Collapsible Real Estate Partnership Proposal
6 Pages Posted: 9 Dec 2009
Date Written: August 11, 2008
Prof. Burke proposes extending the look-through rules of section 1(h)(9) to partnership distributions as well as sales of partnership interests to prevent conversion of unrecaptured section 1250 gain and potentially indefinite deferral. The proposal addresses flaws in the distribution rules as illustrated by Countryside Limited Partnership v. United States allowing tax-free treatment of a distribution of recently-acquired nonmarketable securities to a redeemed partner, coupled with shifting of basis from the securities to depreciated real property held by the partnership. Corresponding changes would be necessary to the regulations under sections 751 and 755 when a disproportionate distribution reduces the distributee’s share of unrecaptured section 1250 gain in retained partnership property. The proposal flows from Prof. Burke’s earlier commentary on Countryside (Tax Notes, Mar. 31, 2008, p. 1393).
The proposal is made as a part of the Shelf Project, which is a collaboration among tax professionals to develop and perfect proposals to help Congress when it is ready to raise revenue. Shelf Project proposals are intended to raise revenue without raising rates because the best systems have the lowest feasible tax rates and taxes that are unavoidable. Shelf projects defend the tax base and improve the rationality and efficiency of the tax system. Given the current calls for tax stimulus, some shelf projects may stay on the shelf for a while. A longer description of the Shelf Project is found at “The Shelf Project: Revenue-Raising Proposals that Defend the Tax Base,” Tax Notes, vol. 117, p. 1077 (Dec. 10, 2007). Shelf Project proposals follow the format of a congressional tax committee report in explaining current law, what is wrong with it, and how to fix it.
Copyright 2008 Karen C. Burke.
Keywords: tax reform,real estate partnerships
JEL Classification: H20
Suggested Citation: Suggested Citation