Transfer of property or services for a partnership interest not always tax free

Article Abstract:

Partners generally may transfer property into and out of partnerships without recognizing gains or losses on the transfers. A distributing partner typically recognizes a gain only when the cash receipts exceed the outside basis of the partner. Distributing partners never recognize losses on ordinary partnership distributions. By allocating gross income to a partner providing property or services with a useful life extending beyond the end of a taxable year, partnerships can gain the equivalent of current deductions for capital expenditures. Section 707 covers disguised payment and sales rules, which are rules of economic substance that determine whether transactions are properly characterized as sales or exchanges that arise in connection with asset acquisition or capitalized costs. Generally, the substance of the transaction decides whether the partner realizes a gain on a transfer of property to a partnership.

Analysis, Property taxes, Property tax, Transfer (Law)

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Effects of partnership distributions depend on type of distribution, property distributed

Article Abstract:

The tax consequences of various types of partnership distributions are discussed. A partnership distribution can be either cash, property, or a combination of the two. Cash distributions can be either actual or constructive. The distribution can be either current or liquidating. The ultimate cash distribution relating to a partner's distributive share is generally not considered taxable income under the aggregate approach to partnership taxation, because the partner is taxed on his distributive share of partnership income. A liquidating distribution is like a current distribution in that gain is only recognized when the distribution exceeds the basis of the partner's interest. A limited loss can be recognized in a liquidating distribution, however.

Liquidation

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Partner was "at risk" for letter of credit

Article Abstract:

A limited partner who donated a letter of credit to an oil and gas limited partnership and assumed a portion of the partnership's debt was ruled to be "at risk" and to have increased his partnership interest for tax purposes, in a recent memorandum issued by the Internal Revenue Service. The ruling forces the repeal of Tax Accounting Memo 8404012. Details of the letter of credit and loan arrangements are provided; in effect, these transactions served to make the partners liable for the partnership's debt to the extent of the face amounts of each partner's letter of credit, and such assumptions of debt are taxable as cash contributions to partnerships.

Tax reform, Credit, Loans

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