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Collapsible Real Estate Partnership Proposal

by taxnick on August 10, 2008

Professor Burke proposes extending the look-through rules of under § 1(h)(9) to partnership distributions as well as sales of partnership interests to prevent conversion of unrecaptured § 1250 gain and potentially indefinite deferral.

The proposal addresses flaws in the distribution rules as illustrated by Countryside Limited Partnership v. United States allowing tax-free treatment of a distribution of recently-acquired nonmarketable securities to a redeemed partner, coupled with shifting of basis from the securities to depreciated real property held by the partnership. Corresponding changes would be necessary to the regulations under §§ 751 and 755 when a disproportionate distribution reduces the distributee’s share of unrecaptured § 1250 gain in retained partnership property. The proposal flows from Professor Burke’s earlier commentary on Countryside.

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