Substantial Economic Effect

Substantial Economic Effect means:
a requirement with regard to the treatment of partnership income. An allocation of items of income, gain, loss, deduction, or credit among the partners in a partnership must have substantial economic effect or be subject to reallocation based on the partners' interests in the partnership. Substantial economic effect means that:

1. there is a reasonable possibility that the allocation will substantially affect the dollar amount of the partners' shares of partnership income or loss independent of tax consequences, or.

2. the partner to whom an allocation is made actually receives the economic benefit or bears the economic burden corresponding to that allocation. Former IRC (check if this IRC provision is current here) §704.