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Respondent argues that because petitioners erroneously treated
$962,022 of personal debt as the Bitker partnership’s liabilities,
the adjustment that was made to remove the $962,022 of liabilities
from the partnership’s balance sheet should be treated as a
distribution under section 752(b). We disagree.
When a partnership assumes an individual partner’s
liabilities, the assumption of those liabilities results in a
deemed distribution to the partner of the amount assumed by the
partners. Sec. 752(b). Conversely, when a partner assumes the
partnership’s liabilities, the assumption of such liability results
in a deemed contribution by the partner to the partnership of the
amount assumed. Sec. 752(a). Additionally, any increase or
decrease in a partner’s share of partnership liabilities is deemed
either a cash contribution by the partner to the partnership or a
distribution to the partner by the partnership. Sec. 752(a) and
(b). The partner’s basis in his/her partnership interest is
increased by the amount of the deemed contribution or reduced by
the deemed distribution. Secs. 705, 722, 733; Barron v.
Commissioner, T.C. Memo. 1992-598; Moore v. Commissioner, T.C.
Memo. 1987-499.
Section 1.752-1(f), Income Tax Regs., provides:
(f) Netting of increases and decreases in liabilities
resulting from same transaction. If, as a result of a
single transaction, a partner incurs both an increase in
the partner’s share of the partnership liabilities (or
the partner’s individual liabilities) and a decrease in
the partner’s share of the partnership liabilities (or
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