Exhibit 8.1
SNOW BECKER KRAUSS P.C.
605 Third Avenue
New York, N.Y. 10158
January 14, 2003
AmeriFirst Fund I, LLC
814 North Highway A1A, Suite 300
Ponte Vedra Beach, FL 32082
AmeriFirst Financial Services, Inc.
814 North Highway A1A, Suite 300
Ponte Vedra Beach, FL 32082
Re: AmeriFirst Fund I, LLC - Federal Tax Opinion Exhibit 8.1
Registration Statement on Form S-1 (File No. 333-98651)
Ladies and Gentlemen:
This is an opinion which you have requested as to the summary of federal
income tax consequences set forth in the section entitled "RISKS FACTORS," under
the subheading "Tax Risk Factors" and in the section entitled "FEDERAL INCOME
TAX CONSEQUENCES" of the prospectus ("Prospectus") contained in the Form S-1
Registration Statement for AmeriFirst Fund I, LLC (the "Fund") filed with the
Securities and Exchange Commission in connection with the registration under the
Securities Act of 1933, as amended. The Fund, a Florida limited liability
company, proposes to issue and sell up to $100,000,000 aggregate principal
amount of Units of limited liability company interests ("Units") in the Fund as
set forth in the Operating Agreement of the Fund attached as Exhibit B to the
Prospectus dated as of September 25, 2002.
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We have been retained to represent AmeriFirst Financial Services, Inc.
(the "Manager") and the Fund in connection with the offering of the Units. We
have not represented the members, or any other party in connection with the
preparation of this opinion or the offering of Securities by the Fund. In
rendering this opinion, we have examined the following:
1. The Amended and Restated Operating Agreement of the Fund, dated as
of September 25, 2002, as amended (the "Operating Agreement").
2. The Articles of Organization of the Fund filed with the Office of
the Secretary of State of the State of Florida (the "Articles").
3. The Prospectus.
4. Such other documents and instruments we have considered necessary
for rendering the opinions hereinafter set forth, including, but not
limited to, the Subscription Agreement.
In our examination of the forgoing, we have assumed the authenticity of
original documents, the accuracy of copies and the genuineness of signatures.
We have also conducted various meetings, discussions and conversations
with the Manager regarding the offer and sale of the Units. Nothing has come to
our attention in our representation of the Fund that would make it unreasonable
to assume that the above documents will be utilized in the manner intended as
set forth in those documents. However, we have not independently verified any of
the facts or representations contained in such documents.
As to matters of fact, we have relied upon certificates of the Manager,
public officials or other persons and other documents and have assumed the
genuineness of all signatures, the authenticity of all
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documents purporting to be originals, and the conformity to the originals of all
documents purporting to be copies thereof.
In rendering this Opinion, we have assumed that: (1) each other party that
has executed or will execute a document, instrument or agreement to which the
Fund is a party duly and validly executed and delivered each document,
instrument or agreement to which such party is a signatory and that such party's
obligations set forth therein are its legal, valid and binding obligations,
enforceable in accordance with their respective terms; (2) each person executing
any document, instrument or agreement on behalf of any such party is duly
authorized to do so; and (3) each natural person executing any instrument,
document or agreement referred to herein is legally competent to do so.
We are lawyers admitted to practice in New York and have reviewed such
laws of the United States and New York as we have deemed necessary for the
purpose of providing the opinions set forth herein. We have not reviewed the
laws of any jurisdiction other than the United States and New York, and
accordingly, we express no opinion herein as to the laws of any other state or
jurisdiction.
Capitalized terms used herein and not otherwise defined in this opinion
shall have the same meaning as they have in the Operating Agreement, as the
context requires.
We have made the following observations and assumptions based on the
documents which we have reviewed for purposes of our opinion and our discussions
and conversations with the Manager:
1. That (i) the Fund has an objective to carry on business for profit
and derive the gains therefrom; (ii) the Fund has taken, and will in
the future continue to take all action necessary under the laws of
Florida and any other applicable jurisdiction to permit it to
conduct business in those states as contemplated by the Operating
Agreement; and (iii)
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the offer and sale of the Units have been made in strict compliance
with the terms of the Prospectus;
2. That (i) income and losses of the Fund each year will be computed in
accordance with the applicable provisions of the Code and the
regulations promulgated thereunder, and (ii) no actions will be
taken by the Fund or by any of the Partners after the date of this
opinion which would have the effect of changing the tax results set
forth below.
