Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 22

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          contributing partner’s adjusted basis in the property at the time           
          of the contribution.  Sec. 723.  Each partner’s proportionate               
          share of the partnership’s basis in its property is referred to             
          as “inside basis.”  Cf. Gindes v. United States, 228 Ct. Cl. 632,           
          661 F.2d 194, 197 n.9 (1981).                                               
               Under section 704(c)(1)(A), items of income, gain, loss, and           
          deduction with respect to property contributed to a partnership             
          by a partner are specially allocated among the partners so as to            
          take account of any variation between the partnership’s basis in            
          the contributed property and its fair market value at the time of           
          contribution (this variation is sometimes referred to as built-in           
          gain or loss).  See sec. 1.704-3, Income Tax Regs. (providing               
          special rules for allocating items between noncontributing and              
          contributing partners).  This rule is generally designed to                 
          prevent transfers of built-in gain or loss from the contributing            
          partner to the other partners.                                              
               If the contributing partner transfers his partnership                  
          interest, built-in gain or loss must be allocated to the                    
          transferee partner as it would have been allocated to the                   
          transferor partner.  Sec. 1.704-3(a)(7), Income Tax Regs.                   
          If the partnership has made a one-time election under section               
          754, adjustments are made with respect to the transferee                    
          partner’s inside basis, essentially so as to approximate the                
          result of a direct purchase of the property by the transferee               






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Last modified: May 25, 2011