-112-
B. Claimed Application of Partnership Tax Rules
Petitioner’s position is that when the banks contributed the
high-basis, low-value properties (the receivables and SMHC stock)
to SMP in exchange for preferred interests, the transaction was a
nontaxable event under section 721; SMP received bases equal to
the banks’ bases in the contributed properties. When the banks
sold their preferred interests to Somerville S Trust, their
inside basis in the contributed parties went to Somerville S
Trust, as a transferee partner, pursuant to section 704(c).
Because SMP made no election under section 754, Somerville S
Trust’s inside basis in the contributed properties was not
adjusted. When SMP subsequently sold portions of the $974
million in receivables from Generale Bank, Somerville S Trust was
allocated the losses on those sales.
The Ackerman group created a nearly identical scenario when
SMP contributed the $79 million receivable to Corona in exchange
for a membership interest. Petitioner’s position is that SMP
received an outside basis in Corona equal to SMP’s basis in the
$79 million receivable. SMP then sold portions of its Corona
81(...continued)
provides that, in the case of a sale or exchange of a partnership
interest, the adjustment to partnership basis is mandatory if the
partnership has a “substantial built-in loss” immediately after
the sale or exchange. There is a substantial built-in loss if
the partnership’s basis in partnership property exceeds by more
than $250,000 the fair market value of such property. AJCA 2004
sec. 833(b)(3). Because of their effective date, these new rules
do not apply to the transactions at issue in the instant cases.
Page: Previous 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 NextLast modified: May 25, 2011