3. That the Fund will be operated in accordance with the Operating
Agreement, and it will have the characteristics described in the
Prospectus and will be operated as described in the Prospectus.
4. That the Fund will not elect to be taxed as an association for
Federal income tax purposes under the check the box regulations.
5. That the life insurance policies will purchased on substantially the
terms and conditions described in the Prospectus under "Business".
6. That the Manager will take certain steps to enforce restrictions in
the Operating Agreement limiting the transfer of the units to
decrease the likelihood that the ownership of the Trust could cause
it to be treated as a publicly traded partnership for purposes of
Sections 7704 469(k), and 512(c) of the Code even if its income were
treated as other than passive interest income.
7. That potential purchasers of Units have been fully informed that the
sale, transfer and assignment of the Units are subject to
restrictions and may not be sold, transferred or assigned except in
accordance with the terms of the Operating Agreement of the Fund.
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This opinion is based upon the provisions of the Internal Revenue Code of
1986 (the "Code"), as amended the applicable Treasury Regulations promulgated
thereunder (the "Regulations") and proposed Treasury Regulations (the "Proposed
Treasury Regulations"), current administrative rulings and judicial opinions of
the foregoing, all existing as of the date of this letter. It must be
emphasized, however, that all such authority is subject to modification at any
time by legislative, judicial and/or administrative action and that any such
modification could be applied on a retroactive basis. Future tax proposals may
have a material adverse effect on the potential tax benefits that may be
expected to be realized from an investment in the Fund. Even under current law,
the existence and amount of deductions expected to be claimed by the Fund depend
on certain factual determinations and characterizations (such as whether the
Fund by reason of its activities is a "dealer") and such determinations and
characterizations may be subject to challenge by the Internal Revenue Service
(the "Service") upon an audit of either the personal tax return of a Partner or
of the Fund.
Certain provisions of the Code apply to tax shelters. For this purpose,
tax shelter means an entity including a limited liability company (such as the
Fund) if the principal purpose of the entity, plan or arrangement, based on
objective evidence, is the avoidance or evasion of Federal income tax, if that
exceeds any other purpose. It is our opinion that the Fund will not be
considered a "tax shelter." In rendering this opinion, we have considered the
relevant professional standards, including the requirements of Revised Formal
Opinion 346 issued on January 29, 1982 by the American Bar Association's
Standing Committee on Ethics and Professional Responsibility and Treasury
Department Circular 230, as modified by 31 C.F.R. Part 10, ss. 10.7 (February
14, 1984). Generally speaking, under Opinion 346 and Circular 230, counsel must
consider all material tax issues in light of the facts and must fully and fairly
address all such issues. Further, where possible, an opinion should be
formulated as to the likely outcome on the merits of all material tax issues. In
addition, an overall evaluation should be made of the extent to which tax
benefits of the proposed investment in the aggregate are likely to be realized.
The Fund will not request a ruling from the Service as to any tax matters
related to the herein described transactions. While the Fund will receive this
opinion as to certain tax matters, it is not binding upon the Service. Thus,
there can be no assurance that the Service will not contest one or more of the
conclusions reached herein, or one or more tax matters as to which no opinion is
expressed
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herein, nor can there be any assurance that the Service will not prevail in any
such contest. Further, even if the Service was not successful in any such
contest, the Fund, in opposing the Service's position, could incur substantial
legal, accounting and other expenses.
OPINION
As more fully described in the section of the Prospectus entitled "FEDERAL
INCOME TAX CONSEQUENCES" and specifically subject to the qualifications set
forth therein, it is our opinion that:
The summary of the income tax consequences set forth in the section of the
Prospectus entitled "RISKS FACTORS" under the subheadings "General Tax Risks"
and in the sections entitled "FEDERAL INCOME TAX CONSEQUENCES" is an accurate
statement of the matters discussed therein and, to the extent such summary
involves matters of law, is correct under the Code, the Regulations, and
existing interpretations.
Classification as a Partnership
Under IRS Regulations published in Treasury Decision 2697, effective
January 1, 1997, a limited liability company ("LLC") can be classified as either
a partnership or a corporation under the so-called check-the-box Regulations.
The Company intends to elect to be tax as a partnership pursuant to those
Regulations. Therefore, owners of memberships interests in the Company will be
taxed in the same manner as partners in a partnership. The following describes
the manner in which individuals who are owners of membership interests and the
Company are taxed under the current law. Thus, in general, the opinion only
deals with tax consequences to individuals investing in the Company.
