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Under section 708(b)(1),9 the transfer of more than 50
percent of Holdings 1 from Kligfeld to Corporation within a
single 12-month period arguably triggered a statutory
termination, and the creation of a new partnership also named
Kligfeld Holdings (Holdings 2). This new partnership kept the
same taxpayer identification number, but Kligfeld now owned only
one percent of the partnership, and Corporation owned the
remaining 99 percent.
To understand why this termination of Holdings 1 and
creation of Holdings 2 matters, one must first understand the
partnership-tax concepts of “inside basis” and “outside basis”.
Inside basis is a partnership’s basis in the property which it
owns. For contributed property, the inside basis is initially
equal to the contributing partner’s adjusted basis in the
property. Sec. 723. Outside basis is an individual partner’s
basis in his interest in the partnership itself. When a partner
contributes both cash and property to a partnership, his outside
9 SEC. 708(b). Termination.--
(1) General Rule.--For purposes of
subsection (a), a partnership shall be
considered as terminated only if--
* * * * * * *
(B) within a 12-month period there
is a sale or exchange of 50 percent or
more of the total interest in partnership
capital and profits.
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Last modified: November 10, 2007