The Story of Tufts: The 'Logic' of Taxing Nonrecourse Transactions
Benjamin N. Cardozo School of Law
Noel B. Cunningham
New York University Law School
BUSINESS TAX STORIES, Foundation Press, 2005
This chapter presents the story behind the Supreme Court's famous 1983 decision in Tufts v. Commissioner. Although typically taught as a part of the introductory Federal Income Tax course, Tufts plays a substantial role in the partnership tax curriculum. Tufts resolved a long-standing issue (left open by the Court's famous footnote 37 in Crane), regarding the proper tax treatment of a disposition of property subject to non-recourse liabilities in excess of basis. The decision also provided the foundation for the Treasury's regulations dictating the treatment of nonrecourse deductions by partnerships. While the Supreme Court's handling of the issue in Tufts seems appealingly logical and symmetrical, in fact the Court left a number of important questions unanswered, and actually created a major dichotomy in the treatment of property secured by recourse vs. nonrecourse indebtedness. This essay explores the background of the case, examines the court's decision in detail, and considers the issues and questions left unanswered by the Tufts court.
This paper will be published as a chapter in a book entitled Business Tax Stories, to be published by Foundation Press later this year (2005).
Date posted: May 9, 2005