For taxable years beginning after 1987, a publicly traded partnership is
taxed as a corporation unless 90 percent of such partnership's income is
passive-type income. On the first day that a publicly
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traded partnership is treated as a corporation under these rules, the
partnership is treated as having transferred all of its assets (subject to its
liabilities) to a new corporation in exchange for the stock of such corporation,
followed by a distribution of the stock to its partners in liquidation of its
partnership interests. A publicly traded partnership is a partnership that is
traded on an established securities market, or is readily tradable on a
secondary market, or the substantial equivalent thereof.
The Operating Agreement of the Company imposes restrictions on the
transfer of membership interests designed to preclude the Company from becoming
a publicly traded partnership. There is no assurance that the Internal Revenue
Service will respect such restrictions should transfers of Membership Interests
be made contrary to the restrictions in such a manner as to result in the
conditions for classification as a "publicly traded" partnership taking place.
However, aside from the fact that such restriction will make it unlikely that
the Company will become a publicly traded partnership, private letter rulings
issued with respect to a similar issue indicate that the IRS will respect such
limitations. Under Section 382 of the Code, certain transfers of shares can
cause a sufficient change in ownership to result in a significant reduction in
available net operating loss carry-overs. In a number of private letters
rulings, the IRS has ruled that stock transfer restrictions designed to preclude
such an ownership change will be given effect for tax purposes provided that
such restrictions are enforceable under the local law in accordance with their
terms, and provided that the enforcement mechanism adopted by the business to
enforce the stock transfer restriction has been complied with, Under those
circumstances, the IRS ruled that a purported acquirer of the loss corporation's
stock shall not be treated as having acquired ownership of the prohibited
shares. The IRS also ruled, however, that should a court rule that the stock
transfer restriction is unenforceable , then ownership of the prohibited shares
will be treated as having been acquired by the purported acquirer on the date
the shares were actually acquired. Ltr. Rul. 9351011 of 9/23/1993; Ltr. Rul.
8949090 of 9/11/1989; Ltr. Rul. 20024047 of 6/19/2000.
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Although the private letter rulings were issued with respect to a
different tax provision and, as private letter rulings, are only precedential
with respect to the taxpayer to which the ruling is addressed, it is our opinion
that the position taken by the IRS will be applied to the Company's restrictions
on transfer of membership interests intended to preclude the Company from
becoming publicly traded since the issues are comparable.
Taxation of Partnership and Partner.
The Federal income tax laws recognize a partnership as an entity having
its own taxable year (within limits) and having its own income and losses. A
partnership computes its income much as an individual does. However, once its
income for its tax year is determined, the partnership does not, in general, pay
taxes. IRC Sections 701, 703. As noted, certain publicly traded partnerships are
subject to tax at the entity level.
The partnership reports its income on an information return (Form 1065).
It also reports to each individual partner that partner's share of items of
partnership income, gains, losses, deductions and credits (on Schedule K-1 Form
1065). A partner then reports on his or her individual income tax return and
subject to any limitations applicable to him or her, his or her distributive
share of the partnership's taxable income or loss, and separately stated items
of partnership income, gain, loss deductions and credits. IRC Section 702 (a)
Treasury Reg. Section 1-702-1(a). A partner's share of partnership miscellaneous
itemized deductions is combined with his or her individual miscellaneous
deductions for purposes of the two percent floor on such deductions. Temp Reg.
Section 1-67 - 2T(b). A partner's share of the partnership's investment interest
expense is combined with his individual investment interest expense to determine
the amount deductible as investment interest. Rev Rule 84-131, 1984-2 CB, 37. A
partner's distributive share of income, losses, and credits that are passive to
the partner enter into the calculation of the taxpayer's passive income and
losses and tax attributable to passive activities to determine
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whether passive credits may be taken and passive losses deducted (see discussion
of passive income and loss infra).
As a consequence of this "flow through" system of taxability,
distributions during the year are not the measure of a partner's share of
partnership income for a year. A partner may have taxable income without having
received a distribution. The existence of conditions upon actual or constructive
receipt is irrelevant for this purpose. Stonehill v. Comm., TC memo 1987-405.
Similarly, a partner may have a deductible loss even if the partner receives a
distribution.
