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Chapter 15 / Exercise CP15-5
Accounting
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Chapter 8 & 9 Questions 1. A disguised payment is Instead of direct payments for services or property, these transactions use allocations of income and related distributions to partners that have the economic effect of direct payments to the partners 2. Code Sec. 267 limits deductions that arise in transactions between related persons; defines related persons; and provides rules for constructive ownership of stock. 3. Disguised sales are when taxpayers are seeking complete nonrecognition of gain by turning a sale or exchange into a contribution of property followed or preceded by a related partnership distribution. 4. Adopting this mechanical test of time, the regulations provide that no simultaneous transfers between a partnership and a partner that are made within 2 years of each other are presumed to be a sale while transfers made more than 2 years are presumed not to be a sale. 5. Debt financed distributions is a broad term defined as the “seller”, looking to transfer an asset to “buyer”, first forms a partnership with the buyer and contributed the asset to the partnership. The partnership then incurs a loan roughly equivalent to the “purchase” price. The loan is structured with the goal of allocating the liabilities to the seller purpose of section 752. 6. There was two extremes when dealing with taxing the disposition of a partnership interest, an aggregate approach would have required a cumbersome asset by asset fragmentation of the sale, while a purse entity approach would have facilitate the conversation of ordinary income into capital gain, forcing the commissioner to retaliate with the usual array of vague doctrine designed to uncover and correct tax avoidance. Congress
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Accounting
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Chapter 15 / Exercise CP15-5
Accounting
Reeve/Warren
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