No minimum gain chargeback from partnership termination.

• Author: Baucum, Dan G.
• Position: Brief Article

In Rev. Rul. 93-90, the IRS found no minimum gain chargeback resulted if a partnership holding property subject to nonrecourse debt terminated through the sale of 50% or more of capital and profits interest.

For several years, two equal partners operated a partnership that had nonrecourse liabilities. Because of nonrecourse deductions taken, the partnership also had partnership minimum gain. One partner sold its interest to a third party. The partnership terminated under Sec. 708(b)(1)(B), which provides for termination if there is a sale or exchange of 50% or more of the total interest in partnership capital and profits within a 12-month period.

On the partnership's termination, one-half of the partnership property was deemed distributed t o each of the partners. Each partner was then deemed to contribute the property received by anew partnership.

Immediately before the deemed distribution, the book capital accounts of the new partners were adjusted to show how the partnership gain would be shared if the partnership property was sold for its fair market value (FMV) immediately before the partnership's termination. Through this revaluation, the partnership's minimum gain was reduced to zero. Ordinarily, this would trigger a minimum gain chargeback.

The ruling provided that under Regs. Sec. 1.704-2(f)(5) no minimum gain chargeback occurs if a partnership terminates under Sec. 708(b)(1)(B). The former...