A partner includes in his return for a year his distributive share of
partnership items of income, gain, loss deductions and credits for the
partnership year that ends in or at the same time as his own year. Since most
individuals report on a calendar year basis, an individual partner generally
includes partnership income for the same calendar year as a partnership that
reports on the calendar year basis.
A partner's "basis" is an account of his interest in the partnership for
tax purposes; for example, to determine tax on cash distributions, gain or loss
on sale, or the limit on loss deductions. Initially, a partner's basis is the
amount of money and the adjusted basis of any property the partner has
contributed to the partnership , it undergoes a series of adjustments,
thereafter IRC Section 722, 705. A partner's basis is increased by any further
contributions and by the partner's distributive share of taxable income, tax
exempt income, and the excess of the deductions for the basis of the property
subject to depletion. IRC Section 705 (a) (1). Treasury Reg. Section 1-705-1(a)
(z). His basis is decreased (but not below zero) by current distributions to the
partner by the partnership and by his distributive share of losses,
non-deductible expenditures not properly chargeable to capital, and decreased
(but not below zero) by the amount of the partner's deduction for depletion with
respect to oil and gas wells. IRC Section 705 (a) (2), 705 (a) (3).
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A partner's basis also includes his share of partnership liabilities. His
basis is increased by any increase in his share of partnership liabilities as if
he had made a cash contribution. IRC Section 752 (a), 705 (a). A partner is
deemed to receive a cash distribution to the extent his share of partnership
liabilities decreases. Thus, a partner's basis is decreased if his share of
partnership liabilities decreases. IRC Section 752 (b), 705 (a) (2).
Regulations provide an economic risk of loss analysis that is used to
determine which liabilities are included in a partner's adjusted basis. For an
organization such as the Company which is taxed as a partnership, a Company
liability is treated as a recourse liability to the extent that any partner
bears the economic risk of loss for that liability. Tres. Reg. Section
1.752-1(a)(1). A partner bears the economic risk of loss for a partnership
liability to the extent that the partner (or certain related parties) would be
obligated to make a payment to any person or a contribution to the partnership
with respect to a partnership liability (and would not be entitled to
reimbursement by another partner, certain parties related to another partner, or
the partnership) if the partnership were to undergo a "constructive
liquidation." A constructive liquidation would treat (1) all of the
partnership's liabilities as due and payable in full; (2) all of the partnership
assets (including money) except those contributed to secure a partnership
liability, as worthless; (3) all of the partnership assets as disposed of in a
fully taxable transaction for no consideration (other than relief from certain
liabilities); (4) all items of partnership income, gain, loss, and deduction for
the year as allocated among the partners; and (5) the partners' interests in the
enterprise as liquidated. Treas. Reg. Section 1.752-2 (b)(1).
Amounts paid or incurred to organize a partnership are not immediately
deductible. They may be deducted ratably over a period of at least 60 months,
starting with the month the partnership begins business. IRC Section 709 (b).
These expenses include legal fees for services incident to organization,
accounting fees for the establishment of the partnership accounting system and
necessary filing fees. Treasury Reg. Section 1.709-2 (a). However, expenses to
promote the sale of (or to sell) an interest in the partnership (syndication
expenses) cannot be deducted and cannot be amortized. IRC Section
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709 (a); Reg. Rul. 81-153, 1981-CB 387. They must be capitalized. Treas. Reg.
Section 1-709-2 (b); Rev. Rul. 85-32, 1985-1 CB 186. Syndication expenses are
those connected with issuing and marketing membership interests. For example,
according to the Regulations, syndication expenses include brokerage fees,
registration fees, legal fees for securities advice and advice pertaining to tax
disclosures in the prospectus or prospective placement memorandum, printing
costs of prospectus, placement memorandum and other selling and promotional
motives. Treas. Reg 1.709-2 (b).
A partner may not deduct his share of partnership losses in excess of his
basis in his partnership interest determined as of the end of the partnership
year in which the loss occurred (before reduction for the loss). Any excess loss
may be deducted in succeeding years, but only to the extent of his basis at the
end of the particular partnership year. IRC Section 704 (d); Treas. Reg. Section
1.704-1 (d) (1).
A partner may not deduct in a year a loss from any activity to the extent
the loss exceeds the amount "at risk" in the activity IRC Section 465. Thus a
partner may deduct losses of a partnership to the extent of his basis, but the
partner may not deduct losses in excess of the amount he has "at risk" in the
venture if that is less than his basis in his partnership interest.
