Ordinary loss

Article Abstract:

Cases concerning abandonment or worthlessness losses becoming ordinary losses under IRC section 165 because partnership liabilities are retained fail to consider a more important aspect which is the effect on passive losses. An ordinary loss can be claimed without a sale or exchange of property if liabilities are retained, but the passive losses remain suspended. However, a partner without liabilities can claim a termination of the partnership interest and release all suspended passive losses which is more advantageous to the taxpayer so the IRS should not contest ordinary loss claims.

Analysis, Passive activity (Taxation)

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Discretion

Article Abstract:

An analysis of cases between the IRS and other parties concerning the allowability of losses for worthlessness of partnership interest or real estate reveals the need for Echols v Commissioner's taxpayer discretion. The IRS inconsistently determines the loss year to deny loss deductions for the year requested and then denies deductions for the year it specifies the loss occurred. This philosophy has worked in many cases because the abandonment occurred in a year other than the one determined to include the loss and thus the loss year lacks a closed and completed event.

Tax deductions

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Echols and the worthlessness of the partnership interest

Article Abstract:

The Fifth Circuit Court of Appeals held, in Echols v Commissioner, that a loss for worthlessness could be claimed without an identifiable event and that the taxpayer had discretion to determine the year of the loss. The Echols decision appeared to be groundbreaking but was clearly supported by earlier cases though it did raise interest in the ability to abandon partnership interest.

Partnership, Partnerships

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