Sybil transfers land (FMV = $200,000, basis = $120,000 to the Eve Partnership, in which she...

Sybil transfers land (FMV = $200,000, basis = $120,000 to the Eve Partnership, in which she is a 1/3 partner. Twenty months later the partnership distributes property (FMV = $150,000, basis = $50,000) to Sybil, and her basis in her partnership interest immediately before the distribution (and before the addition of any gain under Section 737) is $120,000 Which would this set of transactions be taxed under, Code Section 707 or 737? If, at the time of the contribution, it was relatively certain that the distribution would be made, what are the tax effects of these transactions? Assume that at the time of the contribution the distribution was not assured in any way. How would these transactions be taxed?

Expert Solution

Which would this set of transactions be taxed under, Code Section 707 or 737?

Section 707 appliess in case of disguised sales where distrubution is made within 2 years and subsequent transfer not dependent on “entrepreneurial risks of partnership operations".
Since it not mentioned that same land is transferred back, section 707 would not be applicable and section 737 will apply.
If at the time of the contribution, it was relatively certain that the distribution would be made, what are the tax effects of these transactions?
The Partner acquires basis of partnership when property distributed. Hence Sybils basis in the property distributed is 50,000. Her basis in Partnership is 120,000. Partner does not recognize gain unless money distributed exceeds partner’s adjusted basis immediately before distribution.as per IRC section 731
Assume that at the time of the contribution the distribution was not assured in any way. How would these transactions be taxed?
In this case also only basis will reduce and no tax effect

ekkarill92 answered 1 year ago

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