Current cash distributions (i.e. not in liquidation of a partner's
interest) that are not in excess of the partner's adjusted basis in his
partnership interest immediately before the distribution, are a nontaxable
return of capital. IRC Sec 731(a). The partner's adjusted basis in his
partnership interest is reduced by the amount of such cash distributions. IRC
Sec 733. To the extent that a cash distribution to a partner exceeds his basis
in his partnership interest immediately before the distribution, the partner
realizes a gain that is taxed as a sale of partnership interest. This is true of
a current cash distribution or a cash distribution in liquidation of a partner's
interest.
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A decrease in a partner's share of nonrecourse liabilities is considered,
for tax purposes, a cash distribution. IRC Sec 752 (b). To the extent that such
a deemed distribution exceeds the partner's bases in his partnership interest,
he has a taxable gain. IRC Sec 731 (a).
Transfer for Value Rule
As a general rule, IRC Section 101(a)(2) provides that if a policy, or any
interest in a policy, is transferred for valuable consideration, the death
proceeds will generally be received exempt from tax only to the extent of the
consideration paid by the transferee and net premiums, if any, paid by the
transferee after the transfer. Also, any interest paid or accrued by the
transferee or indebtedness with respect tot he policy is added to the exempt
amount if the interest is not deduction under IRC Section 264(a)(2).
The transfer for value rule does not apply where the policy is transferred
to a partner of the insured or to a partnership in which the insured is a
partner. IRC Sec 101(a)(20)(B). However, the partnership must actually operate
as one and not exist in form only. Swanson v. Comm 75-2 USTC 9528 (8th Cir. 1975
affg T.C. Memo 1974-61. But, see, Let Rul 9309021. The service has ruled
privately that members of a limited liability company such as the Company which
is classified as a partnership for federal purposes, would be considered
"partners" for purposes of the transfer for value rule. Let Rul 962013.
The Company intends to purchase life insurance contracts from individual
as who may be members of the Company prior to, or who may become members inc
connection with such a purchase. Depending on the facts and circumstances of the
transaction, the Company may take the position that the policy acquired is
subject to the exception to the transfer for value rule noted above which
permits the life insurance proceeds to be received income tax free under section
101(a) of the Code. The Service may challenge such position by asserting, among
other things, that the transaction was a sale of
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the policy followed by admission of the seller to membership in the Company. If
the Service were successful, the proceeds would be included in the Company's
income. Any such adjustment would increase taxable income reported to Members
and could require the filing of amended tax returns.
Passive Loss Rules
Under the passive loss rule, aggregate losses from "passive" activities
may generally be deducted in a year only to the extent they do not exceed
aggregate income from passive activities in that year; credits from passive
activities may be taken against tax liability allocated only to passive
activities. IRC Sec 469. A passive activity is any activity that involves the
conduct of a trade or business in which the taxpayer does not "materially
participate" IRC Sec 469(c).
Whether an activity is passive or not with regard to an individual taxed
as a partner is determined at the level of the partner (not at the level of the
entity). Therefore, such rule will apply to each member. Such determination is
made with regard to the entity's taxable year (not the partner's taxable year.)
Temp. Treas. Reg ss.ss. 1.469-2T(e)(i), 1.469-3T (b)(3).
In general, a taxpayer is considered to materially participate in an
activity on a regular, continuous, and substantial basis. IRC Section 469(h)(1).
The material participation requirement is met by an individual if he satisfies
any one of the following five tests: (1) he does substantially all of the work
required by the activity, (2) he participates in the activity for more than 500
hours during the year, (3) he participates in the activity for more than 100
hours during the year and meets certain other requirements, (4) he has
materially participated in the activity, in 5 out of the 10 preceding years,
determined without regard to this test; or (5) he materially participates in the
activity, which involves the performance of personal services, in any three
preceding years.
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An individual who is a limited partner in a partnership is treated as
materially participating only if he also owns a general partnership interest, of
if he can meet tests (2), (4) or (5). Temp. Treas. Reg. ss. 1.469-5T. Members
should anticipate that similar requirements will be applied to limited liability
companies such as the Company. Accordingly, members should consider that, in the
usual case, they will be subject to the passive activity loss rules.
