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obligation to close out its short sale transaction by returning the
Treasury bills that it borrowed from ABN and Goldman Sachs
represents a liability within the meaning of section 752.
Resolution of this issue is complicated by the lack of a definition
of “liabilities” within subchapter K or the underlying regulations.
Although the Commissioner has not adopted a definition of the term
“liabilities” within the controlling regulations, the Commissioner
has addressed the subject in earlier temporary regulations and
revenue rulings.
In Rev. Rul. 88-77, 1988-2 C.B. 128, the Commissioner revoked
Rev. Rul. 60-345, 1960-2 C.B. 211, and concluded that accrued but
unpaid partnership expenses and accounts payable (obligations that
arguably would satisfy the plain meaning of “liabilities”) are not
liabilities within the meaning of section 752 for purposes of
computing the adjusted basis of a partner’s interest in a
partnership using the cash method of accounting.9 In so
concluding, the Commissioner drew an analogy to the computation of
a shareholder’s basis under section 357(c)(3) when a shareholder
contributes property and liabilities to a controlled corporation in
9 In Rev. Rul. 60-345, 1960-2 C.B. 211, the Commissioner
concluded (with no analysis) that, in computing the adjusted
basis of a partner’s interest in a partnership using the cash
method of accounting, for purposes of determining the extent to
which the partner would be allowed a deduction for his
distributive share of the partnership’s loss for the year
pursuant to sec. 704(d), the term “liabilities” under sec. 752
includes the partnership’s obligation to pay outstanding trade
accounts, notes, and accrued expenses.
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