Abstract

http://ssrn.com/abstract=925991
 


 



Super-Recognition and the Return-to-Sender Exception: The Federal Income Tax Problems of Liquidating the Family Limited Partnership


Samuel A. Donaldson


Georgia State University College of Law


Capital University Law Review, Vol. 35, p. 1, 2006

Abstract:     
This article discusses three income tax rules that can cause partners to recognize gain for federal income tax purposes upon the liquidation of a family limited partnership: §§ 704(c)(1)(B), 731(c), and 737. From a policy perspective, the application of these rules to traditional family limited partnerships creates two problems. These problems are illustrated through the use of a hypothetical case study.

The first problem (which arises where the partnership holds loss property) is that of super-recognition, where a partner recognizes more gain from the liquidation than he or she would recognize upon a sale of his or her partnership interest. The article argues that while super-recognition is appropriate in the context of a traditional partnership, it is not appropriate in the context of the typical family limited partnership formed for estate planning purposes.

The second problem relates to the return-to-sender exception, which permits a partnership to distribute property back to the contributing partner without forcing the contributing partner to recognize gain under these rules. Regulations expressly extend the return-to-sender exception to a contributing partner's assignee for purposes of §704(c)(1)(B), but the regulations are ominously quiet as to whether assignees of a contributing partner are spared from the other two rules. The article argues that the return-to-sender exception should be extended to the assignees of a contributing partner for all purposes.

Number of Pages in PDF File: 35

Keywords: family limited partnership, liquidation, tax policy, distributions, partnership, estate planning

JEL Classification: H25, H24

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Date posted: August 23, 2006  

Suggested Citation

Donaldson, Samuel A., Super-Recognition and the Return-to-Sender Exception: The Federal Income Tax Problems of Liquidating the Family Limited Partnership. Capital University Law Review, Vol. 35, p. 1, 2006. Available at SSRN: http://ssrn.com/abstract=925991

Contact Information

Samuel A. Donaldson (Contact Author)
Georgia State University College of Law ( email )
P.O. Box 4037
Atlanta, GA 30302-4037
United States

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