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Section 743(b) applies to a transfer, by sale or exchange,
of an interest in a partnership that has a section 754 election
in effect, and section 761(e) provides that any distribution by a
partnership of an interest in a partnership shall be treated as
an exchange for purposes of section 743. Pursuant to section
743(b)(2) the distributed lower tier partnership must decrease
the adjusted basis of its partnership assets by the excess of the
transferee partner’s proportionate share of the adjusted basis of
the partnership property over the basis of the transferee
partner’s interest in the partnership.9
B. Regulations
1. The Subchapter K Antiabuse Regulations10
Section 1.701-2, Income Tax Regs., constitutes a two-part
antiabuse rule directed at partnerships. The two parts are
generally referred to as the “abuse-of-Subchapter-K” rule and the
“abuse-of-entity-treatment” rule. See 1 McKee et al., Federal
8(...continued)
docket No. 22023-05, which has been continued pending the outcome
of this case, although respondent raises the basis step-up issue
in this case as well.
9 The sec. 743(b)(2) basis step-down for CLPP’s assets
(primarily, its limited partnership interest in MP) is reflected
in CLPP’s 2000 Form 1065. Because MP did not make a sec. 754
election, it did not step down its basis for its assets
(primarily, the AIG notes). Therefore, MP did not report any
gain (almost all of which would have been taxable to Mr. Winn and
Mr. Curtis as the 99-percent limited partners in CLPP) on the
redemption of those notes in 2003.
10 Subch. K, ch. 1, subtit. A of the Internal Revenue Code
(subch. K), is entitled "Partners and Partnerships"; it sets
forth the rules for the income taxation of partners and
partnerships.
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Last modified: March 27, 2008