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Chapter 9 - Solutions.pdf - Chapter 9 SALES AND EXCHANGES...

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Significant Changes from the Ninth Edition:1.In the Ninth Edition, this was Chapter 6.2.There are no significant changes from the Ninth Edition.Chapter 9SALES AND EXCHANGES OFPARTNERSHIP INTERESTSPage 291:In aLedouxtype situation, if the contract to render services can becancelled by the recipient of the services, there is no "right" topayment under § 751(c) and the value of the contract is not a § 751(c)item. Cf. Phillips v. Commissioner, 40 T.C. 157 (1963). Querywhether it is an inventory item within § 751(d)(2)? The answerdepends on whether it would give rise to ordinary income when sold.Cf. Deal v. Commissioner, 32 T.C.M. 216 (1973), which wouldcharacterize the gain on such a sale as ordinary income.Page 299:PROBLEMS1(a).This problem illustrates the operation of §§ 741 and 751. A wouldfirst determine his total gain, which would be $60,000 ($135,000amount realized less $75,000 adjusted basis). Since the sale occurredon January 1, there would be no income in the year of sale and noadjustment to A's outside basis under § 705(a).A then would compute his § 751 gain. In a hypothetical sale of all ofthe partnership's property, A would be allocated $20,000 of incomefrom the § 751 property (the inventory and the accounts receivable).Thus, $20,000 of A's gain would be ordinary and the remaining$40,000 of gain would be LTCG under § 741. One benefit of thehypothetical sale approach in the regulations is that it coordinates§ 751 with the contributed property rules in § 704(c). Thus, theregulations make it clear that residual allocations are taken intoaccount for purposes of § 751. When there is no § 704(c) contributedproperty, as in these problems, the analysis is straightforward.It might be noted here that the result would be the same if all thepartnership's capital assets were held short-term. In determiningwhether A's § 741 gain or loss is long or short-term, one looks at A'sholding period for his partnership interest (here long-term) and notto the partnership's holding period for its assets. To the extent it111
CB 300CHAPTER NINEapplies, § 741 adopts an entity theory and looks to the partner'sholding period in characterizing his § 741 gain or loss. See sectionA3a of the chapter.1(b).This problem illustrates the fact that even though a selling partnerhas an overall loss on the sale of his interest, he can still have a § 751gain. It again illustrates the separate § 751 and residual § 741computations.A's total amount realized is $135,000 and his total adjusted basis is$150,000 so he has an overall $15,000 loss. His § 751 computation isthe same as in 1(a), above, resulting in $20,000 of § 751(a) ordinaryincome. The difference between his total $15,000 of loss and $20,000of § 751(a) ordinary income results in $35,000 of LTCL under § 741.1(c).The results are the same as in Problem 1(a), above. This problemillustrates § 752(d), which appropriately incorporatesCraneprinciples into the § 751 and § 741 computations. A's total amountrealized is again $135,000 – $105,000 of cash plus $30,000 of debtrelief.His outside basis is $75,000.(Cf. §§ 752(a) and 7701(g)). SoA's total gain is again $60,000.A's § 751 computation produces thesame $20,000 of ordinary income and his residual § 741 LTCG is

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Term
Fall
Professor
Keith
Tags
Balance Sheet, partner

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