Partner's basis.

• Author: Laffie, Lesli S.

The IRS has adopted final regulations (TD 9049) discussing special rules for determining the basis of a partner's interest under Sec. 705. The final rules address issues the IRS and Treasury considered during the development of final regulations (TD 8986) issued to prevent inappropriate increases or decreases in the adjusted basis of a corporate partner's interest in a partnership resulting from the partnership's disposition of the corporate partner's stock.

The rules, which are used to coordinate Secs. 705 and 1032, were effective on March 18, 2003, and generally apply to sales or exchanges of stock occurring after that date. However, Regs. Sec. 1.705-2(d), dealing with positions in stock, applies to sales or exchanges of stock occurring after March 28, 2002.

The proposed regulations were to apply when a corporation owned a direct or indirect interest in a partnership that owned stock in the corporation, the partnership distributed money or other property to another partner who recognized gain on the distribution during a year in which the partnership had no Sec. 754 election in effect and the partnership subsequently sold or exchanged the stock. According to the proposed regulations' preamble, it...