- 9 -
Corporation for the assumption of the Partnership’s liabilities,
the amount of which was treated as equaling the Partnership's tax
basis in the assets. The transaction was not structured as a
taxable distribution of partnership assets to the partners
followed by a contribution of the assets to the Corporation with
a stepped-up tax bases. Petitioners have given us no sufficient
justification for recasting the transaction.
Even if the value of the Partnership assets that were
transferred to the Corporation exceeded the liabilities of the
Partnership that were assumed by the Corporation, even if
Partnership “equity” was transferred to the Corporation, and even
if the Corporation owed additional amounts to the Partnership,
such excess value, equity, or amounts would not increase the tax
bases of the shareholders in the Corporation. As explained in
Frankel v. Commissioner, 61 T.C. 343, 348 (1973) (involving the
predecessor to section 1366)--
The existence of the partnership cannot be ignored
here even though the partners were simultaneously
shareholders in the subchapter S corporation. If the
partners had directly * * * [transferred funds] to the
subchapter S corporation or treated it as an addition
to capital, the result would be different.
The distinctions that exist between partnerships,
sole proprietorships, and corporations do so from a tax
viewpoint by design. To treat the partnership * * *
[transfer] as having been made directly by the partners
would be to deliberately obfuscate the distinction
where no such action is called for. [Citations
omitted.]
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011