Partner's deemed distribution is advance accounted for at end of partnership year.

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

In a formalization of existing practice, the IRS stated in Rev. Rul. 94-4 that a deemed distribution of money resulting from a decrease in a share of partnership liabilities is treated as an advance and taken into account at the end of a partnership tax year.

Sec. 752(b) provides that a decrease in a partner's share of partnership liabilities is considered a distribution of money by the partnership to a partner. The partner recognizes gain under Sec. 731 (a)(1) if the distribution of money exceeds the adjusted basis of the partner's interest in its partnership before the distribution.

The ruling notes that Rev. Rul. 92-97 treated a deemed distribution of money to a partner under Sec. 752(b) resulting from a cancellation of debt as an advance or drawing against the partner's distributive share of cancellation of indebtedness income under Regs. Sec. 1.731-1(a)(1)(ii). Regs. Sec. 1.731-1(a)(1)(ii) states that, for purposes of Sec. 731, any advance or drawing of money or property against a distributive share is treated as a current...