1977, May, Pg. 802. Tax Tips.

6 Colo.Law. 802

Colorado Lawyer

1977.

1977, May, Pg. 802.

Tax Tips

802Vol. 6, No. 5, Pg. 802Tax TipsSale and Purchase of Partnership Interests---Part Two

Editor's Note: Part one of this "Tax Tip" (printed in the April 1977 issue of The Colorado Lawyer) discussed the tax consequences to the seller of the sale of his partnership interest. Part two, presented here, will discuss the tax consequences to the purchaser, specifically his basis in the acquired partnership interest.Basis Consequences to PurchaserThe primary consequence to the purchaser is that of the computation of his adjusted basis in his partnership interest and the adjusted basis of the underlying partnership assets allocable to the purchaser partner immediately after the transaction. The basis of a partnership interest acquired other than by contribution is determined under the general "cost basis rules."(fn1) Thus, the purchasing partner has a basis in the recently acquired partnership interest equal to his cost.

The basis of the underlying partnership property is generally not adjusted as a result of the transfer of a partnership interest.(fn2) However, if the partnership has, in effect, the "optional adjustment to basis election," the basis of the underlying partnership interest may be adjusted.(fn3)

The election referred to applies with respect to all transfers of interests in the partnership during the taxable year and all subsequent taxable years.(fn4) The election applies to both sales and exchanges of partnership interests and to distributions.(fn5)

The election is made by a written statement filed with the partnership return for the taxable year during which the transfer occurs. The return must be timely filed and the statement must set forth the name and address of the partnership, be signed by any one of the partners and contain a declaration that the partnership elects this provision.(fn6) A revocation of the election may be made only with the approval of the District Director for the Internal Revenue District in which the partnership return is required to be filed. This revocation application must be filed not later than thirty days after the close of the partnership taxable year with respect to which the revocation is intended to apply and signed by one of the partners.(fn7) Examples of sufficient reason for approval of revocation to be granted include a change in the nature of the partnership, an increase in the assets of the partnership, a change in the character of the assets of the partnership, and numerous shifts in the changes of partnership interests which create an administrative burden.(fn8) No application will be approved when the purpose of the revocation is primarily to avoid the stepping down of the basis of the partnership assets upon a transfer.(fn9)

The effect of having the election in force allows the partnership to increase the adjusted basis of partnership property by the excess of the basis to the transferee partner of his interest in the partnership over his proportionate share of the adjusted basis of partnership...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT