Federal Tax

Partnerships — Allocation of Liabilities; Basis Rules (Portfolio 714)

  • This Portfolio analyzes tax considerations regarding a partner’s adjusted basis in the partner’s partnership interest, distributed property, and partnership property.

Description

Bloomberg Tax Portfolio, No. 714, Partnerships — Allocation of Liabilities; Basis Rules, analyzes the tax considerations relating to the determination of a partner’s adjusted basis in his partnership interest, a partner’s adjusted basis in distributed property and a partnership’s adjusted basis in partnership property. These basis determinations are essential to the computation of the amount and timing of each partner’s taxable income or loss.

Under the general rule of §722, a partner’s initial basis in his partnership interest is equal to the amount of money contributed plus the adjusted basis of any contributed property in the hands of the contributing partner, increased by the amount of gain, if any, recognized by the contributing partner under §721(b). If the contributed property is subject to an encumbrance, §752 provides rules governing the effect of such encumbrances on the partner’s adjusted basis. The rules in §752 and the regulations thereunder, governing allocation of partnership liabilities and other obligations, are discussed in detail in this portfolio.

Under §742, the determination of the basis of a partnership interest acquired other than by contribution is generally governed by the general basis rules set forth in §§1011, et seq.
Under §723, the partnership’s initial basis in property contributed to it is equal to the adjusted basis of the property in the hands of the contributing partner, increased by the amount of gain, if any, recognized by the contributing partner under §721(b).

When property is distributed to a partner, basis adjustments can occur at both the partnership level, with respect to the remaining assets, and at the partner level, with respect to both the distributed property and any remaining partnership interest. The partner’s basis in the distributed property depends on several factors, principally whether the distribution is in liquidation of the partner’s entire partnership interest.

Table of Contents

I. Introduction
II. Determination of Partner’s Initial Basis in Partnership Interest
III. Inclusion of Partnership Liabilities in Partner’s Basis: Section 752
IV. Adjustments to Partner’s Initial Basis
V. Partner’s Basis in Distributed Property Other Than Money: § 732
VI. Determination of Partnership’s Initial Basis in Its Assets
VII. Special Basis Adjustment Applicable to Transfer of Partnership Interest – Section 743(b)
VIII. Special Basis Adjustment Applicable to Distributions of Partnership Property – § 734(b)
IX. Election to Make Adjustment-§ 754

Lisa_Starczewski
Lisa Starczewski
Shareholder
Buchanan Ingersoll & Rooney PC
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