THE LOGIC OF SUBCHAPTER K;

A CONCEPTUAL GUIDE TO THE TAXATION OF PARTNERSHIPS

Third Edition
By

Laura E. Cunningham
Professor of Law, Benjamin N. Cardozo School of Law

Noel B. Cunningham
Professor of Law, New York University School of Law

AMERICAN CASEBOOK SERIES 8

THOMSON WEST
Mat #40250280

Summary of Contents
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ACKNOWLEDGEMENT TABLE OF CASES TABLE OF CODE SECTIONS TABLE OF REVENUE RULINGS TABLE OF REGULATIONS

h...-..-:;

v xiii
xv

- xxiii
xxv

Chapter One. Choice of Entity: What Is a Partnership for Tax Purposes? Chapter Two. Partnership Formation: The Basics Chapter Three. Partnership Operations: The Basics Chapter Four. Financial Accounting and Maintenance of Capital Accounts Chapter Five. Partnership Allocations: Substantial Economic Effect Chapter Six. The Allocation of Nonrecourse Deductions Chapter Seven. Contributions of Property: Section 704(c) and Section 704(c) Principles . Chapter Eight. Partnership Liabilities Chapter Nine. Transactions (Other Than Sales) Between a Partnership and Its Partners Chapter Ten. The Sale of a Partnership Interest Chapter Eleven. DistributionsThe Basics Chapter Twelve. Optional Basis Adjustment 734(b) Chapter Thirteen. Disproportionate Distributions--Chapter Fourteen. Retirement and Death of a Partner Chapter Fifteen. Disguised Sales and Exchanges Chapter Sixteen. The Partnership Anti-Abuse Rules
INDEX

1 9 21 31 43 70 86 110 125 139 160 178 190 206 218 237

249

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Table of Contents
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ACKNOWLEDGEMENT TABLE OF CASES TABLE OF CODE SECTIONS TABLE OF REVENUE RULINGS TABLE OF REGULATIONS

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xiii
xv

- xxiii
xxv

CHAPTER ONE. CHOICE OF ENTITY: WHAT IS A PARTNERSHIP FOR TAX PURPOSES?

Introduction Definition of Partnership--Choice of Form of Doing Business Electing Partnership Treatment: The "Check the Box" Regulations The Competing Concepts: Aggregate Versus Entity
CHAPTER TWO. PARTNERSHIP FORMATION: THE BASICS

1 2 4 6 7

Introduction Basic Statutory SchemeCommon Issues on Formation Property vs. Services Contributions of Appreciated (or Depreciated) Property---Contribution of Depreciable Property. Characterization of Gains and Losses From the Disposition of Contributed Property An Interim Example -LiabilitiesIn General Contribution of Encumbered Property Contributions of Accounts Receivable and Payable Organization and Syndication Expenses
CHAPTER THREE. PARTNERSHIP OPERATIONS: THE BASICS

9 10 11 11 11 12 13 14 15 17 18 19

Introduction Partnership Taxable Years '. Method of Accounting The Computation of A Partnership's Taxable Income In General Separately Stated Items Partnership Elections Adjustments to the Partners' Outside Basis
ix

21 22 26 26 26 27 28 29

TABLE OF CONTENTS Page CHAPTER FOUR. FINANCIAL ACCOUNTING AND MAINTENANCE OF CAPITAL ACCOUNTS Introduction Essential Elements of Financial Accounting Basic Capital Accounting Rules Introduction to Tax Capital Accounts: Contributions and Revaluations --Contributions Revaluations'V.,

31 32 33 37 38 40

CHAPTER FIVE. PARTNERSHIP ALLOCATIONS: SUBSTANTIAL ECONOMIC EFFECT Background "Substantial Economic Effect" The Significance of Capital Accounts: The Orrisch Case---Codification of Substantial Economic Effect The 704(b) Regulations In GeneralStructure Substantial Economic Effect A LimitationFamily Partnerships . Conclusion

