Limitation see 199d1a and the service is given broad

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limitation (see § 199(d)(1)(A)) and the Service is given broadauthority to prescribe rules for application of § 199.Page 78:The Service has addressed the question of adjustments to outsidebasis under § 705 for partnership income that is not taxed ordeductions that are permanently denied. In Rev. Rul. 96-10, 1996-1C.B. 138, Partnership A sold property at a loss to Partnership B. Partnerships A and B were related for purposes of § 707(b)(1)(B), soPartnership A's loss was disallowed. Partnership B subsequentlysold the property at a gain and could take advantage of § 267(d) toavoid recognition of the gain to the extent of Partnership A'sdisallowed loss. The ruling holds that (1) a loss disallowed under30
OPERATIONS OF A PARTNERSHIPCB 78-80§ 707(b)(1) decreases the outside bases of each partner's interest (butnot below zero) under § 705(a)(2) by the partner's share of that loss,and (2) gain not recognized under §§ 707(b)(1) and 267(d) increasesthe outside bases of each partner's interest under § 705(a)(1) by thepartner's share of that gain. Rev. Rul. 96-11, 1996-1 C.B. 140, holds that if a partnership makesa charitable contribution of noncash property, each partner's outsidebasis is decreased (but not below zero), only by the partner's share ofthe partnerships inside basis in the contributed property (rather thanits fair market value). This result preserves the deduction for theproperty's fair market value without a tax being owed on theappreciation in the property. Rev. Rul. 99-57, holds that a corporate partner, in a partnership thatholds stock in the corporate partner, gets to use § 1032 to avoidrecognition of its share of gain on any taxable disposition by thepartnership of its stock. Rev. Rul. 99-57 also holds that the corporatepartner increases its outside basis for its share of the gain resultingfrom the disposition. Reg. § 1.705-2 limits Rev. Rul. 99-57 insituations where a corporation acquires an interest in a partnershipthat holds its stock (or acquires such stock in an exchanged basistransaction), the partnership does not have a § 754 election in effect,and the partnership later sells or exchanges the stock. See also Reg.§ 1.1032-3 which provides rules for certain transactions in which acorporation or a partnership (the acquiring entity) acquires money orother property in exchange, in whole or part, for stock of acorporation (the issuing corporation). Page 80:PROBLEM(a).The AB Partnership must file a Form 1065 on or before October 15 §§ 6031, 6072(b); Reg. § 1.6031(a)-1(e)(2)). (It should be assumedthat the partnership has a business purpose for its fiscal year toavoid a distracting excursion into §§ 444 and 7519). Long-term usersof the text should note that previously the deadline was November15. Beginning for 2016 tax years, partnerships are required to fileForm 1065 on or before the 15day of third month following the closethof the taxable year (§ 6072(b)). AB computes its taxable income by separately stating:(1) Interest expense on margin account - ($6,000)§ 702(a)(7)This item is separately stated because of a possible limitationat the partner level under § 163(d) if combined with the31
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