The determination as to whether a loss is disallowed under the passive
loss rule is made after the application of (i) the limitations on the
deductibility of losses in excess of basis with respect to investments in a
partnership and (ii) the limitation of losses to the amount of "at risk"
investment. A passive loss that would not be allowed because of the basis
limitations or the at risk rule is suspended and carried forward under the basis
and/or at risk provision, not the passive loss rule. The amount becomes subject
to the passive loss rule in subsequent years when it would be otherwise
allowable under both the basis and at risk limitations. Temp. Treas. Reg ss.
1.469-2T(d).
A passive loss or credit disallowed under the passive loss rule in one
year may be carried over and taken in a later year in which the taxpayer has
passive activity income or tax liability. IRC Sec 469(c). If a passive activity
is disposed of in a fully taxable transaction, losses from the activity will
receive ordinary loss treatment, (i.e., they may generally be used to offset
other income of the taxpayer to the extent that they exceed net income or gain
from all passive activities (determined without regard to the losses just
discussed) for the year. IRC Sec. 469C(3).
"At Risk" Rule
The "at risk" rule is a group of provisions in the IRC and the regulations
that limit the current deductibility of "losses" generated by certain tax
shelters and certain other activities to the amount the taxpayer actually has
"at risk" (i.e. in the economic sense) in the business. The rule applies to
those taxed as partners in entities such as the Company which are taxed as
partnerships and which generate
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tax deductions in excess of the amount for which the investor actually bears the
risk of loss. See, Sen. Rg. 94-938, 1976-3 CB (Vol. 3) 57, at 83.
An individual has an amount "at risk" in an activity in an amount equal
to:
1. The amount of money he has contributed to the activity. Prop. Treas.
Reg. ss.ss.1.465-6, 1.465-20, 1.465-25. In the case of an entity taxed as a
partnership, amounts required to be contributed under the partnership agreement
are not "at risk" until the contribution is actually made. If an individual
borrows the money to purchase his membership interest, he is "at risk" only to
the extent he is personally liable to repay such amounts, or to the extent he
pledges as security property not used in the activity. Prop Treas. Reg 1-465-6.
2. The partner's tax basis (for determining loss) in any property other
than money contributed to the activity.
3. Amounts borrowed in the conduct of the activity for use in the activity
to the extent the individual is personally liable for the repayment.
4. Amounts borrowed for use in the activity and for which the individual
is not personally liable for repayment, but only to the extent he pledges
property that is not used in the activity as security for repayment.
"Loss" is given a special meaning for purposes of applying the at risk
limitations. "At risk loss" is the excess of the income tax deductions
(including deductions normally accorded special treatment, such as tax
preferences, short-term loss, long term loss) attributable to the covered
activity over the income received or accrued during the year from the activity.
(Both deductions and income are determined without regard to the at risk
provisions at this point.) Thus, otherwise allowable deductions
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may be taken freely against income generated by the activity regardless of the
taxpayer's amount at risk in the activity. The at risk provisions act only to
deny a deduction when the taxpayer attempts to use a loss incurred in the
covered activity to offset income received by the taxpayer from a separate
source. IRC Sec. 465; Prop. Treas. Reg 1.465-2(a).
Losses disallowed because of the at risk rule may be carried forwarded
indefinitely and deducted in future years to the extent that the activity
produces net income for that year, or to the extent that the taxpayer's amount
at risk has been increased by additional contributions, etc. to the activity.
IRC Sec. 465(a)(2); Prop. Treas. Reg ss.1.465-2(b). However, because the "at
risk loss" is made up of various deductions (including some normally accorded
special tax treatment), the proposed regulations provide ordering rules that
allocate the items of deductions between the current and carryover years. Items
disallowed in the current tax year will retain their character when treated as
deductions in succeeding years. Prop. Treas. Reg. ss. 1.465-38(b).
Alternative minimum tax
In addition to the tax calculated under the normal rate, it is sometimes
necessary for an individual taxpayer to pay a minimum tax. The alternative
minimum tax ("AMT") is calculated by first determining the alternative minimum
taxable income ("AMTI"), reducing the amount by the allowable exemption, and
then applying the alternative minimum tax rate of 21% of the tax calculated in
this manner and reduced by the alternative minimum tax foreign tax credit. To
the extent the tax as calculated exceeds the regularly calculated tax (with
adjustments) for the tax year, the excess is the alternative minimum tax IRC
Sec. d55(a), 55(b).
