Treatment of accrued partnership property tax liabilities for basis under Sec. 752.

• Author: Carman, William T.
• Position: Brief Article

Accrued property taxes can affect partners' bases in their partnership interests and the determination of partnership minimum gain, depending on whether the resulting liability is recourse or nonrecourse under the governing statute of the taxing authority. As each jurisdiction specifies its own remedy for failure to meet the property tax obligation, the characterization of these liabilities must be determined under the applicable taxing statute to decide their recourse/nonrecourse nature (and consequently which partners are to be allocated a share of the liability).

In some jurisdictions, the local taxing authorities may have a direct claim against the property as well as a partner's personal assets for any unpaid taxes. This type of accrued liability is considered to be recourse. Partners subject to such direct claims bear the economic risk of loss for the accrued taxes and, therefore, may be required to contribute money to the partnership or make a direct payment to satisfy the tax obligation. These recourse liabilities should be allocated to those partners who...