Abstract
The rise of new forms of limited liability business entities, coupled with changes in the federal tax rules for classifying such entities, has precipitated an influx of businesses that are treated as partnerships for federal tax purposes. Some commentators welcome what they perceive as a process of de facto integration that promises eventually to make an elective regime of pass-through taxation available for all nonpublicly-traded businesses. To the extent that the partnership model, as currently embodied in Subchapter K, represents a coherent and well-functioning body of law, such a sanguine view may be justified. However, as the preliminary work of the American Law Institute (ALI) project on pass-through entities suggests, the intricate provisions of Subchapter K may be "dysfunctional" in important respects.
Part II of this article examines the rationale for section 751 (b) within the general nonrecognition scheme of the 1954 partnership model and discusses proposals for its modification or repeal. Part III considers whether the nonrecognition policy of section 731 should be replaced, as some writers have suggested, with entity-level taxation or a deemed-sale approach. Part IV explores an alternative approach based on mandatory basis adjustments to prevent partners from manipulating partnership distributions to shift unrealized appreciation. Finally, Part V suggests that section 751(b)-type treatment be extended to all non-pro rata distributions of partnership assets through mandatory revaluations and special allocations. The Article concludes that improvement of the existing nonrecognition regime, rather than a radical shift toward entity-level taxation, is both practicable and desirable.
Recommended Citation
Karen C. Burke,
Partnership Distributions: Options for Reform,
3 Fla. Tax Rev.
(1998).
Available at: https://scholarship.law.ufl.edu/ftr/vol3/iss1/14