Oral agreement creates a valid partnership
Article Abstract:
The court ruled in 'Barron,' TCM 1992-598 that partnership losses must be distributed equally among all partners if the partnership was entered into for tax purposes. It was determined that the partnership allocation, in which the managing partner was allocated 100% of the loss despite having only 25% interest in the partnership, did not have sufficient economic effect and was dismissed. The existence of a partnership only for tax purposes can be determined by examining several factors, including the nature of the agreement between the partners, the partners' conduct, rights of withdrawal, control over capital and the maintenance of separate books. Item allocation is deemed to have substantial economic effect if the partner who was allocated the item is affected by both the economic burdens and benefits of that item.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1993
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Partnership interests were compensation
Article Abstract:
The Eight Circuit ruled in the 'Mark IV Pictures Inc' case that the capital interests given to the general partners in limited partnerships were payment for services rendered when they developed film rights for the partnerships. In the absence of any written contract and in view of arm's-length negotiations, the court did not consider the transaction as an exchange of the film rights for partnership interests as was claimed by the partners. Section 721, which espouses non-recognition of income when property is exchanged for a partnership interest, therefore, did not apply to the transaction. Techniques in avoiding the difficulties encountered in the 'Mark IV' case are suggested.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1992
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Partners' bases reduced by disallowed loss
Article Abstract:
Rev. Rul. 96-10 holds that partners had to lower the bases of their partnership interests by the amount of a disallowed loss from the partnership's sale of property to a related partnership. This stopped the partners to recognize the loss a second time while disposing of their interests. Sec. 705(a) changes the basis of a partnership interest for partnership transactions, thereby guaranteeing that income, deductions and losses will be considered only once while unintended results will be prevented. Thus, if there were no decrease in basis for nondeductible expenditures, partners would be given the right to an equivalent loss on the sale or redemption of their interests.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1996
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