Reassessing the Administration's Proposals for Reform of Subchapter K
10 Pages Posted: 15 May 2000 Last revised: 12 Sep 2015
This article reexamines the Clinton administration's recent proposal to treat certain partnership distributions as a partial liquidation. It argues that the crucial defect inherent in the administration's proposal can be easily remedied by refining the definition of a partial liquidation. A refined partial liquidation rule coupled with mandatory basis adjustments offers a means of preventing shifting of built-in gain (or loss) while permitting simplified partnership accounting following a nonprorata distribution. By contrast, the administration's critics have advocated an expanded version of remedial special allocations. This alternative approach, if perceived as a serious solution to the underlying problem, would raise significant technical and policy concerns. The shortcomings of the administration's proposal should not furnish a pretext for blocking needed reform of Subchapter K.
Keywords: partnership, remedial allocations, partial liquidation, basis adjustments
JEL Classification: K34
Suggested Citation: Suggested Citation