Partnership regs. apply sale rules to some distributions

Article Abstract:

The US Congress has introduced Secs. 707(a)(2)(B), 704(c)(1)(B) and 737 to fight perceive partnership abuse of distributions. Under Sec. 707(a)(2)(B), gain may be recognized on a disguised sale between a partner and a partnership. On the other hand, Sec. 704(c)(1)(B) deals with indirect exchanges between partners. It compares property transactions between partners and a partnership within a five-year period with sales, and allows for recognition of gain or loss. According to Sec. 737, a partner who contributes property to a partnership and subsequently obtains a distribution of partnership property may have to recognize gain on the distribution. Transfers within a five-year period are also covered by this provision. Tax professionals should understand these provisions in designing and planning for distributions of partnership property.

Recognition of gain or loss (Taxation), Recognized gain or loss (Taxation)

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Partnership regs. attach gain to some distributions

Article Abstract:

Final regulations included in Sec. 704(c)(1)(B) and Sec. 737 enforce some limitations on the flexibility usually reserved for partnership taxation. Sec. 704(c)(1)(B) requires recognition of gain by the contributing partner when the property contributed is distributed within five years to another partner. Sec. 737 inhibits deferral of gains by mandating recognition when a contributing partner obtains a distribution of other partnership property within five years that appreciated property is contributed. This section addresses only recognition of gain and not of losses, unlike Sec. 704(c)(1)(B). It is hoped that the final regulations will prevent abuse of the tax law by individuals who will use the partnership form to hide sales of property. The regulations take effect for partnership distributions after Jan. 8, 1995.

Partnership distributions

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Abandoning partnership interest produces a loss

Article Abstract:

Loss as a consequence of the abandonment of partnership interest may be considered ordinary, rather than capital, if certain requirements are met. Qualifying for ordinary loss form such an abandonment requires that the partnership has neither profits nor liabilities. Abandonment loss may be claimed if there is manifest intent to abandon the asset, accompanied by an affirmative act of abandonment.

Business losses

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