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Section 705(b) grants the Secretary the authority to prescribe
regulations under which the adjusted basis of a partner’s interest
in a partnership may be determined by reference to the partner’s
proportionate share of the adjusted basis of partnership property
upon a termination of the partnership. The regulations promulgated
to implement this section (found in section 1.705-1(b), Income Tax
Regs.) provide that an alternative method (the alternative rule)
may be used in circumstances where (a) a partner cannot practicably
apply the general rule set forth in section 705(a) and section
1.705-1(a), Income Tax Regs., or (b) from a consideration of all
the facts, the Commissioner reasonably concludes that the result
will not vary substantially from the result obtainable under the
general rule. Sec. 1.705-1(b), Income Tax Regs. Where the
alternative rule is used, certain adjustments may be necessary to
reflect discrepancies arising as a result of contributed property,
transfers of partnership interests, or distributions of property to
the partners. Id. Petitioners maintain that their bases should be
determined under the alternative rule.
Respondent asserts that petitioner wives’ bases in their
partnership interests can be determined under the general rule of
section 705(a) from their Schedules K-1 for 1991-97. On the other
hand, petitioners maintain that petitioner wives’ bases should be
determined under the alternative rule. Respondent posits that,
since petitioner wives neither paid their husbands for the
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