In both the tax loss or tax gain, it includes any remedial allocations under §1.704-3(d). §704(c) issues: If a Partner contributes property that is appreciated or depreciated in value, then the built-in gain or loss is allocated to the transferee or buying Partner as it would have been allocated to the transferor or selling Partner. This is incorporated in the calculation of the transferee Partner’s share of the AB to the P/S of its property. Allocation of the Adjustment under §755 : Once the §743(b) adjustment has been determined, that amount must be allocated among the P/S assets according to §755. §1.755-1(a)(1) – First , determine the value of P/S property under (a)(2) – (a)(5) §1.755-1(a)(1) – Second , allocate the total §743 basis adjustment between the 2 classes of property 1 st Class = capital assets and §1231(b) property ( capital gain property ) 2 nd Class = any other property ( ordinary income property ) §1.755-1(a)(1) – Third , the §743(b) basis adjustment allocated to each class is then allocated within that class. Allocations : §1.755-1(b)(2) – Allocations between Classes – The class of ordinary income allocation is Based on the allocations of income, gain or loss that the transferee Partner would receive from the sale of all ordinary income property if Immediately after the transfer the P/S’s assets were disposed of in a fully taxable transaction for FMV ( hypothetical transaction under §1.755-1(b)(1)(ii)). An increase can be made to one class or one property w/i the class while a decrease is made to the other class or one property w/i the class. §1.755-1(b)(2) - Basis is allocated to OI class first, then to capital gain property class . (i)(B) - If there is a decrease in capital gain property, it cannot produce a negative basis inany asset.
(1) - The §743(b) adjustments are personal to the buying Partner. It does NOT result in an adjustment to the common basis of the P/S property and it has NO effect on the P/S’s computation of §703 items. (2) - The P/S first computes all P/S items at the P/S level under §703. Then each Partner , (including the transferee or buyer Partner) is allocated those items under §704 (Partner’s distributive share) and adjusts the Partner’s capital accounts accordingly; The P/S then adjusts the transferee or buyer Partner’s distributive share of P/S income,
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- Spring '14
- Taxation in the United States, partner , Tax Attack Outline