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Countryside’s post-distribution assets, and the failure of MP to
“step down” its basis in the AIG notes, all occurring in 2000, we
shall summarize the basis adjustments required or authorized
under the Code provisions governing liquidating distributions by
a partnership.
In pertinent part, section 754 provides that, if a
partnership files an election under regulations prescribed by the
Secretary, the basis of partnership property is adjusted, in the
case of a distribution of property, in the manner provided in
section 734. Under section 734(b)(1)(B), in the case of a
distribution in liquidation of a partner’s interest, a
partnership that has a section 754 election in effect shall
increase the adjusted basis of partnership property by the excess
of the adjusted basis of the distributed property to the
partnership immediately before the distribution over the basis of
the distributed property to the distributee, as determined under
section 732(b). Section 734(b)(1)(B) shall not apply, however,
if the distributed property is an interest in another partnership
with respect to which a section 754 election is not in effect.
Sec. 734(b) (last sentence).8
8 Respondent’s counsel acknowledges that CLPP had a sec.
754 election in effect at the time of Countryside’s distribution
of CLPP to Mr. Winn and Mr. Curtis on Dec. 26, 2000. In the
light of that election, participating partner takes the position
that the last sentence of sec. 734(b) does not apply to that
distribution and that, therefore, Countryside is entitled to the
reported basis step-up under sec. 734(b)(1)(B) and, as a result,
to reduced gain on the 2001 sale of the Manchester property.
Those issues of basis step-up and reduced gain are at issue for
taxable year 2001 in Countryside Ltd. Pship. v. Commissioner,
(continued...)
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