751a work together to govern the sale of PS interest whether the Partner is

751a work together to govern the sale of ps interest

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§751(a) work together to govern the sale of P/S interest, whether the Partner is selling a part or all of the interest. §741 - states that sale or exchange of the P/S interest is recognized as a sale or exchange of a capital asset . §751(a) - prevents Partners from converting ordinary income to capital when the amounts received are attributable to unrealized receivables and inventory items . Steps to the Modified Entity Approach:
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STEP 1 Determine Amount Realized by Selling Partner & Selling Partner’s AB in P/S Interest §752(d) & §1.752-1(h) uses the Crane case and includes in the amount realized under §1001(b) the selling Partner’s share of the P/S liabilities along with the cash and FMV of the property received by the seller. §705(a) - The AB of the seller is the outside basis and is adjusted to show the Partner’s pro- rata share of P/S income or loss from the beginning of the current year up until the time of the sale of the interest under §1.706-1(c)(2)(ii). §706(c)(2)(A) - If the Partner sells his entire interest in the P/S, then the P/S’s taxable year closes with respect to that Partner . STEP 2 Determine if any portion of gain is characterized as OI under §751 (G/L from § 751 property) §751(a) : Determine what portion of the Partners gain or loss is characterized as Ordinary Income under §751(a) as either “unrealized recievables” defined under §751(c) or “inventory items” defined under §751(d). §751(c) - Unrealized Receivables (1) goods delivered or to be delivered (2) Services rendered or to be rendered (3) recapture provisions (flush language), includes § 1245 gain May also include certain short-term debt obligations, to the extent that their disposition at FMV would trigger recapture of cost recovery and certain other prior deductions. Since the recapture portion would be OI, they are included in §751. §751(d) - Inventory Items Includes the non-capital assets listed in §1221(1) Any property, which upon sale by the P/S or selling Partner, that would not be considered a capital asset or a §1231 asset. Inventory property, stock and trade, property primarily held for sale to customers in ordinary course of trade / business) Receivables of accrual method TP fall into inventory category b/c it is “any p Note: an asset may fall under both unrealized receivables and inventory items; however, it will only be taxed once. STEP 3 - Computation of the Selling Partner’s gain or loss under §751(a) §1.751-1(a)(2) If part of the amount realized is attributable to §751 assets, then tax consequences of the sale must be bifurcated . Determine the amount of income or loss from §751 property by determining:
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