Academic journal article Journal of Accountancy

Partnership Basis Rules Proposed

Academic journal article Journal of Accountancy

Partnership Basis Rules Proposed

Article excerpt

The IRS issued proposed regulations providing guidance on the application of Sec. 704(c)(1)(C) added by the American Jobs Creation Act of 2004 (AJCA), RL. 108-357, and the amendments to the mandatory basis adjustment rules of Sec. 743 in the AJCA. The proposed regulations would also conform the regulations to account for the extended time periods in Secs. 704(c)(1)(B) and 737(b)(1) for taxing precontribution gain that were made by the Taxpayer Relief Act of 1997, RL. 105-34. The proposed regulations would also modify the basis allocation rules to prevent certain unintended consequences of the current basis allocation rules for substituted basis transactions and provide additional guidance on allocations resulting from revaluations of partnership property. The rules also contain reporting requirements and the provisions for electing investment partnerships and securitization partnerships.

Sec. 704(c)(1)(C) provides that a partner's built-in loss may be taken into account only in determining the contributing partner's share of partnership items. The proposed regulations provide rules regarding (1) the scope of Sec. 704(c)(1)(C); (2) the effect of the built-in loss; (3) distributions by partnerships holding Sec. 704(c)(1)(C) property; (4) transfers of a Sec. 704(c)(1)(C) partner's partnership interest; (5) transfers of Sec. 704(c)(1)(C) property; and (6) reporting requirements.

Under the amendments to Sec. 743 in the AJCA, the mandatory basis adjustment rules were changed to require a partnership to adjust the basis of partnership property upon the sale or exchange of a partnership interest or upon the death of a partner if the partnership has a substantial built-in loss immediately after the transfer. …

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