43 44 46 48 49 49 50 67 68

CHAPTER SIX. THE ALLOCATION OF NONRECOURSE DEDUCTIONS

Background Regulations Introduction " Definitions Illustrations Conclusion 70 74 74 75 79 84

CHAPTER SEVEN. CONTRIBUTIONS OF PROPERTY: SECTION 704(c) AND SECTION 704(c) PRINCIPLES Introduction 86 Contributions of Property 88 Nondepreciable Property. 88 Depreciable Property .95 Choice of Methods - 101 Anti-abuse Rules - -~ -103 Revaluations-105 CHAPTER EIGHT. PARTNERSHIP LIABILITIES Introduction A Preliminary Issue: What is a Liability? --The Regulations Governing 1.752-1 Liabilities Introduction Economic Risk of Loss -Sharing Recourse Liabilities IllustrationRecourse Liabilities Partners Providing Property as Security for Partnership Debt Sharing of Nonrecourse Liabilities 110 112 114 114 114 115 116 120 121

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CHAPTER NINE. TRANSACTIONS (OTHER THAN SALES) BETWEEN A PARTNERSHIP AND ITS PARTNERS
Sections 707(a) and 707(c) Disguised Capital Expenditures: 707(a)(2)(A) Receipt of Partnership Interest in Exchange for Services CHAPTER TEN. THE SALE OF A PARTNERSHIP INTEREST Overview s. The Seller 1 Statutory Scheme Section 751(a) Property Section 751(a) Computation Installment Sales of Partnership Interests The Buyer Related Matters 706(c) & (d) Closing a Partnership's Taxable Year Allocation of Income for the Year of Change---Illustration
CHAPTER ELEVEN. DISTRIBUTIONSTHE BASICS

125 130 133

139 140 140 141 143 146 147 157 157 157 159 160 161 161 161 162 163 163 165 166 169 175 176

Introduction Preliminary Issues Sections 706(c) & (d) Capital Accounting Rules Character and Holding Period of Distributed Property Basis of Partnership's Undistributed Property Recognition of Gain or Loss Basis of Distributed Property Current Distributions Liquidating Distributions Special Rule under 732(d) Partnership Termination
CHAPTER TWELVE. OPTIONAL BASIS ADJUSTMENT 734(b)

Introduction 1 Determination of the Amount of the AdjustmentSection 734(b) Allocating the Adjustment Among Partnership Assets: Section 755 Examples Final Thoughts :
CHAPTER THIRTEEN. DISPROPORTIONATE DISTRIBUTIONS

178 179 180 181 187

Introduction Section 751(b): The "Evil" and The "Cure" The "Evil" The "Cure" 751(b) Scope
xi

190 190 191 192 196

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Additional Examples Final Observation

196 - . . 205

CHAPTER FOURTEEN. RETIREMENT AND DEATH OF A PARTNER

RetirementsOverview Section 736(b)Deferred Liquidation PaymentsSection 736(a) Payments - The Relationship between 736 and 751(b) Death of a Partner <....._.._. CHAPTER FIFTEEN. DISGUISED SALES AND EXCHANGES Background Disguised Sales of Property The Regulations Under 707(a)(2)(B)Two-Year Presumptions Normal Distributions Examples Liabilities Sections 704(c)(l)(B) and 737 Section 704(c)(l)(B) -Section 737 Disguised Sales of Partnership Interests--CHAPTER SKTEEN. THE PARTNERSHIP ANTI-ABUSE RULES Background-The General Anti-Abuse Rule . Intent of Subchapter K Facts and Circumstances--Scope Examples Abuse of Entity Rule Is the Anti-abuse Regulation Valid? INDEX .' .

- 206 207 . 209 213 213

218 220 220 221 222 223 225 230 231 - 233 234

237 238 - 239 239 240 241 - 245 246

249

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