Repairing Inside Basis Adjustments

29 Pages Posted: 30 Dec 2005 Last revised: 12 Sep 2015

See all articles by Karen C. Burke

Karen C. Burke

University of Florida Levin College of Law

Date Written: 2005

Abstract

Optional basis adjustments under Subchapter K have come under increased scrutiny as a result of tax shelter abuses involving partnerships. Recent legislation requires mandatory adjustments under sections 734(b) and 743(b) upon certain distributions of partnership property and transfers of partnership interests. These amendments were targeted at situations in which the failure to make such adjustments potentially gave rise to duplication of losses. While preventing loss duplication may be particularly urgent, these anti-tax-shelter measures represent a retreat from broader proposals calling for mandatory section 734(b) adjustments for both current and liquidating distributions.

In a recent article, Professor Abrams criticizes the common basis approach of section 734(b) for failing to allocate adjustments properly when partnership property is revalued following a non-pro rata current distribution of appreciated property. This article reviews and critiques Abrams' proposed repairs to section 734(b). It suggests an alternative approach that would treat a non-pro rata current distribution of appreciated property as a deemed sale and extend section 704(c) principles to allocate the section 734(b) adjustment in a manner that aligns the continuing partners' post-distribution shares of inside basis, gain, and value.

Keywords: partnership, basis adjustments, 734, 743, tax shelter, loss duplication, inside basis, partial liquidation

JEL Classification: K34

Suggested Citation

Burke, Karen C., Repairing Inside Basis Adjustments (2005). Tax Lawyer, Vol. 58, No. 3, Spring 2005, San Diego Legal Studies Paper No. 08-048, Available at SSRN: https://ssrn.com/abstract=872566

Karen C. Burke (Contact Author)

University of Florida Levin College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States

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