benefits, in the aggregate, that
are a significant feature of an investment in the Fund are more
likely than not to be realized as contemplated in the "Income Tax
Aspects" section of the Prospectus, subject to the qualifications
stated therein.
This opinion of counsel is based solely upon the facts set
forth herein and in the Prospectus. To the extent that any facts
contained in the Prospectus or in this opinion prove not to be
true it is possible that the conclusion in this opinion might be
changed.
We consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to this firm
under the captions "Legal Opinions" and "Experts" in the
Prospectus.
Dated: March 6, 2001
Very truly yours,
DORSEY & WHITNEY LLP
Dates Referenced Herein
| This ‘SB-2/A’ Filing | | Date | | Other Filings |
|---|
| |  |
| Filed as of: | | 3/23/01 | | None on these Dates |
| Filed on: | | 3/22/01 |
| | 3/6/01 |
| | 1/1/97 |
| List all Filings |
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