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company. After a proposed sale of the oil and gas property to
another unrelated entity, Seneca Resources, fell through, the
petitioning partners decided to restructure the ownership of BEP.
To effect this new structure, on April 1, 1998, the petitioning
partners sold their partnership interests in BEP to Bakersfield
Resources, LLC (BRLLC), an entity that had been formed by the
petitioning partners.
The petitioning partners recognized the gain from the sale
of their BEP partnership interests under the installment method.
For all tax years beginning in 1998, the petitioning partners
have reported the gain from this sale under the installment
method.
The sale of the petitioning partners’ BEP partnership
interests caused a termination of BEP’s tax year pursuant to
section 708. BEP made an election under section 754 to adjust
the basis of the partnership assets (the inside basis) to equal
BRLLC’s basis on its newly acquired BEP partnership interest (the
outside basis) pursuant to section 743(b). The section 754
election and the transaction resulting in the section 743(b)
basis adjustments were disclosed in statements attached to BEP’s
partnership return for the short-year period from April 1 through
December 31, 1998 (the 9812 Form 1065).
On the 9812 Form 1065, U.S. Partnership Return of Income,
BEP reported total income as follows:
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