AMTI income is regularly calculated taxable income with adjustments made
in the way certain items and treated for alternative minimum tax purpose, and
increased by any items of tax preference. Based on the contemplated method of
operation of the Company, no items of tax preference which
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must be added to gross income for purposes of calculating AMTI should be
generated by the Company's operation.
The IRC requires that the "at risk" limitations to applied separately with
respect to each separate activity subject to the rules.
SCOPE OF OPINION
In the preparation of the Prospectus and in rendition of this Opinion, we
have sought to adhere to certain relevant professional standards embodied in
federal regulations and in American Bar Association Formal Opinion 346 regarding
the rendition of tax opinions. These standards direct a lawyer issuing certain
tax opinions to consider all material tax issues and to address fully and fairly
in the offering materials all the material tax issues which involve the
reasonable possibility of a challenge by the Internal Revenue Service. The
foregoing addresses, in our opinion, all material tax issues which involve a
reasonable possibility of challenge by the IRS. We believe that this opinion,
together with the section in the Prospectus entitled "FEDERAL INCOME TAX
CONSEQUENCES," addresses fully and fairly all such issues. It is not feasible to
present in this opinion (and in the section of the Prospectus entitled "FEDERAL
INCOME TAX" ("CONSEQUENCES") a detailed explanation of the effect of the tax
treatment of limited liability companies originating, investing in, holding,
selling and disposing of loans, or the tax treatment of investments in such
limited liability companies. Further, although the transactions contemplated by
the Prospectus are prospective in nature, we are not assuming an obligation to
revise or supplement this Opinion Letter should applicable law be changed by
legislative, judicial or administrative action or otherwise.
There is no assurance that the Service will not raise issues that have not
been discussed herein. The Service may disagree with our conclusions and may be
upheld by a court. The Service has indicated that it will closely scrutinize
activities such as those in which the Fund will be engaged, and
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there is a very substantial possibility that the Service will examine the Fund's
activities and take positions adverse to the Fund. The foregoing risks are based
upon the fact that the law, with respect to many of the issues, is still
developing and there is little or no judicial precedent interpreting these
issues either, in some cases, with respect to particular categories of taxpayers
(such as tax exempt organizations) or in other cases for all categories of
taxpayers (e.g., the scope of "portfolio income").
No opinion is expressed with respect to Federal or state securities laws,
state and local taxes, and Federal income tax issues other than those discussed
herein, or any other Federal or state laws not explicitly referred to or
discussed herein.
Except as set forth herein, we have made no independent attempts to verify
the facts or representations or assumptions made herein except to the extent we
deem reasonable under ABA Formal Opinion 346 and 335 and in connection with our
position as counsel to the Fund. Where we render an opinion "to the best of our
knowledge" or concerning an item that "has come to our attention" or our opinion
otherwise refers to knowledge it means a conscious awareness of facts or other
information based upon: (1) any inquiry of attorneys within this firm; (2)
receipt of a certificate executed by the Manager covering such matters; (3) such
other actual investigation, if any, that we specifically set forth herein,
Reference to "us" or "our" is limited to a reference to the lawyer who signs
this Opinion letter or any lawyer of this firm who has been actively involved in
preparing the documents.
The opinions expressed in this letter are based solely upon the
information and representations set forth above and we have not attempted, nor
deemed it necessary, to verify independently the relevant or pertinent facts or
representations. If there have been any misstatements of a fact or omission of
any material facts, or any amendment or change in any document referred to
herein, please notify us, since any misstatement, omission or change, after the
date of this Opinion may effect all or part of this letter. We expressly
disclaim any obligation to notify you of any changes in law that might take
effect after the date hereof that would change or modify any of our opinions
expressed above.
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This opinion is furnished to advise the Fund, the Members, and you
concerning the federal income tax issues discussed herein. We have not
represented the Members. Except as expressly set forth herein, this opinion may
not be filed with or furnished to any other person, or any governmental agency,
and may not be quoted in whole or in part or otherwise referred to in any
context, without, in each instance, our prior written consent, and without, in
each instance, the exercise of due diligence on your part to verify that there
are no material errors or omissions of fact and no changes in the facts or in
the text of the documents you have provided to us.
We hereby consent to the inclusion of this opinion in the Registration
Statement as an Exhibit thereto and to the references to our firm under the
heading "FEDERAL INCOME TAX CONSEQUENCES" and "EXPERTS" in the Prospectus.
Very truly yours,
/s/ Snow Becker Krauss P.C.
SNOW BECKER KRAUSS P.C.
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