Abstract
The article examines issues raised by the contribution of built-in gain and loss property at the formation of a partnership, largely through examples. The examples demonstrate that analysis of properly maintained capital accounts can be relied upon to determine the correct allocation of partnership tax items. Part II of the article discusses basic principles of partnership taxation that provide for the formation of partnerships and allocation of partnership book and tax items. A thorough understanding of these fundamental principles is a prerequisite to discussing the problems of built-in gain and loss property. Part III considers the problems raised by contributions of built-in gain property. The analysis demonstrates that recent proposed Treasury regulations regarding contributed built-in gain or loss property and partnership mergers in some circumstances create mischief by failing to fully address deferred recognition. Part IV looks at the complexity that is added by the existence of debt in the partnership. Part V addresses special problems created by built-in loss property, including the issues raised by section 704(c)(1)(C) enacted in 2004. The analysis in this part demonstrates the need for analyzing partnership capital accounts in order to apply the basis limitation of section 704(c)(1)(C)(ii) in the context of its statutory purpose and suggests an interpretation of section 704(c)(1)(C)(ii) in conjunction with optional basis adjustments that produces proper allocations of loss. Part VI considers partnership allocations that occur on the admission of a new partner to a partnership with built-in gain and built-in loss property.
Recommended Citation
Daniel L. Simmons,
Built-in Gain and Built-in Loss Property on Formation of a Partnership: An Exploration of the Grand Elegance of Partnership Capital Accounts,
9 Fla. Tax Rev.
(2010).
Available at: https://scholarship.law.ufl.edu/ftr/vol9/iss1/9