Substantial Economic Effect is a regulatory standard in U.S. partnership tax law under IRC §704(b) that characterizes an allocation of partnership income, gain, loss, deduction, or credit as valid for tax purposes only if it both has economic effect—i.e., is reflected in partners’ capital accounts and liquidation rights so that the partner bearing the true economic benefit or burden receives the corresponding tax item—and is substantial—i.e., has a reasonable possibility of materially altering the dollar amounts partners will receive from the partnership independent of tax consequences.