- 21 -
entity, in which separate interests are owned by each of the
partners. Subchapter K of the Internal Revenue Code (Partners and
Partnerships) blends both approaches. In certain areas, the
aggregate approach predominates. See sec. 701 (Partners, Not
Partnership, Subject to Tax), sec. 702 (Income and Credits of
Partner). In other areas, the entity approach predominates. See
sec. 742 (Basis of Transferee Partner’s Interest), sec. 743
(Optional Adjustment to Basis of Partnership Property). Outside of
subchapter K, whether the aggregate or the entity approach is to be
applied depends upon which approach more appropriately serves the
Code provision at issue. See Holiday Village Shopping Ctr. v.
United States, 773 F.2d 276, 279 (Fed. Cir. 1985); Casel v.
Commissioner, 79 T.C. 424, 433 (1982); Conf. Rept. 2543, 83d Cong.,
2d Sess. 59 (1954).
Respondent argues that the legislative intent underlying the
enactment of section 1363(d) requires the application of the
aggregate theory. Respondent asserts that Congress enacted section
1363(d) in order to ensure that the corporate level of taxation be
preserved on built-in gain assets (such as LIFO reserves) that fall
outside the ambit of section 1374. In this regard, respondent
contends that failure to apply the aggregate theory to section
1363(d) would allow the gain deferred under the LIFO method to
completely escape the corporate level of taxation upon a C
corporation’s election of S corporation status and would eviscerate
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NextLast modified: May 25, 2011