New regulations regarding tax allocations attributable to contributed property

Article Abstract:

Final and temporary regulations under IRC section 704(c) has been released by the IRS to define the allocation methods available to partnerships that must allocate tax attributes resulting from contribution to partnerships of property with conflicting tax bases and book values. The methods provided are the traditional method, the traditional method with curative allocations and the remedial allocation method. The taxpayer need not use the method that maximizes tax liability, but the regulations do identify instances where use of a particular method would be inappropriate.

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Allocation of nonrecourse debt attributable to contributed property

Article Abstract:

IRS Revenue Ruling 95-41 details how basis allocations should be made when allocating nonrecourse debt related to property contributed to a partnership. The ruling demonstrates how the three-tiered approach of the IRC section 752 regulations should be applied. In the first tier, debt is allocated based on minimum gain received as a result of the property contributed. Allocation using one of three methods is then used for the contributing partner. The residual nonrecourse debt is then allocated in the third tier based on share of profits or some other method.

Nonrecourse debt

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New Section 737 - a new method to tax property distributions

Article Abstract:

IRC section 737 requires the recognition of pre-contribution gain by a partnership that receives property in excess of the partnership's basis. Recognition of gain must be declared by a partner if the donations value exceeds basis and if distributions in the next five years exceed the value of basis before the donation. Inadvertent partnership terminations under IRC section 708(b)(1)(B) could cause problems with the new rules.

Real property tax, Real property taxes

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