Tax memorandum detailing partnership KUE's treatment of nonrecourse liabilities and distributions

economic risk of loss, known as “nonrecourse liabilities,” will be treated as a deemed distribution of cash to that Partner. A decrease in a Partner's percentage interest in KUE because of KUE’s issuance of additional limited partner units (“Limited Partner Units"} would decrease such Partner's share of Company nonreccurse liabilities, if any, and thus would resuit in a corresponding deemed distribution of cash. Treatment of In-Kind Distributions. KUE's distribution of property (other than cash) to a Partner generally will not be taxable to the Partner unless the property is a “marketable security” and the exceptions to the requirement for recognition of gain upon distributions of marketable securities do not apply. Marketable securities, for these purposes, include actively traded securities or equity interests in another entity that are readily convertible into or exchangeable for cash or other marketable securities. If the distributed property constitutes a marketable security, the property would be treated as cash and the Partner would recognize gain, but not loss, to the extent described above. Basis of Common LP Units. A Limited Partner will have an initial tax basis for its Common LP Units equal to the amount it paid for the Common LP Units plus its share of Company nonrecourse liabilities, if any. That basis will be increased by the Limited Partner’s share of Company income and by any increases in its share of Company nonrecourse liabilities, if any. That basis will be decreased, but not below zero, by distributions from KUE, by the Limited Partner’s share of KUE losses, by any decrease in its share of Company nonrecourse liabilities, if any, and by its share of Company expenditures that are not deductible in computing KUE’s taxable income and are not required to be capitalized. Limitations on Deductibility of Company Losses. The deduction by a Limited Partner of its share of Company lasses will be limited to the adjusted tax basis in its Common LP Units. Limited Partners should be aware that they could be subject to various other limitations on their ability to deduct their allocable shares of Company losses (or items of deductions). Such limitations include, but are not limited to, those relating to "investment interest" expense under Section 163(d) of the Code, "miscellaneous itemized deductions" under Section 67 of the Code, certain other itemized deductions of high income individuals under Section 68 of the Code, the “at risk” rules under Section 485 of the Code, and the deductibility of capital losses under the Code. Prospective investors should consult their tax advisors with respect to the potential application of such rules to their particular situation. Allocation of income, Gain, Loss, and Deduction. If KUE has a net profit or net loss, its items of income, gain, loss, and deduction will be allocated among the Partners in accordance with the provisions of the Limited Partnership Agreement. Dispositions of Common LP Units — Recognition of Gain or Loss. A Limited Partner will recognize gain or loss on a sale of Common LP Units equal to the difference between the amount realized and the Limited Partner's adjusted tax basis for the Common LP Units sold. A Limited Partner's amount realized will be measured by the sum of cash or the fair market value of other property received plus its share of Company nonrecourse liabilities, if any. Generally, gain or loss recognized by a Limited Partner on the sale or exchange of Common LP Units will be taxable as capital gain or loss and as long-term capital gain or loss if the Common LP Units were held for more than twelve months. Non-U.S. Persons Withholding. Ownership of Common LP Units by non-U.S. Persons raises special U.S. federal income tax considerations. To the extent that KUE receives dividends from a U.S. subsidiary, distributions of such dividend income to Limited Partners who are non-US. Persons will be subject to U.S. withholding at a rate of 30%, Certain countries have tax treaties with the U.S. that reduce or eliminate the withholding requirement. To fhe extent that KUE receives dividends from a non-U.S. subsidiary, distributions of such dividend income to Limited Partners who are non-U.S. Persons will not be subject to U.S. tax, unless such income were deemed to be effectively connected with a trade or business conducted by KUE in the U.S. KUE will be required to pay withholding tax with respect to the portion of KUE’s income that is “effectively connected” with the conduct of a U.S. trade or business and which is allocable to non-U.S. Persons. Any amounts KUE is required to remit to taxing authorities will be treated as a distribution to the Partner on whose behalf the withholding is being paid and will be charged against current and/or future 143 HOUSE_OVERSIGHT_024576