Partnership Inside Basis Adjustments and Remedial Allocations
8 Pages Posted: 14 Mar 2001 Last revised: 12 Sep 2015
This article addresses the interaction between sections 197, 704(c), and 734(b) when an intangible is contributed to a partnership and a portion of the contributing partner's interest is subsequently redeemed for cash. Although the final regulations under section 197 provide guidance concerning the treatment of intangibles contributed to a partnership, they do not address the relationship between the section 704(c) remedial allocation method and section 734(b) adjustments. This article argues that a partial-liquidation approach would eliminate the apparent confusion concerning partnership inside basis adjustments and remedial allocations when the contributing partner receives a disproportionate distribution in exchange for a portion of her partnership interest. A partial-liquidation approach, Burke says, would trigger a proportionate reduction in future remedial allocations, while preserving the intended function of section 734(b) as a common basis adjustment. In implementing its authority to modify the remedial allocation method to reflect more clearly the partners' income, she concludes, the Treasury should give careful consideration to a partial-liquidation approach.
Keywords: partnership, basis adjustments, 704(c), intangibles, remedial
JEL Classification: K34
Suggested Citation: Suggested Citation